View:
James A. Unruh Unisys Corporation
Chairman and Chief Executive Officer PO Box 500
Blue Bell, PA 19424-0001
UNISYS
April 10, 1996
To: Our Stockholders
As a major investor in Unisys, I would like you to have as much insight
as possible into our view of the stockholder proposal to spin-off Unisys
into three publicly-traded companies.
We are making progress in what is an extremely complex, multi-year
process to transform Unisys from a traditional mainframe company to a
services-led, technology-based information management company. In 1995,
business segments growing in double-digits accounted for 42% of total
revenue, up from 15% in 1992. Also in 1995, we focused our business
solely on information management by selling our defense electronics
business.
But performance issues remained. To address these issues, on January 2,
1996 we put in place what we call a "three business/one company"
structure. It is clearly supported by financial and industry analysts'
consensus. A Smith Barney analyst, Barry Bosak, called it "the most
thorough reorganization we have witnessed for a public company."
It is against this backdrop that the stockholder proposal must be
considered.
This is a critical issue for all Unisys stockholders. After serious
consideration, the Board of Directors in conjunction with our outside
advisors has concluded that our strategy of being a full service
information management company will better serve to maximize stockholder
value than a plan to fragment the Corporation's interrelated businesses.
The Board believes our recent realignment into three business units will
bring the focus and accountability necessary to improve the company's
financial performance. Improved financial performance will maximize
shareholder value. In addition, the new structure will give investors
the visibility to properly value the new, transformed Unisys and should
increase the company's overall price earnings ratio and market value.
At the same time, this new structure properly recognizes the current
interdependence of all three units. More than 80% of Unisys revenue is
attributable to customers doing business with at least two of the three
business units and more than 50% is attributable to customers doing
business with all three units. Bringing the expertise of these three
business units together to provide customers "one stop shopping" is a
key market differentiator.
Even without implementation of this non-binding proposal, a significant
vote for it would create customer uncertainty. In this industry, that
translates into lost business. This is just what our competitors would
love. Analysts who know our industry and Unisys well understand Unisys
could not operate as three separate businesses today. Steps in this
direction would cause customer concerns and would eliminate our "one
stop shopping" differentiator. This would open our customer base to
more competition resulting in revenue and profit declines which would
hurt stockholder value.
The Wall Street Journal on March 15th captured much of this sentiment.
It said, "Analysts didn't give the proposal much chance of passing a
shareholder vote. 'My bet would be that the investors are going to
understand that they have to leave this company alone right now,' said
Jay Stevens of Dean Witter Reynolds, Inc." In a report issued on April
8, Don Young of Lehman Brothers said, "We view this proposal as
unrealistic due to the operating synergies between the three units."
These critical points are also recognized by Institutional Shareholder
Services (ISS), the nation's leading independent proxy advisory firm,
which has recommended that stockholders vote "against" the spin-off
proposal. The recommendation part of the ISS report is attached.
Because this decision is so important to the company and its
shareholders, I hope you will consider these points. I urge a vote
"against" the proposal. A proxy card is enclosed for your convenience.
Sincerely,
James A. Unruh
[Attachment]
INSTITUTIONAL
SHAREHOLDER
SERVICES PAGE 8
Shareholder Proposal
Item 3: Spin-Off Into Three Separate Companies
Greenway Partners, LP has submitted a nonbinding shareholder proposal,
which seeks board authorization to divide the company into three separate
publicly traded companies, along the same lines as Unisys' most recent
restructuring -- the information services group, the computer systems
group, and the global customer services group. The proponent suggests that
the company's October 1995 division is superficial and recommends that the
split be completed through a tax-free spin-off of two of the three units in
the form of a stock dividend to shareholders.
In support of its proposal, the proponent cites the increasing popularity
and success of such spin-offs as Control Data/Ceridian, Eastman
Kodak/Eastman Chemical, and Sears Roebuck/Dean Witter/Allstate as well as
the recently announced spin-offs by AT&T and ITT. According to Greenway,
investors were rewarded by the mere announcement of the AT&T and ITT spin-
offs, but the market did not respond as favorably to Unisys' announcement
that it would restructure operations into three separate business groups.
The proponents suggest that the announcement fell short of the market's
expectations.
The proponent further points out that the restructuring plan is the fifth
plan announced in seven years, and therefore, holds little hope that the
move will translate into value for shareholders. Instead, the proponents
believe that by dividing the company into three separate publicly traded
companies, management could devote special attention to their respective
needs. In addition, the proponent maintains that "investors, potential
capital sources, and analysts would be able to price more efficiently each
of the separate businesses."
Management states that it has considered the proponent's proposal, but that
it has determined that, because the proposal "presents serious business and
financial risks," it cannot support the move. Instead, management believes
that the "recently implemented realignment . . . will bring the focus and
accountability necessary to improve the company's performance." Moreover,
management states that its "one company-three business' approach recognizes
the interdependence of the company's operations, which it believes is
critical for many reasons, including a shared customer base. Since "80
percent of the company's revenues come from customers doing business with
at least two of the units," a separation, according to management, could
"jeopardize the business of all three units." In addition, management
states that creating three separate publicly traded companies could pose
significant risk to the company's capital structure and its ability to
secure new financing.
Unisys is the nation's fifth-largest computer maker, but has struggled to
shift its focus from computer sales to computer management and consulting
services. In July 1995, the company reorganized into four business units.
Three months later it reorganized into three units. The latest move to
revamp operations represents, as mentioned above, the fifth attempt in
seven years and the third this year. However, according to the proponent a
true separation of the three businesses is necessary to "finally unleash...
the underlying value in Unisys."
We believe that a determination as to the appropriateness of a spin-off
turns on the degree to which the operating groups' customers overlap and
the nature of their products (e.g., to what extent does the consulting
group provide services related to Unisys solutions?).
Under the company's new structure it operates three relatively distinct
businesses: a computer consulting business, a product development shop,
and a network engineering, design, maintenance, and administration
business. The company's current chairman and CEO, who took over in 1990,
has led a reorganization effort that has slashed costs and reduced the
workforce by almost half. Still, notwithstanding the division of its
operations, there remains considerable overlap in the company's customer
base and their needs. In fact, according to a report issued on March 15,
1996 by BT Securities Corp., a division of Bankers Trust New York Corp.,
"there is an 80 percent overlap between the Computer Systems Group and the
Global Customer Services." In addition, the overlap between the consulting
group and the other two units is greater than 50 percent. According to BT
Securities, "it is difficult to imagine how any of these units as currently
configured would operate without the benefit of the other two." Dean
Witter Reynolds Inc.'s Jay Stevens agrees that "investors are going to
understand that they have to leave this company alone right now."
Unisys has undertaken a significant challenge. Managing its shift from a
mature proprietary mainframe and maintenance business to investing in high
growth services and open client/server systems will be a complex and
demanding task. The transformation will not occur overnight but will
likely evolve over time. However, to the company's advantage, its new form
still provides the opportunity of one-stop shopping for its clients.
While Unisys is increasingly competing in an open, multivendor environment,
it maintains a sizable base of proprietary systems and an installed
mainframe customer base that requires considerable consulting. Its
computer systems group provides the hardware, software, management systems,
and development environment building blocks; its information services group
creates customized solutions for clients; its networks group provides
support for information management systems and supports multivendor
distributed computing systems. One strategic objective of the computer
systems group is to expand use of its UNIX system building blocks through
the information services group and the formulation of their client
solutions. The information services group is able to quickly meet its
customers' need because it has access to key suppliers of hardware and
software technology. Additionally, approximately 85 percent of the
networks group's revenues comes from the Unisys-installed customer base.
According to management each unit will be a profit and loss center "down to
the pre-tax line and [will be] judged against 'best of breed' competitorS"
and each unit will "run its business according to its own economic and
business model." Management believes that this "loosely-coupled three
business/one company structure" will facilitate the market's valuation of
the company in terms of the multiple applied to its performance as the
company begins to report more clearly the performance of each unit.
Although this proposal does not require the company to effect the proposed
spin-off, we believe that under most conditions the decision should be left
to management. We also agree that the board of directors, as fiduciaries
for shareholders, should continue to examine every available alternative to
maximize shareholder value, particularly when the company's performance
begins to lag. However, we do not believe that there is sufficient
indication in the present case that the board has not adequately considered
all available alternatives. Moreover, despite the connections drawn by the
proponent to recent spin-off activity, we don't agree that the issues
driving the decisions at Sears Roebuck or Eastman Kodak, for example,
mirror the circumstances surrounding the present proposal.
Instead, the benefits of a possible division of Unisys are far less evident
(if they exist at all) than those associated with the recent string of
spin-offs. ISS had an opportunity to consider information not contained in
the proxy statement, and has determined that even with management's efforts
to reposition its operations, the three operating units still rely
extensively on each other. Therefore, separation of any of these units
would be far too risky to the company's overall performance and growth
potential. Accordingly, we believe that shareholders' interests would be
best served by allowing management to continue implementation of its
restructuring plan.
We recommend a vote AGAINST the proposal.
Unisys Corp. April 1, 1996 1996, Institutional Shareholder Services
Mary-Ellen Robinson, Senior Analyst Phone: 301/718-2255
INSTITUTIONAL
SHAREHOLDER
SERVICES PAGE 12
Vote Record Form: UNISYS CORP.
UIS (NYSE)
Annual Meeting: April 25, 1996 Record Date: February 26, 1996
Account ID Code: Shares Held on Record Date:
Shares Voted: Date Voted:
MEETING AGENDA
Item Code Proposals Mgt. Rec. ISS Rec. Vote Cast
1 M0201 Elect Directors For FOR
2 M0101 Ratify Auditors For FOR
Shareholder Proposal
3 S0810 Spin-Off Into Three Against AGAINST
Separate Companies
Unisys Corp. April 1, 1996 1996, Institutional
Shareholder Services
Mary-Ellen Robinson, Senior Analyst Phone: 301/718-2255