PRESIDENT’S ADDRESS SDL/IFIP
AUGUST 8-12TH, 1977
There are lots of exciting things that I could talk about at this time. However, I may as well concentrate on the one thing you really want to hear about.
How Did a Nice Company Like SDL End Up in the Insurance Business?
First, let me relieve your minds about a few items. It is not going to be necessary to change the name of the company to ‘Sun Dimensions Limited’ or even ‘Sun Systems.’ There has been a mild hint that it might be appropriate to change the name of our approach to Systems Development to the ‘Sun Life Cycle’ rather than ‘System Life Cycle’ but I do not expect they will press this point too hard. I do believe, however, that our proposed new venture with Sun will help us all achieve a brighter future.
HOW DID THIS ALL COME ABOUT?
SDL has always been an independent, growth-oriented company. In April, and again in June, I had placed before the Board a series of strategy options for the company, including one which was a very aggressive growth plan involving expansion into the United States. We had carefully saved up the cash to enable us to make this move. However, any major expansion would have an impact on our profitability. The start-up costs of a new Centre in the United States would have put the company into a loss position for about two more years. The difficulty that the Board and I could see was that this could cause the stock to drop even further. If this happened, a takeover by a possibly unfriendly company, or group, would be almost inevitable.
Effectively, we had a plan which we might not live to implement.
For this reason, the Board was not at all adverse to the idea of finding the right kind of company that would be interested in taking a majority interest in SDL. From such a sheltered position, we could then proceed with our plans for the future.
Over the past couple of years, I had talked to nearly all our major competitors about something called ‘industry rationalization.’ Everyone thought this was a good idea but naturally everyone believed what was intended was that they would come out on top. Frankly, it would be difficult to put two very similar companies together from a personnel standpoint, i.e. the resulting company might have a lot of duplicate staff. This could mean blood on the floor, and I am always squeamish about the sight of blood – particularly when some of it might be mine. I was looking for a company like Sun Life which would be essentially complementary rather than competitive. Sun, in fact, had been one on the prime candidates but events moved even more quickly than I had expected. In late June, the Vice Chairman of the Board of Crown Life called to suggest the start of discussions between Datacrown and SDL. Within a day or so, our stock took off. As a public company, we had to make an announcement about any factors that might cause the stock to move up so quickly. The impending discussions with Crown Life were certainly in this category. From that point on, we were operating in full public view.
THE RISING SUN
When Sun Life learned of our discussions, they approached us immediately. Sun Life had been considering for some time the possibility of making an offer for SDL and, hence, could move very quickly. I had discussions with each of Crown Life and Sun Life to answer their questions about SDL, and then called a Board Meeting for July 6th. The day started with a breakfast meeting in the Royal York Hotel at 7:45 a.m. At that meeting, Crown Life made their offer. It was a good offer. It was also a good breakfast. At 10:00 a.m., the Sun Life representatives met with us in our lawyers’ office in the Royal Bank Building. Sun Life did not buy breakfast, but did arrive with a better offer. Neither company, of course, knew the other company’s bid. It was like opening Christmas presents. The SDL Board agreed to recommend the Sun Life Offer. Crown Life withdrew.
BEHIND EVERY CLOUD, THERE’S A LITTLE BIT OF SUN
The world was unfolding as it should. Not only was Sun Life a most acceptable partner, but the Board believed their price to be fair. The $4.50 bid was certainly better than we could reasonably expect to be able to produce for our shareholders in the current market conditions for the foreseeable future. It was also approximately equal to the net tangible asset value of the company. Finally, Sun Life was well-known to us, as they were already a small investor and one of their senior officers had been on our Board of Directors for many years. Sun would certainly provide us with the large friendly backer that we were seeking. Several hectic weeks followed while Sun drafted their Offer and we drafted our Directors’ Circular. A typical meeting, which would often last all day, would involve senior representatives from two of the largest law firms in Canada, the internal Counsel from Sun Life, representatives of the two agents, Wood Gundy and Dominion Securities, who would round up the stock, and a variety of other accountants, auditors, and investment people. By the evening of July 25th, everything was in place and the mailing was to take place the next day. Despite an intermittent mail strike in Ottawa, I felt that I could now relax. The Offer was mailed on the Tuesday, and by Thursday, the stock began trading in huge volumes – over 100,000 shares on Thursday alone. Even more surprising was that the stock was trading well above the Offer price. There was speculation about a counter bid. Friday evening, Rod Oram of The Globe & Mail, called to say he had been contacting a number of people who might be making a bid and had casually called Crown Life. When put on the spot, Crown admitted they were doing some of the buying. Monday was a holiday in Canada, so I had a long weekend to carefully plot how I would subtly find out what Crown Life was really up to. By Tuesday morning, I had the answer. I called Bob Dowsett, the President of Crown Life, and asked him what he had in mind. I noted that our names had been romantically linked in The Globe & Mail, and now would like to know if his intentions were ‘honourable.’ Bob indicated that he was really hedging his bets in case the Sun Life Offer was not accepted by enough shareholders. But he certainly was not prepared to get into a bidding war with a company with $5 billion dollars of assets. In fact, by this time, the stock was being tendered in large quantities through brokers and, as everyone seemed to feel it was a good move for both SDL and Sun Life, the likelihood of the Offer being successful now seemed assured.
LIFE UNDER THE SUN
Over the past few weeks, I have had ample opportunity to work with people at Sun. I can assure you they will be a fine group with which to work. Sun Life is not only the largest insurance company in Canada but one of the largest in the world. Their approach is aggressive. Their markets are worldwide. Their intention, as stated to me, is to have SDL continue as an independent company. I will report to a new Board of Directors appointed by Sun Life. I believe that this move will be as close as we could come to getting the protection we needed, while retaining a significant degree of independence. It’s like having a big brother to protect you from roving Romeos while you are still single.
THE SUNNY SCENE IN BOSTON
Sun Life has its American head office in Boston. SDL has its most consistently successful office in Boston. The Boston Office is so psychic about sales potential, they even made arrangements to rent space in the new Sun Life Building in Boston before any of the rest of us knew anything about Sun Life’s intentions. It is now my pleasure to announce the Winner of the President’s Award for the Outstanding Office of the Year. The winner for the third straight year is Tom Kinney and the Boston Office.