To discuss, the $3.3 billion IBM bid for Lotus, BW's guests on June 8 were Ira Sager, BW computers editor (and IBM watcher), and BW Boston Correspondent Geoff Smith, who covers Lotus.
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OnlineHost: Good evening and welcome! Tonight Business Week presents a special conference on the news that shook the corporate and computer worlds this week -- IBM's $3.3 billion bid for Lotus. Will it fly? And if it does, how will this marriage of hardware and software giants affect us all?
Here to answer questions such as these -- as well as the questions you are ready to raise -- are two of the Business Week editors who worked on the IBM-Lotus story in the current issue, Ira Sager and Geoff Smith.
Ira Sager (Isager), a graduate of Baruch College in New York, has followed IBM and the computer industry for 15 years. Since early 1994 he has been Computers Editor of BW. Geoff Smith is a correspondent in BW's Boston bureau, who wrote the Lotus sidebar to the story in the current issue of Business Week. His screen name is GeoffSBW.
The moderator is Jack Dierdorff (JackBW), consulting editor of BW Online. And now on to our discussion of IBM and Lotus -- and the questions you send us via the Interact button.
JackBW: Good evening to all of you on AOL. And hi, Ira Sager and Geoff Smith. Glad you could join us, Geoff.
Isager: Hello, Jack. Glad to be here.
GeoffSBW: Thanks, Jack, Happy to do it.
JackBW: Ira, I'll give you the first question. Will this IBM bid for Lotus fly?
Isager: I think it's clear that Lotus will not be an independent company, and IBM is the best fit for Lotus both in terms of IBM's financial might and its technical ability.
GeoffSBW: Lotus will certainly try to get all the money and concessions it can from IBM. But it's eventually going to be sold.
JackBW: Dtlaser asks us this.
Question: Will AT&T make a bid?
JackBW: Any thoughts, Ira or Geoff?
Isager: I think AT&T is going to pass on Lotus.
GeoffSBW: I agree. AT&T isn't interested in Lotus' desktop programs, such as 1-2-3.
JackBW: O.K., here's a question from PerryWat.
Question: IBM wanted Lotus mainly because of its Notes program. Why is it so important for IBM to have it?
JackBW: Ira, you're the main IBM-watcher here.
Isager: Notes gives IBM a strong product to compete against Microsoft in the desktop-computer side of the software business. Remember, Notes resides on PCs.
JackBW: ElyseA has this rather pointed question. Want to try it, Geoff?
Question: Can you see a situation where the Lotus software culture rubs off on the pathetic IBM software-development organizations?
GeoffSBW: My reading is that IBM and Lotus will remain largely independent for some time. I doubt Lotus is big enough to influence IBM.
JackBW: Ira wants to add a thought.
Isager: My own belief is that Gerstner [IBM CEO] hopes the Lotus culture rubs off on IBM.
JackBW: MVW13 is an IBM "graduate" with his own view.
Question: Why is IBM interested in Lotus? They haven't solved their internal problems yet -- I left Poughkeepsie in September, and they are still closing buildings and letting people go.
JackBW: Ira?
Isager: You're right. IBM still has a lot of problems to solve. But if you take the long-term view, IBM desperately needs a product that has a leadership position in network computers, and that's Notes.
JackBW: Wheatman, like many others, has Microsoft on his mind in looking at this bid.
Question: Will buying Lotus give IBM the edge on MS?
Isager: There's no doubt it will. The big question is will IBM blow it?
JackBW: Geoff, would you like to add?
GeoffSBW: Notes has a clear lead in its market, and IBM will certainly get an initial boost vs. MS.
JackBW: Here's an explosive rumor for tonight -- heard anything about this,
Ira or Geoff?
Question: I also heard IBM is going to try and get AOL for Internet use to compete with MS.
JackBW: Bertelsmann already owns an interest in AOL.
Isager: Do you mean MS Network? I haven't heard that one.
GeoffSBW: Haven't heard that one either.
JackBW: It's a new one to us at BW Online, too. Hope AOL is watching!
JackBW: JBenson00 poses this.
Question: Are Lotus' P&Ls going sour, or are they just trying to play the merger game?
JackBW: Geoff, you're the Lotus man.
GeoffSBW: Lotus' profit-and-loss sheet is in tough shape, and will be for some time. Manzi's convinced he can turn things around by the end of the year. He didn't ask for the merger.
JackBW: KMc124 has a question your story addressed in BW's current issue,
Ira.
Question: What does the proposed purchase say about where IBM wants to be in the future?
Isager: Actually, it says everything about where IBM wants to be in the future. And that's pushing applications and products that tie into some sort of network, whether it's public or private.
JackBW: AMorrow45 has another question about Microsoft.
Question: What do you think Microsoft's reaction will be, if anything?
Isager: I think Microsoft should be concerned about this combination. How will they react? At first, they'll point out what a mess IBM has made in software. But if IBM gets its act together and Notes catches on, they may have to change their licensing policies on some products.
GeoffSBW: My guess? They'll speed up development of Exchange, their competitor to Notes.
JackBW: Dtlaser is back. Geoff?
Question: Is Lotus worth $3.3 billion?
GeoffSBW: Good question. Given Lotus' stock price -- above $63 today --it's worth more!
Isager: I'd have to agree
JackBW: SueBorg has an interesting idea.
Question: Would IBM be better by spinning off the Lotus desktop products to someone like Oracle or Novell? A Word Perfect/1-2-3 suite might give Microsoft some competition that the current Lotus Suite can't.
Isager: It might. But I really think that IBM wants to develop a new generation of Notes-based software.
JackBW: SSignpost asks this about IBM strategy and OS/2.
Question: If they want a leadership position, why not pursue OS? Not just OS/2 but perhaps something else? Know of anything in development?
Isager: The problem with that strategy is they are too far behind. They have some products, and it's most likely that IBM will turn them off to Lotus and they'll quietly go away.
JackBW: TomForest has another IBM question.
Question: Does IBM's LanServer figure into this anywhere, or is it a dead-end product?
Isager: I'm not sure how LanServer fits into this. If IBM wants an open platform, then they have to push Notes.
JackBW: An antitrust question from CptnOtto now.
Question: Do you think that people, and more specifically, the government, have been too lax on IBM and others because of all of the negative coverage on Microsoft?
JackBW: What's our reporting from Washington on this, Ira and/or Geoff?
Isager: So far, we haven't picked up any signs that Justice is going to go after IBM.
JackBW: My sense is that it's less a question of size than of differing businesses in this case.
JackBW: ElyseA wonders about employee reaction at Lotus, Geoff.
Question: Can you ask if there are any Lotus employees out there, and what the feeling is up there in Cambridge?
JackBW: We can't ask the audience, but Geoff can comment on Lotus morale perhaps.
GeoffSBW: Many Lotus employees are taking a wait-and-see approach. They want to know what IBM is going to offer. Morale is low, however, and plenty of workers would welcome IBM's deep pockets.
JackBW: JNMORSE is bearish on the bid. Comments?
Question: Doesn't anyone here believe that the merger might abort?
Isager: Someone else could come in, but I think IBM desperately wants Lotus.
GeoffSBW: Lotus would likely face major lawsuits if it rejected $3.3 billion or more in cash.
JackBW: MOtwell has the next question.
Question: Do you think that IBM can help Lotus compete against MS Excel in the Windows environment?
Isager: I think IBM can help Lotus focus its marketing, but it's a tough business.
GeoffSBW: Even Mitch Kapor, Lotus' founder, thinks 1-2-3 is in the dumps. I'm not sure what IBM could do to revive it.
JackBW: Ira, if you've been watching IBM stock, GJOB has a question for you.
Question: What gives with the decrease in price of IBM since making the Lotus offer?
Isager: I think the dip is due to a feeling that Lotus will not boost the top line. That's true in the short term. But if IBM is going to be a viable concern, it needs this technology and Lotus' position in the market.
JackBW: SueBorg reminds us that Lotus has a poison-pill defense still in its arsenal.
Question: What's the chance of Lotus putting its poison pill into play?
GeoffSBW: Not sure. The betting is they'll use it as ammo to up the price.
JackBW: Try this question next.
Question: The arbs seem quite intent that there will be a bid over $60. Who's most likely? HP? Oracle? AT&T? Someone else?
JackBW: This is from Pkedrosk.
Isager: I'm not sure. Each of those companies has a very good reason for staying away.
GeoffSBW: The answer is IBM. Arbs are betting Lotus will get IBM to pay more.
JackBW: How about this question?
Question: What can IBM do with a product such as Lotus Notes that Lotus hasn't been able to accomplish on its own?
Isager: Well, it has a much larger sales organization, and it's in many more vertical markets where a Notes-based application would make a nice small or large solution.
JackBW: A comment here from ElyseA, who sounds like an IBMer.
Comment: IBM software folks envy Lotus -- we would love to work in their environment -- and have successful products!
JackBW: Any comment on the comment?
Isager: Now they'll have a chance!
GeoffSBW: Lotus employees would probably love to show IBMers how it's done.
JackBW: Geoff, will Lotus people stay on if IBM wins?
GeoffSBW: That's an important question for IBM. Much depends on how much freedom IBM allows.
Isager: I think IBM is going to try very hard to keep these people.
JackBW: Back to IBM's OS/2 with this question.
Question: If IBM is so hot to acquire Lotus for its Notes software, what does this say about IBM's commitment to OS/2?
JackBW: Ira, you hit on that earlier.
Isager: I think this puts OS/2 in a much smaller playing field. I know Gerstner says it has nothing to do with OS/2, but he's got to be disappointed in the performance of that product.
JackBW: ELRSMITH has this to say. Comments, Ira or Geoff?
Comment: I am a computer professional. It seems to me that IBM remains far behind the curve and that this decision [to connect up with Lotus] is an example of that. The buy would have made sense about a decade ago when IBM and Lotus were at their peak. Now?
JackBW: This will have to be our final stanza.
Isager: Perhaps. But now IBM has a chance to get back in on another growth curve: Notes.
GeoffSBW: IBM had a chance to buy Notes many years ago, but passed. IBM may have realized its mistake.
JackBW: That's it for tonight from BW Online on the IBM bid for Lotus.
JackBW: Thanks, Ira Sager and Geoff Smith.
Isager: Thanks, Jack.
GeoffSBW: Thanks.
OnlineHost: Thanks to Ira Sager and Geoff Smith of Business Week and all the BW Online team for this conference. If you'd like to continue the discussion, we invite you to move over to the BW Online Chat Room. Or you can post questions and comments on the BW Online Message Boards (try Computers & Communications, where postings on IBM and Lotus have already been arriving).
Transcripts of all BW Online conferences are available for downloading soon after the event (look under Special Events, Talk, or Search BW). And join us Sunday at 9pm ET in the Globe for a conference on the current BW Cover Story, the Midyear Investment Outlook. Thanks again and goodnight!
Copyright 1995 by the McGraw-Hill Companies, Inc. All rights reserved.
