Ibm Merging With Lotus In Friendly Buyout Deal Hardware, Software Makers Join Forces To Fight Microsoft

International Business Machines Corp.’s hostile bid to buy Lotus Development Corp. ended Sunday in a friendly deal worth more than $3.52 billion - the largest merger yet in the software industry.

The two companies agreed on a $64 per share purchase price - $4 higher than IBM’s initial offer valued at $3.3 billion.

Analysts say the cash deal portends a major reordering of the software industry, which Microsoft Corp. has dominated in recent years.

It also is a major step for IBM in reclaiming its position as the bellwether of the computer industry, a mantle it lost to Bill Gates and Microsoft a few years ago when Big Blue was in the midst of a severe financial crisis.

“Lotus will be a very critical and important part of IBM and IBM’s growth strategy,” IBM chief executive Louis Gerstner Jr. said.

The hostile takeover changed into a friendly buyout during dinners and around-the-clock meetings between Gerstner and Lotus chief executive Jim Manzi last week, insiders said.

Manzi will become a senior vice president of IBM.

Wall Street analysts, for the most part, were behind the takeover.

“This is a good fit,” said Victor Basta, of Broadview Associates, which specializes in mergers and acquisitions in the computer industry. “The two companies complement each other real well. In fact, they need each other.”

Cambridge, Mass.-based Lotus has a spectacularly successful product called Lotus Notes, which is designed for personal computer networks favored by many corporations.

To date, some 1.7 million copies of Lotus Notes is in use on PC networks. While its customer base may not be as big as Microsoft Windows’, its users are a prestigious lot. They include the White House staff, the Central Intelligence Agency and the Big Six accounting firms. Sales have been doubling annually.

Analysts say that with IBM’s backing, Lotus will have a chance to strengthen Lotus Notes at a time when the product is leading the market but has seen its growth falter.

“The beauty of the IBM-Lotus deal is that you have a hardware manufacturer marrying up with a software manufacturer, so it doesn’t raise the same kind of antitrust red flags that Microsoft gobbling up Intuit did,” said merger and acquisition specialist Ian Moore.