His patience with Jim Manzi exhausted, Louis Gerstner yesterday said he will today launch a stunning $60 a share hostile cash tender offer for Lotus Development Corp, valuing the company at a stratospheric $3,300m – for a company whose annual sales are currently running at $927m. The $60 a share compares with Friday’s close of $32.50, and underlines how desperate IBM is to get hold of Notes and a series of convincing desktop applications for OS/2 – in the whole history of the personal computer industry, IBM has never had a successful long-lived application, and while the keenest interest is in Notes, it will also get a suite that includes the 1-2-3 spreadsheet and WordPro word processor, plus a database, although IBM may well want to replace that with its open version of DB2. IBM is to dig into its $10,000m reserves to pay for the acquisition. IBM says its goal in making the acquisition is to accelerate the creation of a truly open, scalable collaborative computing environment so people can work and communicate across enterprises and across corporate and national borders. Because the bid is hostile, IBM will have to go to court to try to get Lotus’s poison pill anti-takevover defence mechanism voided. Once again making IBM’s figures difficult to analyse, the deal will result in an enormous (IBM calls it significant) charge against profits this year to write down purchased research and development: the charge could come close to putting the company back into loss for the year. IBM also published its letter to Lotus chairman Jim Manzi, in which Gerstner reminded Manzi that IBM had been expressing its interest in pursuing a business combination with Lotus for some time and noting that Manzi had been unwilling to proceed with such a transaction. Gerstner says IBM wants to keep Lotus intact and managed out of its current headquarters in Cambridge and to make it primarily responsible for key complementary IBM software products. It seems highly unlikely that a white knight will come in with a higher offer: Oracle Corp is believed to have been pressing Lotus to agree to being acquired but walked away because Lotus was putting to high a valuation on itself. Lotus responded to the bid by say it was particularly surprising in light of discussions and negotiations that have been going on between the companies for several months on contracts and joint development. It says it will study the matter with its legal and financial advisors, Lazard Freres and Wachtell, Lipton, and others, adding that it will take any and all ap propriate action to preserve and promote the vital best interests of this company.
