Micom Systems, a Simi Valley-based manufacturer of computer communications equipment whose stock tumbled from nearly $50 a share three years ago to a closing price of $10.75 on Monday, is asking its shareholders to approve a key anti-takeover defense.
The measure would make it more difficult to buy the company through a hostile, two-step bid in which a buyer would purchase control of the company at one price and then pay a lower amount for the remaining shares.
The proposal, called a “fair-price” amendment to the company’s articles of incorporation, is to be considered by shareholders at the company’s annual meeting next Tuesday in Westlake Village.
Micom’s proposal, securities analysts and takeover experts said, reflects the growing concern over the past year by high-technology companies that their stock prices, which have continued to slide along with the slump in the computer industry, make them vulnerable to hostile takeovers.
The stock of Micom, whose earnings slid 58% in the year ended March 31, to $10.8 million on revenue of $189.5 million, was trading at about $21 a share a year ago.
Anti-takeover defenses have become more common with the flurry of hostile takeovers in recent years. The Investor Responsibility Research Center, a nonprofit research group in Washington, D.C., estimates that 80% of the companies in Standard & Poor’s 500 have put such protections in place and that about 30% have fair-price clauses similar to the one Micom is proposing.
Low Priority Targets
Technology companies, however, until recently have lagged behind other businesses in employing anti-takeover protections. Many experts consider them to be among the least likely acquisition targets because they are not rich in the kinds of assets that can be easily sold to pay off debt taken on for the takeover. In many cases, a computer-related company’s most valuable assets are its technology or its key engineering people, who can easily leave if the company changes hands.
Micom makes electronic gear that allows computers and other equipment, such as printers and terminals, to “talk” to each other by transmitting data. It is one of the few major computer-related companies in the San Fernando Valley area to seek anti-takeover protections. Another that had some measures in place was Informatics General, which lost a hostile takeover battle last year when it was bought by Dallas-based Sterling Software.
$45 Million Accessible
Raymond Thomas, Micom’s chief financial officer, said one reason the firm is seeking the measure is that its stock is trading slightly above the company’s $9-a-share book value, or net worth. Besides, he said, the company has about $45 million in cash and short-term securities that might make it attractive to a suitor.
Thomas said the decision was also influenced by some recent successful takeovers in the high-technology business, such as New York financier Asher B. Edelman’s hostile acquisition of San Antonio-based Datapoint last year.
Micom’s amendment would require almost any proposed acquisition to be approved either by 80% of the shareholders or by the board of directors. Officers and directors own nearly 32% of the stock now, so approval is unlikely without the directors’ consent.
That rule, however, doesn’t apply to shareholders who owned more than 5% of the company’s stock on April 1. Three financial institutions and two top Micom executives owned more than 5% at that time.
There also are other exceptions to the rule, including bids that meet a minimum price requirement. Those bids must match either the average price of Micom’s stock in the 90 days before a bid is made or the price on the last trading day, whichever is higher.
Two Tougher Clauses
James E. Heard, deputy director of the research center, said Micom’s proposal also includes two clauses that are tougher than those usually found in fair-price amendments. He speculated that these may have been included to discourage former company executives from making a bid for the company.
One requires any suitor who has bought Micom stock within five years of launching a bid to pay at least as much as was paid for those shares. The other would force a bidder to offer cash to shareholders if any of those previously acquired shares were bought with cash.
“This is a pretty potent device they have here. It would be very difficult, although not impossible, to take over this company without the consent of management,” Heard said.
Thomas, however, said the wording of Micom’s proposal is fairly standard, noting that it is virtually identical to an anti-takeover protection passed last year by Hewlett-Packard’s shareholders. He said the amendment is designed to protect Micom’s shareholders from receiving unequal amounts for their shares and to prevent disruptions by corporate raiders interested only in making a short-term profit.
Although fair-price amendments are considered among the mildest of anti-takeover shields, they are nonetheless controversial among many institutional shareholders. An executive with one of Micom’s 10 largest institutional shareholders, who asked not to be identified, said his investment group plans to vote against the proposal because it votes against all such protective measures.
Many institutions argue that such devices limit choices for shareholders, depress stock prices and entrench management.
“These proposals are usually classic PR pieces. They give it a label that says fair-price amendment, but who knows what you will find buried inside when you look at it,” said Tom Aceituno, general counsel for Jesse M. Unruh, California state treasurer, and a key official with the Council of Institutional Investors, a coalition of pension funds and other institutions.