Lotus accepts new IBM offer

DAVID USBORNE

New York

Less than a week afer being first targeted for takeover by IBM, the Lotus Corporation announced yesterday it had accepted a revised offer worth $64 a share. Assuming its approval by the US government, the merger will be the largest ever in the software industry.

The deal was confirmed in a tele-conference with business journalists and Louis Gerstner, chairman of IBM, and the chief executive of Lotus, Jim Manzi. The final price was higher than the $60 a share originally put on the table by IBM, valuing the transaction at roughly $3.5bn.

Mr Manzi, who expressed dismay when the bid was first unveiled, indicated that he had something of an epiphany in the middle of last week, deciding that a match-up with IBM might prove ideal. His first meeting with Mr Gerstner, last Tuesday, in Manhattan was preceded by a stop for prayer at the St Patrick's Catholic Cathedral.

Mr Gerstner said that Mr Manzi would be kept on to run Lotus, the world's third-largest manufacturer of software. He will also be made a vice-president of IBM. Most analysts had expected that an IBM takeover of Lotus would mean Mr Manzi's ouster from the Massachussetts-based corporation.

"I am excited about being able to work with them by bringing the enormous resources that will become availailable in IBM to bear on our product lines," Mr Manzi said in the conference. He and Mr Gerstner said they planned to close the deal as quickly as possible. Final approval from the US government is likely, but may take three weeks to come through.

The merger represents a startling change of tack for IBM, which until last week had never attempted a hostile takeover. Some analysts wonder how quickly it can recoup an investment as large as $3.5bn in Lotus, which has recently shown a sharp drop-off in earnings, including an 18 per cent decline in the first quarter of this year.

While Lotus is best known for its 1-2-3 spreadsheet programme, it is its Notes groupware programme, which allows multiple operators to work on the same data at once at different locations, that attracted IBM. Mr Gerstner hopes to turn Notes into an industry-wide standard. In particular, he is gambling that the acquisition of Lotus will help IBM catch up with Microsoft, which has come to dominate the world software sector.

Mr Manzi said negotiations on reaching a final deal began in earnest after his Tuesday meeting with Mr Gerstner. "As you you can imagine it has been one hell of a week for Lotus. I feel as if I have lived four years of my life in about six days".

As part of the deal, the Lotus name will remain on its products. Raymond Ozzie, the software engineer who conceived the Notes program, has agreed to stay in the new company.

The settlement will delight arbritrageurs on Wall Street who pushed the Lotus share up to nearly $63 last week, on the assumption that in the end IBM would be persuaded to sweeten its original offer. Asked if he had received any bites from other companies interested in Lotus, Mr Manzi declined to comment.