Computer Sciences (CSC) on Monday filed suit in Superior Court in Los Angeles against Computer Associates (CA). and its top executives, charging CA has engaged in a fraudulent scheme to take over CSC and seeking to block the merger bid, according to court papers filed Monday.
Among the charges contained in the complaint is an allegation that CA had made an improper attempt to buy the loyalty of CSC's top executive in preliminary merger talks.
The suit charges CA had threatened to damage CSC in its relationships with employees and customers if CSC did not sell out to CA at what the complaint charged was an unfair price.
The suit asks the court to enjoin the defendants from communicating in any way with CSC customers and employees about a proposed merger, and seeks more than $50 million in damages.
The acquisition, if completed, would represent one of the most expensive mergers in computer industry history.
CA made its bid for CSC, a major computer services firm, earlier this month. The $9.8 billion deal was rejected by CSC, and the bid turned hostile.
CSA says price too low
CSC complained in documents filed recently with the Securities and Exchange Commission that the deal "would not make business sense," and that CA was offering an unfairly low price for the El Segundo, Calif., company.
CA, of Islandia, N.Y., is one the largest software companies in the world, and the deal would enable it to compete with companies such as IBM and Hewlett-Packard Co. in the services business.
Analysts, however, have said that customers may begin to question the objectivity of CSC's recommendations if it is acquired by a software company. And the hostile takeover bid may drive out CSC employees, the key resource CA is attempting to acquire.
Describing what it refers to as an ``illegal coercive scheme,'' the suit contends CA engaged in ``a continuing campaign of fraud and interference in order to continue to attempt to pressure CSC to sell the company'' on terms favorable to CA.
The complaint alleges that Computer Associates actions are in violation of the California Unfair Business Practices Act and seeks to enjoin CA from engaging in what it labeled as ''unlawful, unfair and fraudulent business acts.''
Asked to respond, Computer Associates spokesman Bob Gordon said Monday evening that the company had not seen the lawsuit and would decline to comment until it had done so.
The suit alleges that in a Dec. 18 meeting initiated by CA involving executives of the two firms, CA Chairman Charles Wang offered $50 million to CSC Chairman Van Honeycutt personally to buy his support for a proposed $100-a-share offer to buy CSC.
The suit further alleges that Wang promised that Honeycutt would receive guaranteed stock options worth at least $35 million, with any shortfall in market value being paid by CA, and a guaranteed seven-year contract with an annual base pay of $2.5 million. Honeycutt rejected the offer.
At a second meeting with CA on Feb. 5 that Honeycutt attended, Computer Associates officials mentioned a $98 per share offer, the suit alleges.
After Computer Sciences rebuffed CA's merger proposals, CA made an unsolicited public offer of $108 per share on Feb. 11, a bid that CSC has rejected.
The lawsuit states that as a result of the alleged misconduct of CA, CSC has suffered a loss of reputation and damages to its business operations in excess of $50 million, with the exact amount to be determined at trial.
It also calls for exemplary and punitive damages against the defendants, plus legal fees, for what it characterized as a conspiracy against CSC by Computer Associates.
The suit calls for Computer Associates and its executives to be enjoined from any attempt to solicit CSC shareholders or any further attempt to acquire CSC shares.
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