Micom Says No to Suitor, but Remains Prime Target
Micom Systems works hard to help computers to communicate. But when it came to talking last week about a prospective takeover bid, the company was mum.
Thursday, the Simi Valley company, which makes equipment that helps computers electronically talk to one another, released a cryptic announcement saying it had spurned an unsolicited takeover bid from a company it refused to name.
Micom executives emphasized that it was a friendly offer, adding that two weeks of discussions ended for good Tuesday. Analysts, investors and industry executives were trying to guess who might be the suitor.
The bid, although apparently moot now, shows what has been obvious to analysts and company executives for more than a year: Micom’s lagging stock price makes it an attractive buy.
Micom’s stock closed at $11.75 a share on Friday. By contrast, it was selling at nearly $50 a share three years ago.
The recent price is only 20% above its $9.80-a-share book value, or net worth. What’s more, Micom is sitting on $31 million in cash and short-term investments and has another $29 million salted away in long-term investments.
Like many high-technology companies, Micom was hurt by the severe industry slump in 1985 and 1986. In particular, it suffered from severe industrywide price-cutting and a problem-plagued acquisition of Interlan, a New Hampshire company that makes high-speed communications equipment containing cables that can link computers and terminals in distant parts of a building.
Record Sales
Although Micom’s sales of $196.7 million in the fiscal year ended March 31 were the highest in its 14-year history and its earnings rose 13% to $12.2 million, the company still lags behind its performance in 1984 and 1985. Micom in those years earned $20.9 million and $25.7 million, respectively.
Raymond V. Thomas, Micom’s chief financial officer, attributes the earnings recovery largely to cost-cutting and said the market for the company’s products remains soft.
Michael Murphy, editor of the California Technology Stock Letter in San Francisco, believes Micom remains a good takeover candidate. He notes that the stock market values Micom’s 17.6 million shares at a total of $207 million, just barely above its annual sales.
Fred Litwin, who follows the company for L.F. Rothschild in New York, estimates that Micom would fetch at least a 10% premium on its market value now, or about $225 million. He said that despite the depressed stock price, a buyer of Micom would have to be a large company to afford to pay that much.
A hostile takeover might be difficult. Officers and directors own about 30% of the stock now.
And Micom’s shareholders last year approved an anti-takeover measure making it difficult to buy the company through a hostile, two-step bid. Such acquisitions, in which a suitor buys enough shares for control at one price and pays a lower amount for remaining shares, must be approved by 80% of the company’s shareholders.
Last month, Micom’s shareholders approved the company’s reincorporation in Delaware. The company said this was primarily to take advantage of a 1-year-old law protecting directors of companies incorporated there from lawsuits.
But Micom’s proxy statement also notes that Delaware has stricter anti-takeover laws. One such law, for example, restricts the ability of dissident shareholders to call special shareholders’ meetings; another makes it harder for them to elect directors.
