ABI Agrees to Be Acquired by TIE/Communications in $16-Million Deal
ABI American Businessphones of Irvine, its hopes for obtaining new capital dashed in the aftermath of the Oct. 19 stock market crash, has agreed to be acquired by TIE/Communications, a Connecticut phone manufacturer, in a deal worth nearly $16 million in stock and cash.
The fast-growing telephone equipment company, recently named one of America’s best small companies by Business Week, will become a wholly owned subsidiary of TIE, based in Shelton, Conn.
But ABI founder Frank J. Feitz said he anticipates no major changes in ABI’s operations as a result of the deal.
ABI’s stock soared on news of the acquisition, closing at $7.875 per share, up $1.50--a 23.5% gain--in trading on the American Stock Exchange. TIE’s stock, also traded on the American exchange, closed at $2.50 per share, up 12.5 cents.
Feitz, ABI’s chairman, said the Oct. 19 stock market crash was a significant factor in the decision to merge with TIE.
Collapse Posed Problems
Feitz, who would continue to head the firm if the merger is completed, said the market collapse posed problems for the company as it sought to finance future expansion.
The crash “really slowed down the capital markets for small companies, probably for another 12 months,” he said. “I didn’t want to wait that long.”
Under terms of the agreement, ABI stockholders have two options: For each ABI share they own, they can receive $7 in cash and one share of TIE common stock, or they can receive 2.636 TIE shares for each of their ABI shares. The decision does not have to be made for several months, a period in which TIE’s stock price could climb.
Based on TIE’s current stock price, the cash-and-stock option would be worth a total of $9.50 per share and the transaction would have a total estimated value of $15.86 million. ABI has about 1.67 million shares outstanding.
“It’s a very fair deal” for shareholders, said Stephen Cotlar, an analyst with Montgomery Securities in San Francisco.
Called Fair to Shareholders
ABI said its directors had received an opinion from the Los Angeles investment firm of Bateman Eichler, Hill Richard that the merger was fair to its shareholders.
Founded in 1982, ABI sells and services phones for small- and medium-size businesses in California and several other Western states. Its principal product line, Ultracom, is manufactured by TIE.
ABI “is a very good customer,” said Polly Parke, a TIE spokeswoman. The merger “gives us additional resources to expand our distribution network on the West Coast and in California.”
“I also believe the industry is going to form more partnerships between manufacturers and distributors, and we want to be there at the forefront,” Feitz said.
ABI has been one of the fastest-growing of the hundreds of phone-equipment companies spawned in the deregulation of the telecommunications industry in the early 1980s. While intense competition and technological advances have driven down the price of phone equipment and forced scores of companies out of business, ABI has managed to flourish.
The Irvine firm reported net income of $1.1 million on sales of $27.1 million in its fiscal year ended last June 30. For the past two years, the company has been recognized as one of the nation’s fastest-growing small public companies by Inc. magazine.
ABI “is a small, aggressive, well-run organization,” said Montgomery Securities’ Cotlar. “Frank Feitz has built a sales and service organization that is probably second to none in the country” among phone equipment firms.
Conversely, analysts said TIE has been under considerable pressure to improve its financial performance after posting heavy losses during the past two years.
The company reported a loss of $4.3 million on sales of $191.1 million for the nine-month period ended Sept. 30.
In 1986, TIE posted a huge $59-million loss on sales of $298 million. The loss included a $34-million inventory write-down resulting from TIE’s unsuccessful attempt to enter the residential phone business.
Analysts speculated that Feitz would play a major role in helping TIE establish a nationwide distribution network for its products. A TIE spokeswoman said she didn’t know if Feitz would become a member of the TIE board of directors.
Feitz owns about 33% of ABI’s stock and other management owns an additional 25%.
The deal is subject to approval of ABI shareholders, who will vote on the transaction in a special meeting in March or April, ABI officials said.
The company’s shareholders won’t have to decide until then on the form payment they will receive.
