CA Buys Sterling Software for Dollars 4bn
E-business Deal set to Make new Group Largest Provider of Data Storage and Network Management

Financial Times
February 15, 2000


Computer Associates International yesterday agreed to acquire Sterling Software for about Dollars 4bn.

It claimed it was the largest software industry acquisition ever.

“This transaction is designed to aggressively launch us into new markets and give us leadership in our current markets,” said Sanjay Kumar, CA president and chief operating officer.

He added that the acquisition would position CA as the largest provider of data storage and network management solutions.

Data storage systems have become increasingly important as businesses worldwide increase their internet-related activities.

The deal follows a bitter and failed hostile takeover CA launched last year to acquire Computer
Sciences for Dollars 10bn. The company has a strategy of growing through acquisitions. It completed the purchase of software company Platinum Technology in June for Dollars 3.5bn in cash.

During a CA conference call financial analysts welcomed the proposed merger but questioned the low premium paid for Sterling.

Sterling Williams, chief executive of Sterling, defended the deal. “There is always a wish we could get more for our business but we believe that Sterling has been undervalued and under-appreciated.

This combination with CA gives us the potential for faster growth and will benefit employees and shareholders,” said Mr Williams.

The proposed acquisition is subject to a break-up fee of Dollars 175m payable to CA if a third party succeeds with a higher offer for Sterling.

Mr Kumar said the acquisition of Sterling would add about 10 cents a share to its fiscal 2001 results. CA shares were at Dollars 69, down by 75 cents during early trading. Sterling shares were up Dollars 2 3/8 at Dollars 36, topping a 52-week high of Dollars 35 15/16.

CA sells a range of software running on mainframes and offers computer security products for personal computers.

The stock swap deal has a complex structure in that 0.5634 shares of CA stock will be exchanged for each outstanding Sterling share subject to a collar. If the average price of CA stock in the designated period prior to the closing of the offer is greater than Dollars 77.12, the exchange ratio will be reduced to the equivalent of Dollars 43.45 of CA stock for each Sterling share. If CA average share price falls below Dollars 63.10, the exchange ratio for each Sterling share will be increased to Dollars 35.55 in CA stock.