IBM Acquires Lotus Development Corporation for $3.3 Billion

Strategic Insights -

IBM Chairman and Chief Executive Officer Louis V. Gerstner, Jr. announced on Monday that the company intends to acquire Lotus Development Corporation for $3.3 billion, or $60 per common share. The acquisition is the result of IBM's long-held interest in pursuing a business combination with Lotus. The tender offer will be initiated by White Acquisition Corp., a subsidiary of IBM, and will require Lotus' management to work together to facilitate the transaction.

The acquisition is seen as a strategic move by IBM to accelerate the development of a truly open, scalable collaborative computing environment. Lotus has developed successful products, particularly in the area of groupware, which allows people to work together more effectively. IBM believes that by combining its strengths in industrial-strength enterprise computing and global marketing with Lotus' innovative products, the companies can create a more powerful and open way of working, learning, and interacting.

Key Takeaways:

  • IBM plans to acquire all of the outstanding common shares and preferred share purchase rights of Lotus Development Corporation for $3.3 billion, or $60 per common share.
  • The tender offer will be initiated by White Acquisition Corp., a subsidiary of IBM, and will require Lotus' management to work together to facilitate the transaction.
  • IBM intends to finance the offer from its approximately $10 billion in cash on hand.
  • The acquisition is seen as a strategic move by IBM to accelerate the development of a truly open, collaborative computing environment.
  • Lotus has developed successful products, particularly in the area of groupware, which allows people to work together more effectively.
  • IBM believes that by combining its strengths in industrial-strength enterprise computing and global marketing with Lotus' innovative products, the companies can create a more powerful and open way of working, learning, and interacting.
  • The acquisition is expected to result in a significant one-time, non-cash charge against IBM's earnings. The charge involves accounting writedowns of amounts assigned to research and development of Lotus software under development.

Statistics:

  • The acquisition price of $3.3 billion represents a total equity value of approximately 55 million shares outstanding on a fully diluted basis.
  • The charge for the acquisition is expected to have a significant effect on the net earnings of IBM in the quarter in which the acquisition is completed and on IBM's net earnings for the year.
  • IBM has approximately $10 billion in cash on hand to finance the acquisition.
  • The tender offer requires that a majority of all outstanding shares of Lotus common stock be acquired on a fully diluted basis.
  • The filing with the Securities and Exchange Commission includes conditions related to the elimination of Lotus' "poison pill" and certain other anti-takeover provisions.

Sources:

  • IBM announcement dated Monday (no specific date mentioned)
  • Letter from IBM Chairman and Chief Executive Officer Louis V. Gerstner, Jr. to Lotus Chairman, President and CEO Jim P. Manzi