Issues Surrounding the At&t and Ncr Merger

Issues Surrounding the AT&T and NCR Merger

In late 1990,NCR Corporation ( formerly the National Cash Register Company) was doing well. Its management had transformed a stodgy company into a leading player in the computer game, one that was beating out IBM and other world class firms in automatic bank teller machines and other rapidly growing high-tech markets. In the words of Value Line, a leading investment advisory service, “This is shaping up as the ninth consecutive year of earnings growth for NCR. We’re looking for continued games out till the next years to come.” These good quality shares are ranked to outpace the year-ahead markets. “NCR’s stock was selling for $65, up from $9 in 1982, so its stockholders had benefitted from management’s good performance. NCR’s workers had also been well served and were happy, as were its customers.

        AT&T, meanwhile, had been raking in huge cash flows from its quasi-monopolistic telephone business, but it had failed in its efforts to become a major player in the computer industry, and it was losing lots of money there. Then AT&T’s Chairman, Bob Allen, decided to buy NCR. Allen approached NCR’s Management and suggested a price of  $90 per share, or $6.2 billion in total, and he indicated a willingness to negotiate, i.e., to go higher.

        NCR’s Chairman Charles Exley responded that “the company is not for sale.” He felt, justifiably, that his team had done a good job, and he wanted to continue to control a dynamic, growing entity, not just become one part of a huge conglomerate. Exley commented, after his talk with Allen, that AT&T ought to change its advertising slogan from “ Reach out and touch someone” to “ Reach out and grab someone.’

        NCR’s labor force , by and large, agreed with Chairman Exley—they were well aware that, in most mergers, quite a few workers lose their jobs as tasks are consolidated. Further the higher the worker in the hierarchy, the more likely he or she is to lose out. Exley would no longer be chief executive of a major company, and his top managers would, if they were retained at all, be subordinates of  AT&T’s senior executives. NCR’s customrs were also concerned – the company had been turning out good, attractively priced products. Would the same situation hold under AT&T’s control? Customers like having as many potential suppliers as possible, and, if the merger occurred there would be one less firm in the computer industry. Further, NCR is headquartered in Dayton, Ohio, but if AT&T acquired it, many headquarter functions would be moved to New York. This would have an adverse effect on Dayton, so the city fathers were not happy about the prospects for the merger.

        NCR’s stockholders , meanwhile, had mixed feelings. On the one hand, thoughtful investors recognized that the company had been run well, that the management deserved a chance to remain in control and that investors might be better off in the long run if Exley and his team remained in charge. On the other hand, the stock had been selling for only $65, yet AT&T had offered $90 and held out the chance for more, and a quick 40% profit is nothing to sneeze at. Further, almost 70% of NCR’s stock was owned by institutional investors such as pension funds, mutual funds, and insurance companies, whose owners like to see rapidly rising values such as the buyout would provide.