The Price Was Finally Right

By Janice Castro.

In a sense Gerald Probst, the chairman of Sperry, was like a general on the wrong side of a surrender ceremony as he sat with Burroughs Chairman W. Michael Blumenthal last week at a press conference in Manhattan's St. Regis Hotel. For a year Probst had resisted a determined drive by Burroughs to take over his company and thereby form the world's second-largest computer manufacturer, after IBM. In the end, though, the advance was irresistible. New York City-based Sperry agreed to be acquired by its Detroit rival for $4.8 billion. A triumphant Blumenthal said he hoped that this "major new force" in computers would give IBM some real competition at last.

With combined revenues of $10.7 billion, the new company, which has yet to be named, will easily pass Massachusetts-based Digital Equipment (1985 revenues: $7 billion), the current No. 2 computer maker. Blumenthal, 60, who will be chairman, said the Burroughs-Sperry combination hoped to slash costs and boost profits by merging the two firms' research and development, marketing and other support services.

Probst, 62, will stay on as vice chairman, but he did not conceal his mixed emotions last week. Said he: "We are totally convinced that we could have continued to be a viable competitor to IBM. But we recognize that, being a public company, we are not always masters of our destiny."

Burroughs first approached Sperry's board of directors last year, with a $65-a share offer. Sperry, which was trading at $55 a share, rejected the bid as inadequate, but became concerned that Blumenthal would try a hostile takeover. Probst reportedly talked with several other firms, including General Dynamics and AT&T, about topping Burroughs' offer in a friendly merger deal. Since none of those discussions panned out, Sperry was vulnerable when Blumenthal came back with a $70-a-share bid last month. After Sperry balked again, Burroughs said it would make a tender offer directly to shareholders. Finally Blumenthal made Sperry an offer almost impossible to refuse: $76.50 a share. At a rancorous meeting last week, Sperry's board accepted the offer. President Joseph Kroger led the opposition to the merger and did not appear at the press conference, but he is expected to head the Sperry division of the company, at least for the time being.

While the new firm will have some 12% of the world market for mainframe computers, it will still be hard pressed to challenge mighty IBM, which controls nearly 63%. Critics note that Burroughs and Sperry computers do not run the same programs and thus cannot be linked together. Some customers are already nervous: a group of 17 New England companies that use Sperry computers wrote Blumenthal last week to ask if Burroughs would discontinue their machines. In a telephone call to Elaine Massa, technical-services manager for Connecticut Natural Gas, Blumenthal assured the group that he has no intention of dropping Sperry products.

Sperry managers may be another matter. The company that sold Univac, the first successful commercial computer, in the 1950s has lost much of its marketing sparkle in recent years. Entrenched bosses may be partly responsible. Says one Sperry product executive: "As a manager, there is almost nothing you can do to get fired here." Considering the new circumstances, those could be famous last words.

With reporting by William J. Mitchell/Detroit and Raji Samghabadi/New York