March - 2000 - issue > Cover

The $4 billion stock-for-stock acquisition of Sterling Software, Inc. by Computer Associates International, Inc. (CA) is being called the biggest in the history of the software industry. The deal comes within a year of what was also billed as the world’s largest software acquisition – CA’s deal with Platinum Technology last March for $3.5 billion. The current merger is expected to further enlarge CA’s broad selection of products and solutions also help in accelerating the delivery, a market CA has eyed since its aborted takeover attempt on Computer Sciences Corporation.
“We look forward to providing an even broader range of eBusiness solutions to clients,” said Charles B. Wang, CA chairman and CEO.

Echoing Wang’s statement, Sterling L. Williams, president and chief executive officer of Sterling Software, said the combined company would be able to offer the best products and services for clients of both companies.

The Company - Computer Associates

CA, of Islandia, New York, was founded in 1976 with three employees, Charles Wang, Judy Cedeno, and Russ Artzt. The initial strategy was to provide IBM hardware customers with performance-enhancing software. Over the years, after 500,000 shares of CA stock were sold in an initial public offering in 1981, CA acquired UCCEL (and along with the company, current CA president and chief operating officer Sanjay Kumar), ADR, Legent in 1995 (making it the largest software deal in history at that time) and Cheyenne Software in 1996.

The company’s product line now includes more than 500 applications covering virtually every kind of software businesses need. These include enterprise management, database and application development, Internet/intranet, financial, manufacturing, and human resources.

Serling Software

Sterling Software, of Dallas, Texas, is a provider of software and services for application development, business intelligence, information, storage, and network management, VM software, and federal systems. It was founded in 1981 and since then has grown to become one of the 20 largest independent software companies in the world.

Sterling went public in 1983 and now has more than 90 products. The company is structured into five independent operating businesses — Application Development Solutions, Business Intelligent Solutions, Information Management Solutions, Systems Management Solutions and Federal Systems Solutions. Sterling Software solutions are deployed at more than 20,000 customer sites worldwide and include nearly 90 percent of Fortune 100 companies.

The Deal

Under terms of the agreement, a subsidiary of CA will commence an offer to exchange 0.5634 shares of CA stock for each outstanding Sterling share. The exchange ratio is subject to a collar. If the average trading price of CA stock for the designated period prior to the closing of the offer is greater than $77.12, the exchange ratio will be reduced so that each Sterling share tendered in the offer would be exchanged for $43.45 worth of CA stock. If the average trading price of CA shares for the period is less than $63.10, the exchange ratio will be increased so that each Sterling share tendered in the offer would be exchanged for $35.55 worth of CA stock. In this case, CA may elect to reduce the exchange ratio and make up the difference in cash and or stock. The tender offer will be followed by a back-end merger on the same terms of those in the offer. The offer will be subject to customary closing conditions, including that at least a majority of Sterling’s outstanding shares has been tendered and antitrust clearance obtained. The parties expect the transaction will be one of the first to take advantage of the SEC’s new “fast track” exchange offer rules designed to expedite stock-for-stock transactions.

The Competition

With the merger creating the industry’s largest supplier of storage management technology — solutions that cover the entire enterprise from OS/390 and distributed systems to mainframes, desktops and even laptops — CA and Sterling are seen ready to battle more effectively against competitors. Veritas, established in 1982, is a serious competitor to CA because it has the most successful enterprise-class application storage management software. CA can also expect stern competition from Legato Systems, considered a dark horse in the market.

Kumar, CA’s president and COO, concedes that these are great companies and CA would need to compete aggressively to stay ahead. His strategy so far has been to maintain overall growth at CA and also pick aggressive growth markets, mainly distributed systems, in which to excel.

“We are extremely focused on being the leading provider in storage and network management, business intelligence and portal solutions, and in the design, deployment and integration of enterprise applications,” Kumar said in a statement.

In 1998, CA had revenues of nearly $5 billion, or about 50 percent of the global market estimated at $9.7 million. It also held a 40 percent share of the overall systems management market. Global systems management software business is expected to double to $18 billion in 2003 and CA seems to be riding the crest of that wave, but can they sustain their lofty heights?

Kumar is confident that the tour de force would be the combination of the two companies’ technology and people and diversity would be a winning weapon.