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Largest Attempted Hostile Takeover in Computer Industry History in Doubt

By Mark Leibovich
The Washington Post

Computer Associates International Inc. announced Thursday that it would let its $9.8 billion hostile bid for Computer Sciences Corp. expire March 16, possibly scuttling what would have been the biggest merger in the computer industry's history.

Computer Associates chief executive Charles B. Wang said a number of factors led to the decision, including the damage that the increasingly bitter takeover battle might cause to both companies' businesses. He derided the "racist, sick and ugly tactics" of Computer Sciences in trying to fend off the bid.

"When things get racist, when it comes to a point where they are questioning my loyalty to my government, I don't think it serves anyone in our industry to keep going," Wang said in an interview.

He was referring to CSC's contention, reported in The Washington Post last week, that Wang's dealings with high-level Chinese officials, including President Jiang Zemin, would make his company unfit to inherit CSC's contracts with U.S. intelligence agencies. Wang, a naturalized U.S. citizen, emigrated to the New York City borough of Queens with his family when he was 8.

Computer Sciences, an El Segundo, Calif., computer services company that employs 7,300 people at its federal systems headquarters in Falls Church, Va., denied its anti-takeover tactics were racist and said it was legitimate to raise national security as an issue. "If doesn't matter if [Wang's] from Shanghai or Seattle," said CSC spokesman Bruce Plowman. "It would be the same in terms of any dealings with China. We would be concerned."

The possible collapse of the deal sent Computer Sciences' stock down 10.5 percent Thursday. CSC fell $11, to $94, on the New York Stock Exchange. The stock traded at $92.18 on the day before CAI announced its $108-per-share offer last month. Computer Associates shares rose $1.37.

Some analysts speculated that Thursday's announcement didn't necessarily mean the end of the takeover attempt. Wang, they said, made his announcement to enhance his negotiating position with CSC.

"What Computer Associates did today, whether they meant it or not, is put pressure on CSC's management to take a hard look at what they're rejecting," said Moshe Katri, an analyst at UBS Securities who lowered his rating on Computer Sciences from "buy" to "hold." "I bet some CSC shareholders look at where the stock is today and say Hey, maybe Computer Associates is right.' "

Analysts also wondered why CAI elected only not to extend its tender offer after March 16, instead of withdrawing it altogether, speculating that Wang could be bluffing.

But Wang said the decision not to withdraw completely was instigated by CAI's lawyers, not by him. He maintained that he's simply walking away.