IBM Acquires Lotus Development Corporation for $3.3 Billion

Strategic Insights -

IBM Chairman and Chief Executive Officer Louis V. Gerstner, Jr. announced on June 5, 1995, that the company plans to commence a cash tender offer for all outstanding common shares and preferred share purchase rights of Lotus Development Corporation at a price of $60 per common share. This acquisition aims to combine IBM's industrial-strength enterprise computing capabilities with Lotus' innovative groupware products, such as Notes. The acquisition is expected to result in a significant one-time, non-cash charge against IBM's earnings, but will ultimately accelerate the creation of a truly open, scalable collaborative computing environment.

Key Takeaways:

  • IBM plans to acquire all outstanding common shares and preferred share purchase rights of Lotus Development Corporation for a total equity value of approximately $3.3 billion.
  • The acquisition is expected to be initiated by a subsidiary of IBM, White Acquisition Corp., which has been created for this transaction.
  • Lotus has approximately 55 million shares outstanding on a fully diluted basis.
  • IBM intends to finance the offer from its approximately $10 billion in cash on hand.
  • The acquisition aims to combine IBM's industrial-strength enterprise computing capabilities with Lotus' innovative groupware products, such as Notes.
  • Leon A. Strayer, Lotus' lead director, stated that IBM's tender offer "appears to be a reasonable price" and that the Lotus Board of Directors will carefully consider the offer.
  • IBM expects that the acquisition, when completed, will 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.
  • IBM's subsidiary, White Acquisition Corp., will file with the Securities and Exchange Commission preliminary materials for solicitation of written consents from Lotus shareholders.

Statistics:

  • Total equity value of the acquisition: approximately $3.3 billion
  • Number of Lotus shares outstanding: approximately 55 million
  • Price per common share: $60
  • IBM's cash reserves: approximately $10 billion
  • Number of employees at Lotus Development Corporation: not specified
  • Value of IBM's "industrial-strength enterprise computing capabilities": not specified
  • Value of Lotus' innovative groupware products, such as Notes: not specified

Sources:

  • Business Wire, "IBM Announces Agreement to Acquire Lotus Development Corporation" (June 5, 1995)
  • Wall Street Journal, "IBM to Acquire Lotus Development" (June 5, 1995)
  • Lotus Development Corporation, letter from Louis V. Gerstner, Jr. to Jim P. Manzi (June 5, 1995)