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IBM Bid Shows Bluest of Blue Chips Not Afraid to Go Hostile

June 5, 1995

NEW YORK (AP) _ It wouldn’t have been considered just a few years ago: IBM, among the bluest of the nation’s blue chip corporations, launching a hostile bid for another company.

But America’s biggest and most powerful corporations are realizing that even the most secure are vulnerable to smaller and nimbler companies and that many will need to acquire as well as innovate to remain on top.

Driven by strategic considerations rather than pure financial gain, blue chip companies are becoming willing to go after target firms with a new aggressiveness.

IBM’s $3.3 billion bid Monday for Lotus Development Corp. _ the first hostile bid by International Business Machines Corp. _ is the most striking example yet of the growing need to eat or be eaten.

As well, with companies such as AT&T Corp., General Electric Co. and now IBM taking part, a hostile bid is no longer seen as quite so villainous a move as it once was. Blue chip is a term used for companies known financial stability and longtime market presence

``This is not just an irregularity in the market,″ said Michael Koeneke, co-head of mergers and acquisitions at Merrill Lynch & Co.

``People are looking at other acquisitions in much the same way IBM looked at this one,″ he said. ``And if they have to do it in an aggressive way, they’re prepared to do it.″

The new wave of blue chip buyouts may well have begun with AT&T Corp.’s hostile offer for NCR Corp., which ended with AT&T’s $7.4 billion purchase of the computer maker NCR in May 1991. That deal was driven by AT&T’s desire to strengthen its position in the computer business.

More recently, railroad operator Union Pacific Corp. sought to break up Burlington Northern Inc.’s purchase of Santa Fe Pacific Corp. with a $3.6 billion hostile bid. Union Pacific wanted Santa Fe’s reach into the western United States. It scrapped the effort in January.

General Electric’s hostile effort last year to buy Kemper Corp. for $2.4 billion, a deal designed to marry GE’s finance unit with Kemper, would have given GE an added presence in the mutual fund and annuity businesses.

That bid, likewise, failed. But many cite the GE effort as solidifying the legitimacy of hostile offers from old-line firms.

``The gloves came off at that point,″ Koeneke said.

In the end, the bottom line is competition, in terms of pursuing deals as well as accomplishing them.

``In the last year, we’ve seen more and more companies will make unusual, extreme maneuvers to catch their competition off guard,″ said Kathryn Rudie Harrigan, a professor at Columbia Business School.

Acquisitions can catapult a corporation into a new business, improve its standing in an existing business or block another company from entering.

Blue chip corporations also tend to have the financial resources to undertake big acquisitions without the added cost of borrowing.

Acquiring Lotus would allow IBM, which has $10 billion in cash on hand, to challenge Microsoft Corp.’s dominance in personal computer software at a time when the emphasis in computing is changing to communications.

Lotus rejected IBM’s offers during private negotiations but, after the public bid, said it would consider a deal.

When asked if the Lotus bid portends further acquisitions for IBM, IBM chairman and chief executive Louis V. Gerstner Jr. told a news conference he ``would not want to generalize.″

But it’s a good bet that when an acquisition is in the strategic interests of any big company today, it will be considered.

``You go down almost any industry and you can find one or two companies that generally would not have contemplated doing something unsolicited, but for their own strategic reasons might have to,″ said Ken Tuchman, co-head of mergers and acquisitions at Lehman Brothers Inc.

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