Burroughs Corp., which is attempting a $4.1 billion hostile takeover of Sperry Corp., said yesterday that it has begun discussions with its computer rival about a "possible business combination."
Burroughs Chairman C. Michael Blumenthal and Sperry Chairman Gerald Probst met in the Manhattan law offices of Wachtel, Lipton, Rosen & Katz yesterday afternoon for more than two hours, according to a source close to the discussions.
Both sides declined to characterize the tone of the talks.
An outright merger of the two companies would create the world's second-largest computer company, after International Business Machines Corp., with annual revenue in excess of $10 billion. Blumenthal has asserted that such a merger would create a company better able to compete with IBM and the Japanese in global markets.
The discussion marks the first time managements of the two firms have met since Burroughs initiated its takeover bid on May 5.
At that time, Burroughs proposed to pay $70 a share -- in a blend of cash, preferred stock and debt securities -- for all of Sperry's common stock. The company launched its hostile-takeover bid three days later, after Sperry management did not respond to its offer.
On Wednesday, Sperry issued a statement declaring the offer "wholly inadequate," and proposed to buy back almost half of its own shares at $80 apiece. But Sperry made its offer contingent upon the success of Burroughs' offer, a move designed to freeze Sperry shareholders into inaction. Moreover, the Sperry buyback specifically would exclude any shares tendered by Burroughs.
The counteroffer was widely seen by analysts as an effort to force Burroughs to sweeten its bid. Sperry's counteroffer, known in investment bankers circles as a "debt bomb," would saddle Burroughs with nearly $2.4 billion in debt if its takeover succeeded.
Sperry stock climbed 25 cents a share to $73.50 on the New York Stock Exchange. Burroughs fell $1 a share to $58.