On the Sunday after Christmas, Robert Gable, president and chief executive of Computervision Corp had his festive celebrations rudely disturbed when he received the following letter from Prime Computer’s president Joe Henson. The text of the letter was released by Prime the following day, and we reprint it because it succinctly sets out the arguments for the combination, and to give subscribers the flavour of what it feels like to be the recipient of an unsolicited takeover bid when one is least expecting it.
Dear Bob: As you know from our several conversations commencing in 1985, we have long regarded the concept of a business combination between Computervision and Prime as one which offers substantial benefits and opportunities for the stockholders, employees, and customers of each company. We have continued to analyse and evaluate the idea of a merger and concluded the size and resources of the combined enterprise would assure it a position of competitive strength in the industry. With all due respect to your previously expressed desire to remain independent, we are convinced that the case for the business combination of Computervision with Prime is so compelling that we must pursue it. Accordingly, I am writing to advise you that Prime’s Board of Directors has unanimously and enthusiastically authorised the management to commence tomorrow a cash tender offer for all outstanding shares of Computervision at $13.50 per share. This represents 26 times trailing 12 month earnings and 2 times tangible book value (based on your latest quarterly report). We believe this offer represents a full and fair value for all Computervision’s stockholders. It is our intention that the offer be followed by a merger in which any remaining stockholders will also receive the same price per share in cash. The combination of our two companies makes excellent strategic sense. Together, Prime and Computervision would be the second largest worldwide supplier of CAD/CAM solutions with a concentrated focus on becoming one of the world’s leading computer integrated manufacturing solution supplier. While our expanded commitment to the manufacturing industry is highly visible, the merger of our two companies would expand markets for both companies’ current products. Both the minicomputer marketplace, which is Prime’s major focus, and the CAD/CAM marketplace, which is where Computervision’s efforts have been concentrated, are beginning to mature and have become increasingly competitive. If combined today, the resulting company would have $1,500m in annual revenues and over $100m in operating income. Approximately half of the company’s revenue would come from the sale of CAD/CAM products and CIM solutions within the manufacturing industry, and the remaining half of revenues would be derived by selling all of the company’s combined products into the commercial and technical markets. Natick-based Prime has about 8,600 employees worldwide and reported a profit of $43.5m on sales of $693.9m in the first nine months of 1987. Computervision posted a nine-month profit of $11.4m on sales of $408.6m after one-time gains of $7.5m including proceeds from the sale of a minority interest in its Japanese subsidiary. Henson told Associated Press that Prime had no plans to reduce Computer vision’s work force of about 4,000, but that any redundancies might well be achieved by normal attrition. No decision has been made on a name. The resulting company would be the 242nd largest in Fortune’s industrial ranking. The combined company would have annual R&D spending in excess of $150m. More than 50% of the company’s revenue would come from the sale of products and services outside of North America through large operations in Western Europe, Asia, and Australia. The new company would have a large number of leadership application solutions that are offered on a range of hardware platforms from personal computers and workstations to high performance super-minicomputers and mini-supercomputers with strength in networking and support of industry standards. The new combined
company would offer customers an expanded array of products that reflect the historic strengths of each company. Most importantly, however, current Prime and Computervision customers can be assured that their investments will be fully protected – no efforts will be made to force customers to migrate from existing systems. We believe that the advantages of the combined company include: — The outlook for the combined company’s performance is superior to what either might achieve independently. Through accelerated revenue growth, improved business economics, and greater financial resources, the resulting company would be a strong and viable player in an increasingly competitive business. — The combined company’s strength in CAD/CAM and focus on delivering computer integrated manufacturing solutions would enable manufacturing enterprises to be more competitive by addressing their critical need for faster product design, with improved quality and at lower cost. — Taking advantage of the complementary aspects of the individual company’s products, customer bases, and distribution capabilities would enable the combined company to be more of a primary supplier to the world’s largest business organisations. Computervision’s employees will be entitled to benefits comparable to their current benefits and should enjoy greater career opportunities as they become part of a stronger, faster growing, more profitable new company, with the enhanced ability to be a leader in the American high technology industry. Since we believe that our fully financed, all cash offer is highly favourable to your stockholders, we request and expect your board to act to redeem or otherwise render inapplicable the rights issued under your Stockholder Rights Plan and take any other steps which may be required so your stockholders may consider our offer. We also ask you to confirm to us immediately that you have not elected to become subject to the Massachusetts Control Share Acquisition Act. We are prepared to meet with you and your advisors at any time to discuss our offer and how best to integrate the operations of the two companies. We truly believe that Computervision’s employees, customers, and stockholders will benefit from our proposal – and thus deserve the opportunity of our proceeding together in a constructive and professional manner. Yours truly, Joe M. Henson President and Chief Executive