Computech Case Summary
CompuTech was founded by Marco Garibaldi in 1983. The founder developed a user-friendly word processing computer program, which received wide acceptance from both the academic and the business communities. A presentation package was developed by the company’s programmers, and the software also received wide market acceptance. However, Computech had a hard time when it decided to enter the financial spreadsheet market. Due to late entrance into the market, the company would face fierce competition from other established firm’s spreadsheet programs. Therefore, CompuTech is now trying to acquire a company that specializes in financial spreadsheet program and has a strong market following.
Computer Concepts Inc. is a good potential acquisition candidate, since the company specializes in financial spreadsheet. CCI’s last trade was at a price of $1.50, but the price would probably go up if a large buy order were placed. CCI’s management team owns about 30 percent of the stock, which is substantial but not enough to completely block a merger. They might fight to keep the company independent or appreciate being acquired by CompuTech which would provide them with greater product diversity.
There are three options to make an offer. The first option is to offer a relatively low price which could later be increased if necessary. However, the management team owns 30 percent of the stock and they will want to get a high price, so the first option might lead them to solicit competing bids. The second option is to offer a high price to preempt any outside challenge. Despite the benefits of this option, the decision may lead CompuTech to pay an overvalued price. The last option is to by-pass management altogether and make a tender offer directly to CCI’s stockholders. This option would lead to a hostile takeover, and CompuTech would have to pay a premium price to acquire shares from all the other stockholders beside the management team.
The proper price to offer is a critical
Computer Concepts Inc. is a good potential acquisition candidate, since the company specializes in financial spreadsheet. CCI’s last trade was at a price of $1.50, but the price would probably go up if a large buy order were placed. CCI’s management team owns about 30 percent of the stock, which is substantial but not enough to completely block a merger. They might fight to keep the company independent or appreciate being acquired by CompuTech which would provide them with greater product diversity.
There are three options to make an offer. The first option is to offer a relatively low price which could later be increased if necessary. However, the management team owns 30 percent of the stock and they will want to get a high price, so the first option might lead them to solicit competing bids. The second option is to offer a high price to preempt any outside challenge. Despite the benefits of this option, the decision may lead CompuTech to pay an overvalued price. The last option is to by-pass management altogether and make a tender offer directly to CCI’s stockholders. This option would lead to a hostile takeover, and CompuTech would have to pay a premium price to acquire shares from all the other stockholders beside the management team.
The proper price to offer is a critical