Software firm to expand offerings with buyout

Computer Associates, Sterling Software in deal

Software companies

February 15, 2000|By BLOOMBERG NEWS

ISLANDIA, N.Y. -- Business software provider Computer Associates International Inc. said yesterday it agreed to acquire Sterling Software Inc. in a $4 billion stock transaction to create one of the largest suppliers of storage management software.

Computer Associates will exchange 0.5634 share for each Sterling share, or $39.05 a share, 7.7 percent above yesterday's close.

The exchange ratio is subject to a collar, which would change the ratio if Computer Associates' average trading price during a designated period rose above $77.12 or below $63.10 per share.

The purchase will give Computer Associates access to Sterling's data storage management products, software to protect and deposit corporate information and tools for creating Web programs. Computer Associates is betting that businesses want a full range of software to operate computers and databases.

"Storage and networks are coming together," said Computer Associates President Sanjay Kumar. "You need broad offerings to survive."

Computer Associates is ranked first in the $2.7 billion storage software market, with 33 percent of the market, according to International Data Corp., a Framingham, Mass., market research firm. Sterling Software is ranked No. 5 with 3.4 percent of the market.

Shares of Islandia, N.Y.-based Computer Associates fell 43.75 cents to $69.3125 in New York Stock Exchange trading of 4.3 million. Dallas-based Sterling rose $1.8125 to $36.25.

Storage management software has emerged as an important business as more corporations need to compile information to keep their Internet sites running. Storage management software lets companies monitor where different information is located and how to retrieve it.

Companies such as Veritas Software Corp., a leader in the storage software market, have seen shares surge over the last year. Veritas climbed more than 600 percent. Shares of Computer Associates, which offers other products besides storage-management software, have increased 56 percent in the past year.

Sterling recently acquired products for so-called storage-resource management, used to track how data is stored and used. Such information will become more important as corporations expand internationally and need to share data among different computer systems, said Paul Mason, an IDC analyst.

"They got Sterling at a very attractive price and there are very few product overlaps," said ABN Amro Inc. analyst Robert Johnson, who has a "buy" rating on both companies.

Sterling Software has more than 20,000 customers using its programs to control, automate and manage corporate computer systems, as well as those tied to the Internet.

Computer Associates said the acquisition will add to its earnings, excluding any one-time research and development or amortization charges.

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