It seems that Pure Atria should have some clause in the agreement stating that this deal could be called off if the market value of RATL falls a certain level in a certain amount of time.....this story is not over!
Matt
Rational Software to buy Pure Atria for $839 million
Reuters, Monday, April 07, 1997 at 16:23
By Kourosh Karimkhany
PALO ALTO, Calif., April 7 (Reuter) - Rational Software
Corp. (NASDAQ:RATL), expanding its expertise in offering software
programming products, said Monday it agreed to buy rival Pure
Atria Corp. (NASDAQ:PASW) in a stock deal initially valued at about
$839 million.
But both companies' stocks plunged after Pure Atria said
its first-quarter earnings would be far less than Wall Street
expected because of the difficulty the company has had managing
its own recent acquisitions. Rational could have the same
difficulties, analysts said.
"We're looking at a lot of questions about why the hell
Rational would do this when they appeared to be winning the war
with Pure Atria anyway," said Kris Tuttle, analyst at Soundview
Financial Group.
Rational Software's stock fell $10.125, or 43 percent, to
$13.25, while Pure Atria's stock fell $7.375, or 42 percent, to
$10.375 on the Nasdaq, where both were among the biggest
percentage losers and the most actively traded stocks on the
exchange.
Under terms of the acquisition, Rational would pay 0.9 of
its shares for each of Pure Atria's 39.92 million shares
outstanding. Based on Rational's Friday closing stock price of
$23.375, the transaction would be worth $839 million. Monday's
stock slide slashed the deal's value by 43 percent.
Both companies write development tools, a type of software
that helps programmers write other software.
Santa Clara, Calif.-based Rational specializes in
methodology tools, which help programmers design the skeleton
of complex software projects. Pure Atria specializes in
development and testing tools, which let programmers write and
test chunks of software code.
The acquisition would give Rational all the components a
big developer would need to write commercial-quality software,
said Stan Dolberg, director of software strategies of market
researcher Forrester Research Inc.
But Rational is placing its bets on rigid,
industrial-strength development tools at an awkward time.
Rational and other development tool vendors face a fundamental
threat from Java, a programming language that is all the rage
among Internet and computer networking software developers, who
do not need such rigid tools.
"My suspicion is that there are a lot of developers waiting
to see what happens with Java," said Catlin Wolfard, analyst at
brokerage Aracdia Investment Corp. in Portland, Ore. "Every
stock chart in the development market is down, down, down this
year" because of lower earnings prospects as big development
tool purchases are put off.
Rational also is buying a company that has had a hard time
managing its own acquisitions, analysts said. Pure Atria's
trouble could now be Rational's, Andrew Roskill, analyst at
Smith Barney, told the brokerage's clients Monday.
Pure Atria, based in Sunnyvale, Calif., was formed last
August when Atria Software Inc. bought Pure Software Inc. The
companies still are struggling to meld their operations.
Partly because of the difficult merger, Pure Atria said it
expected first-quarter earnings to be between 2 cents to 4
cents a share, compared with 9 cents in the same quarter a year
ago. Wall Street expected earnings of 12 cents, according to
First Call, which tracks such estimates.
Rational executives said they viewed this as the right time
to buy Pure Atria. The acquisition will accelerate Rational's
expansion into the testing market, said Jerry Rudisin,
Rational's vice president of corporate marketing.
Copyright 1997, Reuters News Service |
