Financial Adviser’s About-Face Prompts ABI to Cancel Merger
A proposed merger between ABI American Businessphones of Irvine and a Connecticut telephone manufacturer has been disconnected because a financial adviser concluded that the deal was not fair to ABI stockholders.
Bateman Eichler, Hill Richards, which last December determined that the merger with TIE/Communications would be fair to ABI shareholders, on Wednesday withdrew its earlier evaluation.
Frank J. Feitz, chairman of the Irvine telephone equipment company, said Bateman Eichler gave no reason for the change.
“I don’t know why they removed the fairness opinion,” Feitz said Wednesday. “I guess it could be because we’ve been reporting some very good (financial) results,” which could enhance the value of the company.
Fairness opinions are a common condition of merger agreements. Typically, a company that is being acquired will hire an independent investment banker to determine whether a deal is in its shareholders’ best financial interest. Feitz said ABI could have sought another opinion, but because the merger agreement with TIE expired at the end of the month, the company decided to cancel it.
Last December, ABI announced plans to be acquired by TIE, of Shelton, Conn., in a deal worth nearly $16 million in stock and cash. Under the proposal, ABI would have become a subsidiary of the Connecticut company.
Bateman Eichler said the investment banker who analyzed the merger was out of town and unavailable for comment Wednesday.
TIE officials said they were puzzled by the Bateman Eichler decision.
TIE Chairman William A. Merritt Jr. said his firm was “particularly surprised” by Bateman Eichler’s action because TIE’s stock has risen in value since the merger plan was announced. Under the deal, ABI shareholders would have received TIE stock, or a combination of stock and cash, in exchange for their ABI shares. Therefore, an increase in TIE’s stock price would seem to provide a better return to ABI holders.
TIE’s shares closed unchanged Wednesday at $2.50.
ABI’s stock closed Wednesday at $9.125 per share, up 37.5 cents. ABI’s stock was trading above $6 per share before the merger plan was announced.
Feitz said the roughly 50% increase in ABI’s stock is another possible explanation for Bateman Eichler’s decision. “It might be that Bateman originally believed that this deal was a premium for our shareholders,” he said. “But, in light of changed market conditions, they didn’t feel that way anymore.”
The Irvine company sells, installs and services phone equipment for small and medium-size businesses. ABI, which reported earnings of $1.14 million for the nine-month period ended March 31, buys most of its equipment from TIE.
When the merger was originally proposed, Feitz said ABI was having difficulty raising capital to expand its business after the Oct. 19 stock market collapse. TIE, with annual sales near $300 million, has far greater resources.
Feitz said he was “slightly disappointed” that the merger was scrapped. “But, in another way,” he added, “we’ve been doing so well that I don’t think it’s going to have a negative effect on the company.”
