CAMBRIDGE, Mass. -- Learning Co., the No. 1 education software maker, said yesterday that it will buy Broderbund Software Inc. for $420 million in stock, giving it the best-selling fantasy game, "Myst," and geography game, "Where in the World is Carmen Sandiego?"
Learning Co. will issue 0.80 share for each Broderbund share. Based on Learning Co.'s closing price of $25 on Friday, Broderbund shareholders will get $20 a share -- a 21 percent premium to Friday's close. Learning Co. said the purchase will increase its 1999 earnings by 10 cents a share or more.
Learning Co., formerly SoftKey International, battled Broderbund in late 1995, when it trumped Broderbund's bid to buy the old Learning Co. SoftKey won the war and took the Learning Co. name in 1996. Since that 1995 clash, both companies lost more than half their value as they began losing money. Now, Learning Co. has control over some of the best-known brand names in the consumer software market.
"Broderbund was losing major market share," said Jeff Goverman, an analyst at Pacific Crest Securities, who rates Broderbund "market performer."
"They would've had to spend money on marketing or cut prices. Things weren't great now but to get it going would've taken major investment."
The acquisition comes just a week after Novato, Calif.- based Broderbund said it will report a third-quarter loss and hired Donaldson, Lufkin & Jenrette to explore its strategic alternatives.
"It's a terrific fit because Broderbund has a very, very strong array of titles that are undermarketed and don't have retail shelf space," said analyst Stephen Dube of Wasserstein Perella Securities, who rates Learning Co. a "strong buy."
Shares of Broderbund rose $2.25 to $18.75 while Learning Co. fell 10.94 cents to $24.8906.
In 1995, SoftKey went on a $1 billion acquisition spree to become the biggest maker of educational software, an effort capped by its $606 million purchase of Learning Co.
Learning Co.'s size and product-line breadth was an advantage as competitors slashed prices and consolidation ravaged the consumer software market, said Pacific Crest's Goverman.
"You need size and scope," he said. Broderbund's was not equipped to handle those trends because its product line wasn't diverse enough and it had lost market share in virtually every area, including the education software market, analysts said.
Broderbund's education software sales have fallen as it focused more narrowly on entertainment software, such as "Riven," the sequel to "Myst." Analysts expressed concern that the company spent too much on marketing "Riven," costs which rose 76 percent last quarter, and that its sales didn't translate into earnings.
More than 5 million copies of "Myst" and more than 1 million copies of "Riven" have been sold, a Broderbund spokesman said.
Learning Co.'s leading software titles include "Reader Rabbit," "PrintMaster" and "Sesame Street." Broderbund's include "The Print Shop," "Living Books" and "Family Tree Maker."
Pub Date: 6/23/98