Continental Telecom Inc., an Atlanta-based communications company, has acquired STSC Inc., a Rockville computer services firm, for $24 million.
Continental bought STSC to be the "cornerstone for major expansion by Continental in the information services business," said Edward J. Nicoletti, Continental vice president. The Atlanta company paid $11 a share for stock that had been sold at about $6.50 or $7, analysts said.
The move will provide STSC with "flexibility and expanded resources to grow" in its major management systems areas, said Daniel Dyer, STSC chairman and president.
The acquisition is typical of methods used by older industries to enter the computer age without the expense of starting a new company, said Alfred Berkeley, an analyst with Alex Brown. "It's an active part of the economy for acquisitions," Berkeley said. "It's a good move for both of them."
Although Berkeley said the acquisition was "an absolutely gorgeous way" for Continental to move into the computer business, STSC recently has run into a few problems. During its third quarter ended Feb. 28, the firm lost $322,000 on revenues of $7 million; it had lost $216,000 on revenues of $7.3 million during the second quarter.
Earlier this month, STSC laid off 55 of its 422 employes to reduce its losses. "The reason for the reduction in force is to place STSC in the position to restore its profitability and to resume its successful growth pattern," Dyer had said. "This year STSC committed to significantly higher expense levels in anticipation of rapid revenue growth. This growth did not materialize, and we found it necessary to adjust our expense levels accordingly."
STSC will operate under Continental's Information Services group started last January as an independent unit using existing management. Nicoletti said the acquisition was the result of intensive study of the information services market.
Berkeley said the acquisition was a boon to Continental because the Rockville firm has modern equipment and uses sophisticated computer languages. For STSC, the move is a chance for a medium-sized firm competing with large companies to gain capital, Berkeley said. The high price paid for STSC's stock shows "it's worth more than the stock market was giving it credit for being worth," Berkeley said.
STSC has annual sales of $28 million and is the largest U.S. supplier of computer services based on the APL programming language, which has been adopted widely in business because it performs all types of analysis and data reporting without requiring the user to have experience in programming for computers.
STSC has branch offices in 16 major cities in the United States and has subsidiary companies in Paris and London.