COMPUTER ASSOC. <CA> BOLSTERS HAND AGAINST IBM
Computer Associates International Inc's
800 mln dlr merger with Uccel Corp <UCE> will eliminate its
strongest rival, but the company still faces stiff competition
from International Business Machines Corp <IBM>, Wall Street
analysts said.
     "IBM is still the ruling force in mainframe systems
software," said Scott Smith, an analyst with Donaldson Lufkin
and Jenrette.
    "But the combination of the two companies will clearly
present a much stronger front," he said.
    Besides IBM, "Computer Associates will be far and away the
most powerful company in the field," added E.F. Hutton analyst
Terence Quinn.
    That field is a segment of the market known as system
utilities, or software packages that boost the productivity of
a company's data processing facilities by increasing the speed,
power and efficiency of large mainframe computers.
    The merger of Uccel and Computer Associates combines the
two biggest systems utilities suppliers other than IBM.
Analysts said the remaining players are mostly small firms that
will find the competition much harder than in the past.
    For Computer Associates, the merger with Uccel caps a
six-year acquisition campaign that has vaulted the Garden City,
N.Y.-based company to the top of the software industry.
    When the deal is completed sometime in August, the
company's revenues will exceed 450 mln dlrs, pushing it past 
Microsoft Corp <MFST> as the world's largest independent
software vendor.
    Computer Associates founder and chairman Charles B. Wang
took the company public in 1981, and since then he has bought
15 companies and boosted annual sales from 18.5 mln to 309.3
mln dlrs for the year ended March 31.
    Liemandt took charge of Wyly, sold off its non-computer
businesses and decided that it would focus solely on mainframe
computer software. In 1984, the company was renamed Uccel Corp.
    Liemandt, who said he will leave the company after the
merger is completed, also turned to acquisitions for growth.
    On the last day of 1986, Uccel completed the buyouts of six
companies for a total of about 60 mln dlrs.
    For 1986, it earned 17.0 mln dlrs, or 1.01 dlrs a share, on
sales of 141.5 mln dlrs.
    The agreement took industry analysts by surprise, largely
because the companies had been such bitter rivals. Also,
Dallas-based Uccel had engineered a strong comeback from the
dark days of 1982, when, as Wyly Corp, it lost 7.7 mln dlrs, or
56 cts a share.
   At that time, Wyly owned a potpourri of 13 different
businesses, only three of which were involved in computer
software. In 1983, Walter Haefner, a Swiss financier and a
major Wyly investor, lured Gregory J. Liemandt away from his
job as chairman of General Electric Co's <GE> computer services
unit.
    Computer Associates' Wang and Uccel's Liemandt said at a
news conference that the merger would give computer users a
single source for a wide range of software products.
    In addition to system utilities, Computer Associates also
sell products for microcomputers, while Uccel has made inroads
in the applications software market, where analysts said it has
been successful with accounting and banking systems.
    Wang said Computer Associates would continue to support and
enhance both companies' product lines, but noted that the
company will eventually weed out duplicate offerings. He said
about 20 pct of the companies' products overlap.
    Analysts said the merger would dilute the holdings of
current Computer Associates shareholders by about 10 pct. But
they joined Wang in forecasting that the deal will not dilute
Computer Associates' earnings for the current fiscal year.
    Quinn of E.F. Hutton said Wang has a proven track record of
completing acquisitions without earnings dilution. Therefore,
he said he would not change his 1988 earnings estimate of 1.05
dlrs a share.
    Wang said he would look closely at the combined operations
of the two companies and cut duplication in sales, marketing
and research and development.
    Analysts said Computer Associates paid a premium for Uccel.
Based on Friday's closing price, the company will swap 47.50
dlrs worth of its stock for each Uccel share, which is nearly
33 times Uccel's 1987 estimated earnings of 1.45 dlrs a share.
    Stephen T. McClellan of Merrill Lynch Research said most
software companies are currently valued at about 20 times
per-share earnings. But the analyst said Uccel was worth the
premium because of its earnings potential and customer base.

    Wang said Haefner, the Swiss investor, would hold about 25
pct of Computer Associates stock after the merger. He currently
owns 58 pct of Uccel.
    The executive said the merger would not alter his target of
maintaining sales and earnings growth of 30 pct to 35 pct.
    In addition, he said he expects no problems in having the
deal cleared by the antitrust division of the U.S. Justice
Department.
    Uccel's Liemandt declined to say what he will do after the
merger, but he did not rule out working together with Wang.

 Reuter
