Sperry Corp. yesterday rejected the hostile takeover bid by Burroughs Corp., countering with an offer of its own designed to force Burroughs either to back away or to increase its offer.
Sperry called the Burroughs offer "wholly inadequate." Last week, Burroughs offered to buy Sperry for $4.06 billion in a deal involving a combination of cash, preferred stock and securities.
In rejecting the Burroughs offer, Sperry proposed to buy back 47 percent of its own stock for $80 a share, but only if Burroughs' cash offer of $70 a share for 53 percent of the company succeeds.
"It looks like a negotiating tactic to push up the price," said Ulric Weil of Weil & Associates, a Washington computer-industry research consultant.
"It also seems to indicate that Sperry is willing to do business . . . and that there is no white knight" to rescue Sperry from Burroughs, he added.
A merger of the two companies would displace Digital Equipment Corp. as the world's second-largest computer company, after International Business Machines Corp., with more than $10 billion in annual revenue. Burroughs Chairman W. Michael Blumenthal has said the combined companies could compete more effectively with IBM and the Japanese in the global marketplace.
The $80-a-share Sperry offer specifically excludes "any shares tendered by or on behalf of Burroughs or its transferees." Consequently, a Sperry shareholder who tenders shares to Burroughs will not realize the $80-a-share Sperry price; but if not enough shareholders submit their shares to Burroughs, the Sperry offer doesn't go into effect. The Sperry offer thus might delay shareholders from tendering shares until the end of the Burroughs tender period in June.
Sperry's move is reminiscent of Unocal Corp.'s successful effort to block corporate raider T. Boone Pickens from taking over the oil company by excluding him from a stock buyback. The Sperry offer similarly excludes Burroughs. The Delaware Supreme Court ruled in the Unocal case that such exclusionary self-tender offers were legal; however, an important difference is that the court ruling stressed that Pickens' reputation as a raider justified the exclusionary provision. Burroughs has no such reputation.
Still, "This is a classic self-tender defense," said merger lawyer Arthur Fleisher, a partner with Fried, Frank, Harris, Shriver & Jacobson. "I think Burroughs is going to have to reevaluate its pricing."
Sperry also argues that the two-stage offer is "a two-tiered, front-end-loaded attempt to take control of Sperry at a wholly inadequate price," Sperry Chairman Gerald G. Probst said in a statement.
Blumenthal denied that charge in a statement yesterday and said, "So that there will be no doubt as to the value of the Burroughs securities, Burroughs is prepared to have the terms of the securities set by mutual agreement of the investment bankers for Sperry and Burroughs."