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Govt. Tries To Stop Computer Merger

October 29, 1999

WASHINGTON (AP) _ The Justice Department sued on Friday to block Michigan-based Compuware Corp.’s $168 million acquisition of Viasoft Inc. on grounds the deal could result in higher prices and diminished service for two types of critical mainframe computer software.

In a lawsuit filed in U.S. District Court here, the government alleged the deal would significantly reduce competition in the United States for mainframe testing and debugging software and for mainframe fault management software, which the government said is crucial for some mainframe computer users to maintain efficient operations.

In July, Compuware agreed to pay $9 a share to acquire the Phoenix-based provider of information technology management. Compuware, based in Farmington Hills, Mich., provides management and development software.

In a statement Friday, Compuware said Viasoft and CV Acquisition Inc. _ a Compuware merger subsidiary _ have extended the offer to Nov. 5. It had been scheduled to expire Friday.

Compuware said it is ``reviewing our options with counsel″ in light of the government’s lawsuit. But the companies remain committed to completing their merger, Compuware said.

The Justice Department’s announcement Friday ``completely mischaracterizes the marketplace for our software products,″ Peter Karmanos Jr., Compuware’s chairman and chief executive, said in the statement.

``The DOJ has made it clear they don’t understand what our products do or the dynamics of the mission-critical software marketplace. Unfortunately, they’ve compounded their error by choosing to file this lawsuit.″

The government said Compuware is the world’s dominant producer of mainframe testing and debugging software, with 60 percent of the market, and Viasoft is its closest rival and the only alternative to Compuserve for some consumers.

Compuserve also dominates world sales of mainframe fault management software, with more 80 percent of the market, the government said. Viasoft is a recent entrant in this market with what the government called a promising, potentially significant competitive product.

The complaint said that this is the latest in a series of Compuware acquisitions to acquire competitors’ testing and debugging and fault management software, and the government said Compuware ceased sales and upgrades for those products after acquiring them.

``Unless this acquisition is blocked, buyers of this mission-critical software will be forced to pay higher prices and get less,″ said Assistant Attorney General Joel I. Klein, head of the antitrust division. ``We brought this suit to preserve the benefits of competition for the consumers that use these products _ universities, major companies and governmental entities.‴

Testing and debugging software is used to find errors as program code is being written and to fix code during production in the event of a processing failure. Fault management software detects and diagnoses errors that cause processing failures, which can save hours of labor and downtime.

Compuware had revenues of $1.6 billion in fiscal 1999. Viasoft has fiscal 1999 revenues of $104 million.

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