SPSS, IBM Negotiated For 6 Months

SPSS Inc., which IBM plans to acquire for $1.2 billion, has been courted by two other companies in the past year, according to an SEC filing Monday. But IBM appears to be the most hungry for SPSS's predictive analytics technologies.

Throughout six months of negotiations, SPSS dug in its heels on a sale price of $50 per share, despite IBM's initial offer of 30% below that final price.

IBM hasn't been the only one pursuing SPSS. In May 2008, according to the acquisition proxy statement, an unnamed entity, "Company A," offered to acquire SPSS at a "substantial premium" above its stock price. But SPSS's businesses was strong at the time, and it had concerns about Company A's ability to raise substantial amounts of cash to complete the purchase. While SPSS directors didn't find the offer "compelling," they decided keep the talks going with Company A. A month later, SPSS began talking with "Company B" about a "strategic business combination," and in July 2008, talk progressed into a possible acquisition or merger. Meanwhile, Company A refused to enter into a customary standstill, meaning it wouldn't sign an agreement that would prevent it from making unsolicited offers for SPSS. By September, talks with both Companies A and B had died.

In December 2008, IBM contacted SPSS's financial advisor, BofA Merrill Lynch, about a possible sale at a price per stock in the mid-$30s. SPSS countered that its board wouldn't consider less than $50 a share. But IBM didn't let talks die.

On Jan. 28, 2009, Archie Colburn, managing director of corporate development for IBM, and Ambuj Goyal, IBM's general manager of Information Management Software, met with SPSS CEO Jack Noonan to discuss a possible expansion of the companies' business relationship. By February, the companies entered into a strategic partnership agreement that provided IBM with license and distribution rights to certain SPSS products.

In April, IBM came back with an offer for $43 to $44 a share. SPSS turned that down. IBM came back on May 14, with an offer of between $48 and $50. Meanwhile, BofA Merrill Lynch talked to a "limited number of selected third parties" about SPSS, including their interest in acquiring the company. Apparently, there was nothing better out there.

On May 24, SPSS signed an agreement stating it was obligated to negotiate exclusively with IBM and not solicit any alternative offers for the company throughout the exclusivity period, which either company could terminate as of June 22. The following weeks, SPSS decided "IBM was the most likely party to have a serious interest in acquiring SPSS at the highest price."

IBM again tried to get SPSS to lower the price in June, citing the potential impact of an unresolved lawsuit filed against SPSS by its co-founder and former chairman, Norman Nie, over ownership of the SPSS trademark. SPSS didn't bite. On July 27, the companies signed off on the deal, at $50 per share, which is a 51% premium over SPSS's average closing stock price for the three-month period ended June 27.

But that doesn't mean it's a done deal for IBM, which hopes to close the transaction by the end of the year. In a note issued earlier this month, San Francisco-based Cowen & Co. analyst Peter Goldmacher said he thought SPSS could still get another bid, following conversations with "industry luminaries." Goldmacher said Oracle, HP, SAP were all possibilities.

In Monday's SEC filing, SPSS said it's obligated to pay IBM a fee of $23.5 million if it terminates the merger agreement, "which may deter others from proposing an alternative transaction that might be more advantageous to our stockholders." SPSS stockholders also must vote to terminate the IBM offer if another company comes forth with a higher purchase price.

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