*COMPUTER ASSOCIATES INTL, INC. ACQUISITION OF STERLING SOFTWARE, INC. ANNOUNCED ON 2/14/2000

CUNY-BARUCHMERGERS & ACQUISITIONSPROF HARVEY PONIACHEKSPRING 2014

*CONTENTSTHE TRADITIONAL MERGER PROCESS STRATEGIC OBJECTIVE IDENTIFYING THE TARGET, NEGOTIATION, AND TIME LINETENDER OFFER, ACQUISITION VEHICLE AND STRUCTUREPRICE AND CONSIDERATION, COLLARCORPORATE GOVERNANCEACCOUNTING & TAXGOVERNMENT REGULATIONS, CORPORATE GOVERNANCEEXCHANGE AGENT, POST MERGER OWNERSHIPRISKS

* THE TRADITIONAL MERGER PROCESSCORPORATE OBJECTIVE AND MERGERSIDENTIFYING TARGETS, SELECT POSSIBLE ACQUISITIONS, AGREE ON A FIRST CHOICE CANDIDATE, CONDUCT PRELIMINARY ANALYSIS, VALUATIONAPPROACH THE TARGET, CONVENE PRELIMINARY DISCUSSIONS, NEGOTIATION, AND SET TIME LINEFORMULATE A LETTER OF INTENT, COMMENCE DUE DILIGENCECOMPLETE FINANCIAL NEGOTIATIONS ON PRICE & CONSIDERATION, TERMS SIGN THE AGREEMENT, MAKE THE ANNOUNCEMENT, CLOSE THE DEALIMPLEMENT THE AGREEMENT, ISSUE A TENDER OFFER, FORM AN ACQUISITION VEHICLE, STRUCTURE THE DEALPOST MERGER INTEGRATION

*STRATEGIC OBJECTIVE--WHY MERGER?

AN INTERNAL STRATEGIC AUDIT IDENTIFIED SEVERAL AREAS FOR COMPUTER ASSOCIATES INTL, INC. (CA) IMPROVEMENT, INCLUDING DATA STORAGE, APPLICATION DEVELOPMENT AND SERVICES MERIT IMPROVEMENTCA WAS SEEKING TO ACQUIRE NEW PRODUCTS, OBTAIN PRODUCT MIX AND DIVERSIFICATION, INCREASE MARKET PRESENCE AND GREATER OPERATING EFFICIENCIESCA GROWTH HISTORY IS ASSOCIATED WITH NUMEROUS ACQUISITIONS

*IDENTIFYING THE TARGET, TIME LINE

HOW WAS THE TARGET IDENTIFIED? IN LATE 1999, MORGAN STANLEY & CO CONTACTED CAS PRESIDENT, SANJAY KUMAR, TO INQUIRE WHETHER THEYD BE INTERESTED IN ACQUIRING STERLING SOFTWARE, INC (SST), BUT CA DECLINEDON JAN 14, 2000 KUMAR MET WITH MORGAN STANLEY TO HEAR THEIR INDUSTRY AND STRATEGIC VIEWS ON THE ABOVEFOLLOWING THE MEETING, KUMAR MET SSTS CHAIRMAN TO DISCUSS POSSIBLE COMBINATIONS, AND ON JAN 18 MR KUMAR FLEW TO DALLAS FOR FURTHER DISCUSSION

* IDENTIFYING THE TARGETCONT.ON JAN 23, SST MADE A PRESENTATION TO CAS SNR MGT, AND ON JAN 26 CAS BOARD OF DIRECTORS WAS ADVISED ON THE POSSIBLE ACQUISITION OF SSTOM FEB 6, KUMAR ADVISED SST OF THEIR INTEREST IN A COMBINATION, THE APPROX PRICE AND TERMS--SUBJECT TO DUE DILIGENCE REVIEWON FEB 9, CA AND SST AND THEIR OUTSIDE LEGAL ADVISORS MET IN DALLAS AND SIGNED A CONFIDENTIALITY AGREEMENT TO COMMENCE DUE DILIGENCECA BOARD OF DIRECTORS MET (VIA A CONFERENCE CALL) ON FEB 10 AND 13, AND APPROVED THE ACQUISITION OF SSTON FEB. 14, 2000 CA AND SST ENTERED INTO A MERGER AGREEMENT AND ANNOUNCED THEIR TRANSACTION BEFORE THE OPENING OF THE NYSE

*TENDER OFFER & ACQUISITION VEHICLE / STRUCTURE

WILLIAMS ACTREQUIRE 20 DAYS WAIT, SUBJECT TO EXTENSIONS, OFFER EXPIRES ON MARCH 20, 2000 AND THE LATEST BY 9/20/00 ACQUISITION IS VIA SILVERSMITH ACQUISITION CORP, A WHOLLY OWN SUBSIDIARY OF CA, WHICH WAS ESTABLISHED ON 2/11/2000 FOR THE SOLE PURPOSE OF ACQUIRING THE SST SHARES TENDERED IN THE OFFER THIS IS A REVERES TRIANGULAR ACQUISITION, WHEREBY THE ACQUIRING ENTITYSILVERSMITHWOULD MERGE INTO THE TARGET, AND THE SURVIVING FIRM WOULD BE STERLING, A SUBSIDIARY OF CA

*

*PRICE AND PAYMENT TERMS:STOCK-FOR-STOCK EXCHANGE OFFER& COLLAR PROVISION

THE EXCHANGE OFFER: STOCK-FOR-STOCK, AT A FIXED & VARIABLE EXCHANGE RATIO CUM COLLARSTOCK-FOR-STOCK EXCHANGE OFFER AT THE EXCHANGE RATIO OF 0.5634 CA/ SST BASED ON CAS AVG OF $77.12 AND A COLLAR THE EXCHANGE RATIO WILL BE RESTATED IF THE AVG CA PRICE (DURING THE WAITING PERIODFROM ANNOUNCING THE AGREEMENT TO 10 DAYS PRIOR TO CLOSING) IS GREATER THAN $77.12 OR LESS THAN $63.10

*PRICE &PAYMENT TERMSTHE COLLAR ESTABLISHES A CEILING AND FLOOR: THE CEILING FOR SST IS AT $43.45 IN THE EVENT THAT CA EXCEEDS $77.12 DURING THE APPROVAL PERIOD AT AN EXCHANGE RATIO OF CA/SST AT 0.5634 (43.45/77.12=0.5634; IF CA=$80, THEN 43.45/80=0.5431WHICH RESETS THE EXCHANGE OFFER)THE COLLAR SETS A FLOOR FOR STERLING AT $35.55 PER SST IF CA DECLINES BELOW $63.10 (35.55/63.10=0.5634; BUT IF CA=$30 THEN 35.55/30=1.185, TO AVOID DILUTION OF CA OWNERSHIP, CA WOULD OFFER TO PAY 0.5634 IN SHARES (0.5634x30=$16.902, AND THE BALANCE OF $18.648 IN CASH (=35.55-16.902)

*PRICE & PAYMENTCONT.IN THE CONTEXT OF OPTIONS ANALYSIS, CA IS SAID TO HAVE PURCHASED A CALL ON SST WITH A STRIKE PRICE OF $43.45 [ $77.12x0.5634=$43.45] FOR THE WAITING PERIOD (MATURITY); AND SOLD A PUT ON SST WITH A STRIKE PRICE OF $35.55 [63.10x0.5634=35.55], THUS CREATING A COLLAR WHICH PROVIDES A HEDGE AGAINST A RISE IN THE PRICE PER SST AND AVOID DILUTION IN THE EVENT OF A FALL IN ITS SHARE PRICE SIMILARLY, STERLINGTHE COUNTER PARTY TO THE ABOVE OPTIONS TRANSACTION IS SAID TO HAVE SOLD A CALL AND PURCHASED A PUT AT THE SAME STRIKE PRICES AND MATURITY AS CA; THUS HEDGING AGAINST THE RISK OF A DECLINE IN THE COMPENSATION PER SHARE (IN EXCHANGE FOR CA SHARES) IN THE EVENT OF A CA PRICE DECLINE

* PRICE & PAYMENTCONT.TO AVOID CAS DILUTION OF OWNERSHIP, I.E., ISSUE TOO MANY OF ITS SHARES IN EXCHANGE FOR SST IN THE EVENT THAT CA SHARES DECLINE, CA HAS THE OPTION TO PAY CASH IF ITS SHARE PRICE FALLS BELOW $63.10

*CORPORATE GOVERNANCE ISSUESTHE BOARD OF STERLING HAS UNANIMOUSLY APPROVED THE MERGER, DECLARING THAT THE OFFER IS FAIR AND IN THE BEST INTEREST OF SSTS SHs, AND RECOMMENDED THAT SSTS SHs ACCEPT THE OFFER AND TENDER THEIR SHARESSST WAS ADVISED BY GOLDMAN, SACHS & CO.THE OFFER IS SUBJECT TO SEVERAL CONDITIONS; 1. A MAJORITY OF SST TENDERING THEIR SHARES; UNDER DELAWARE CORPORATION LAW IF 90% OR MORE TENDER, NO VOTE OF SST SHs WOULD BE REQUIRED; 2. WAITING PERIOD UNDER ANTITRUST LAWS, 3. SEC ACCEPTANCE OF THE S-4 PROSPECTUS SHs AND DIRECTORS ARE OBLIGED NOT TO SOLICIT, INITIATE OR OR ENCOURAGE COMPETING OFFERSQUESTIONHOW SHOULD THE BOARD REACT TO A COMPETING OFFER?

*ACCOUNTING & TAXTHE ACQUISITION OF SST BY CA WOULD BE ACCOUNTED FOR BY THE PURCHASE METHOD OF ACCOUNTING (AND NOT BY THE POOLING METHODS OF ACCOUNTINGWHICH WAS DISALLOWED BY FASB FROM MID-2001 ONWARD )STOCK-FOR STOCK TRANSACTION--TYPE B TRANSACTION--IS DEEMED TAX FREE UNDER CERTAIN CIRCUMSTANCESHOWEVER, IF SOME CASH IS PAID, THIS PORTION WOULD BE TAXABLEFORMER SHs OF SST WOULD BE TAX EXEMPT IF THEY CONTINUE TO HOLD CAS SHARES AND IF NO SIGNIFICANT PART OF STERLING BUSINESS IS DIVESTED WITHIN THE FIRST TWO YEARS

*GOVERNMENT REGULATIONS

THE MERGER IS SUBJECT TO SEVERAL REGULATORY REQUIREMENTS: SEC REGISTRATION REQUIREMENTS OF NEW SECURITIES; WILLIAMS ACT (AN SEC AMENDMENT); HSR DOJ-FTC; DELAWARE CORPORATION LAW; CORPORATE BY-LAWS; IRS RULING ON THE TAX STATUS OF THE TRANSACTION TENDER OFFERS ARE SUBJECT TO THE WILLIAMS ACT AND NEED TO REMAIN OPEN FOR 20 BUSINESS DAYS FOR SHs TO TENDER THEIR SHARES, SUBJECT TO EXTENSIONS OF UP TO 15 DAYS; CAS OFFER EXPIRES ON MARCH 20, 2000 AND THE LATEST BY 9/20/00

*GOVERNMENT REGULATIONSANTITRUST CONDITIONS: UNDER HSR ACT, SOME ACQUISITIONS MAY NOT BE CONSUMMATED UNLESS INFO WAS FURNISHED TO THE ANTITRUST DIV OF THE DOJ AND THE FTC FOR APPROVALTHE INITIAL WAITING PERIOD UNDER HSR IS 30 DAYSDURING WHICH EITHER THE FTC OR DOJ MAY ISSUE A REQUEST FOR ADDL DATA, WHICH WILL EXTEND THE WAITING PERIOD BY 20 DAYS AFTER COMPLIANCE WITH THESE REQUESTSDELAWARE ANTI TAKEOVER LAWS SEC 253 OF THE DELAWARE GENERAL CORPORATION LAW STATES THAT IF 90% OR MORE OF TARGET SHARES ARE TENDERED, NO SHS APPROVAL IS REQUIRED

*RISK FACTORSTHE TRANSACTION COULD BE TAXABLETHE FIXED EXCHANGE RATIO CA/SST WOULD WORK TO THE DISADVANTAGE OF SSTS SHs IF CA FALLS STEEPLY POST MERGER INTEGRATION PROBLEMS COULD OCCURGOVERNMENT APPROVAL MIGHT BE DELAYEDA THIRD PARTY MIGHT ENTER THE BIDDING CONTEST

*EXCHANGE AGENT & POST MERGER OWNERSHIPTHE EXCHANGE AGENT WOULD BE A BANK THAT CA WOULD CONTRACT AND SST WOULD AGREE TOTHE EXCHANGE AGENT WOULD FACILITATE THE TENDER AND THE PAYMENTS INVOLVED STERLING SHs WOULD OWN APPROX 8% OF CA (Why? How do we derive it? Apply the exchange ratio model)

*POST MERGER INTEGRATION

THE TRADITIONAL MERGER PROCESSTHE INTEGRATED MERGER PROCESSESTO BE FURTHER DISCUSSED DURING OUR LAST SESSIONSEE THE SYLLABUS

*REFERENCEBASED ON FORM S-4 (PROSPECTUS)-- REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933-- FILED 2/22/2000