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`Ashton Tate Is Not An Active Force Anymore'

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It's the latest example of the old business maxim: Grow or die. In 1988, Ashton-Tate Corp. wasa $307 million-a-year company, renowned for its dBase software, which stores and manages information on personal computers. Borland International Inc., also a software maker, was just one-third its size. But then, the bigger company stumbled in getting new products to market, sales plummeted, and Borland moved in to take advantage. Borland began cutting into Ashton-Tate's lead, then caught up in size. Just this May, Borland's chairman and founder, Philippe Kahn, proclaimed that "Ashton-Tate is not an active force anymore."

At least not under its own steam. On July 10, Borland announced an agreement to acquire its rival in a $439 million stock swap. For Kahn, the deal provides the industry clout he has long coveted. With the merger, Borland doubles its revenues, to around $500 million, andbecomes the No. 1 maker of data-base software in the PC industry. The deal also places Borland among the top five makers of all PC software. Most important, the new company's might will help blunt Microsoft Corp.'s expected entry into the data-base market and create a scrappy challenger to rival Oracle Systems Corp. "It's a very strong move," says Marc R. Benioff, Oracle's vice-president of marketing.

PAIN FIRST. The acquisition brings risks. In the short term, Borland stands to lose sales. Since both companies sell data-base software, customers may hold back on purchasing products from either company until the deal is completed several months from now, pending government and shareholder approval. "Customers will wait until the dust settles," says Chuck Taylor, an analyst with Needham & Co. He points to the unfortunate example of Computer Associates International Inc. After that company bought two data-base software companies back-to-back in 1988 and 1989, many customers delayed purchasing decisions for up to a year while the company explained how its new products fit together. The delays brought its first losses.

And Kahn must move quickly to streamline costs. That could prove especially painful for "Taters," as Ashton-Tate employees dub themselves, since they will become merely part of a division at Borland and are most likely to suffer any cost cuts. With Kahn running the merged company, William Lyons, chief executive at Ashton-Tate, is expected to resign after a transition. The two sides have already agreed on Borland's Scotts Valley (Calif.) home as headquarters. Analysts expect deep cuts by Borland--perhaps as many as 600 layoffs, or about 35% of Ashton-Tate's work force.

Things began to fall apart for Ashton-Tate in October, 1988, when it started shipping a vital new version of its flagship dBase software. "We're pleased to have met our quality standards," said Chief Executive Edward M. Esber Jr. as he announced the product. Little did he know that the program was crawling with so many bugs that many customers would refuse to use it. The product was recalled, and developers got to work on fixing it. Before they were through, however, the company's sales went into a nosedive, and Ashton-Tate reported two years of losses. Esber was forced to resign in April, 1990, three months before Ashton-Tate delivered the patched-up software. Since then, the company has returned to profitability, but not to the industry stature it once held.

VERSATILE FRENCHMAN. Borland thrived on Ashton-Tate's slipups. It offered its $725 Paradox data base to dBase customers for only $150. In addition to undercutting Ashton-Tate on pricing, Borland became the first company to sell mainstream business software using direct mail. Its aggressive direct-marketing campaign brought it nearly 20% of the PC data-base market. Much of Borland's success was attributable to Kahn, a sailing buff and saxophonist who left his native France to start the company. Like Microsoft's William Gates, Kahn has a knack for both business and technology. Although he must manage 1,000 employees, he still finds time for examining computer code and explaining technology to customers.

Now, Kahn may have a lot of explaining to do. Borland and Ashton-Tate sell incompatible data-base products. "If you look at the two technologies, they're not going to mix together very easily," says Larry M. Heimendinger, president of rival Nantucket Corp. Kahn has already unveiled a strategy to meld the two product lines together over time. He is banking on a technique called "object-oriented" programming that allows different software programs to work together interchangeably. But many customers aren't familiar with the technology and are likely to be skeptical. Meanwhile, Oracle and Microsoft can swoop in.

If Kahn can work out the details, though, the companies make a compelling combination. Ten-year-old Ashton-Tate has a loyal legion of more than a million customers and consultants. They know how to tailor Ashton-Tate's flagship dBase software so it can do anything from managing medical records to controlling corporate payrolls. As long as Kahn doesn't disappoint those customers the way Ashton-Tate did, growth should be no problem.WHAT EACH SIDE



FOUNDED 1980 1983

1990 REVENUES $231 million $226 million

1990 NET INCOME - $18 million $27 million

EMPLOYEES 1,750 1,000

SHARE OF 45% 20%


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PRODUCTS Word Programming

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Evan I. Schwartz in New York, with Richard Brandt in San Francisco

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