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What's so "hostile" about a deal that could liberate Lotus Notes?

IBM Corp.'s so-called hostile takeover play on Lotus Development Corp. would give the acclaimed Notes software the marketing support Lotus now can't afford for its crown jewel.

The immediate heated reaction from Lotus Chairman Jim Manzi was no surprise given that IBM coupled its stunning $3.3 billion bid-the biggest ever in software-with legal moves to toss out the Lotus board and force the deal. If Microsoft Corp. Chairman Bill Gates tried such an assault, he would be harangued for applying killer tactics; that IBM gets away with it shows how far Big Blue's predator status has fallen.

Notes is a clever program that allows people on a computer network to work together on projects, but the consensus is Lotus doesn't have the market clout to take on the world.

IBM Chairman Louis V. Gerstner Jr. said he would keep Lotus intact with existing management-and he better mean that. An uninvited software takeover, like such a move on an ad agency, can work, but only if the talented staff being acquired is given reason to stick around.

IBM said it's too early to say what would happen to the estimated $25 million-$30 million Lotus ad account. The $500 million IBM global account was consolidated one year ago at Ogilvy & Mather Worldwide, New York.

But close IBM observers say there's a good chance for now Lotus would stay at Hill, Holliday, Connors, Cosmopulos, Boston-partly to give autonomy to the Lotus brand and management and partly because O&M has its arms full with existing IBM business. Still, some at O&M want to be Lotus eaters; at least one office was quietly at work last Tuesday plotting how to get the account.

IBM is the world's largest software marketer with $11 billion in software revenues last year, more than twice that of the No. 1 PC software marketer, Microsoft. But most of IBM's software sales are for mainframe computers, and IBM has failed repeatedly in marketing PC software.

Mr. Gerstner plowed an estimated $50 million worldwide last fall into ads introducing the OS/2 Warp PC operating system. Industry pundits question why he's trying to take on Microsoft Windows. But that effort shows Mr. Gerstner's willingness to spend on a software product he believes in, and that bodes well for a huge boost in Notes marketing.

Notes and IBM's PowerPC chip could give Mr. Gerstner a one-two punch to set new computer standards and create what many in the industry yearn for: A rival for Microsoft in software and Intel Corp. in chips. This is still fantasy. But the first of IBM's long-delayed PowerPC desktop computers arrives next week, a critical step in IBM's comeback attempt.

"It's a good decision for IBM. It's a potentially good decision for Lotus," said Peter Horan, president of International Data Group's Marketing Services Division. "Other than corporate ego, I don't see a reason as to why they won't both view this as a good deal."M


Notes, packaged here with a suite of PC software applications, is the product IBM wants to stake a future on.

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