IBM buys Lotus to get Notes, allows company to keep name and operate independently.

Gerstner Calls Record $3.5 Billion Deal A 'Win-Win' And 'Truly Unique Opportunity'

Lotus Development Corp. has agreed to be acquired by IBM for $3.5 billion in cash - and IBM promises relative independence for Lotus employees who created Notes, the

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The IBM move, made public on June 5, stunned the computer industry. After years of struggle in the PC business, IBM is trying to capture Lotus intact, apparently to ensure that the Notes applecart is not overturned.

IBM's acquisition of Lotus is the largest yet for the computer industry, dwarfing Microsoft Corp.'s now scuttled $2.1 billion offer to buy Intuit Inc., and the $1.78 billion offer by Computer Associates International Inc. to buy Legent Corp. (see Software Industry Report, June 1, pg. 1)

Last week's final agreement between IBM and Lotus followed eight days of negotiations after an initial iBM offer of $3.3 billion. IBM's sweetening of the deal was expected. Unexpected was IBM's decision to allow Lotus CEO Jim Manzi to stay on in charge of Lotus employees.

IBM Chief Executive Louis Gerstner says he is "delighted" that Manzi is "committed to stay" as an IBM executive vice president. But industry experts say Manzi is doing this without an employment contract and say they doubt this shotgun marriage will last long. Manzi himself says he will only stay "to keep Lotus employees happy," and until working for IBM "is no longer interesting."

At the final buyout price of $64 a share, Manzi's 1,170,406 shares of Lotus stock will be worth about $80 million.

Gerstner is very upbeat about the deal, calling it a "win-win" and a "truly unique opportunity." Standing beside Manzi, Gerstner gave a special pep talk to several thousand Lotus employees bussed from the company's Cambridge, Mass., headquarters to a Boston concert hall for the occasion. Gerstner says he and Manzi share a vision of computing. Manzi said Lotus plans to go ahead with previously announced plans to reorganize to save $50 million and layoff some 15 percent of its managers and workers.

Focusing on the positive, Gerstner says "Lotus employees are proven innovators who have developed very successful groupware products. Working together, Lotus and IBM can make these products even more successful by bringing to bear IBM's strong technology, skills in industrial-strength enterprise computing, and our unmatched global marketing force."