Telxon Cites Costa Mesa Firm’s Undervalued Stock : Rival to Launch $89-Million Takeover Bid for MSI Data

An Ohio technology company that has battled MSI Data Corp. of Costa Mesa in both the marketplace and the courtroom said Friday that it is preparing to launch an unsolicited, $89-million takeover bid for MSI.

Telxon Corp., MSI’s chief rival in the growing portable data terminal market, said it will begin its $17-per-share cash tender offer for all of MSI’s common stock sometime next week. MSI had 5.26 million shares outstanding as of Aug. 1.

The announcement sent MSI’s stock price soaring Friday in active trading on the American Stock Exchange. MSI stock rose 56% to close at $17.375 per share, up $6.375 for the day. Telxon’s stock, which is traded over the counter, closed at $17.50 per share, down 75 cents.

Telxon and MSI “have been head-to-head competitors, and things have gotten nasty from time to time,” said Robert M. Johnson, an investment analyst with Rotan Mosle in Houston. “They are both leaders in their market.”

Before Friday’s announcement, Johnson said he viewed MSI stock as being “terribly undervalued.” The company’s relatively cheap stock made MSI an attractive takeover target, he said.

Telxon and MSI both manufacture hand-held, data-entry terminals used by retailers and wholesalers to record product inventory information and transmit it to larger computers in regional or national offices. MSI pioneered the portable data terminal market in 1967, but Telxon overtook MSI as the market leader several years ago.

Together, Telxon and MSI account for almost 100% of the portable terminal market, Johnson said. Because of the market dominance of the two companies, he said, the deal could raise antitrust concerns in Washington.

Officials at Telxon’s Akron headquarters declined to discuss the tender offer announcement. MSI officials could not be reached for comment, but one MSI employee contacted Friday said the company was “surprised” by Telxon’s offer.

The rival companies are embroiled in a costly legal battle that began in March, 1985, when Telxon filed a $100-million lawsuit against MSI. The suit, pending in federal court in Cleveland, alleges that MSI bribed a former Telxon salesman in Europe to illegally obtain Telxon trade secrets. MSI has denied the allegations.

In September, 1985, MSI countered with its own lawsuit. Pending in federal court in Los Angeles, the suit charges Telxon with infringing an MSI patent in certain Telxon products. Telxon has denied the allegations.

Although MSI and Telxon have reported generally strong financial results, both companies have acknowledged that expenses of the legal fight have been a drain on earnings.

Telxon posted earnings of $14 million on sales of $123 million for its 1988 fiscal year, which ended March 31. With $60 million cash on hand at the end of March, Telxon has a sizable war chest with which to purchase MSI stock.

Telxon earned $3.42 million for the quarter ended June 30, up slightly from $3.36 million a year earlier.

MSI earned $4.9 million on revenue of $90.2 million for its fiscal year ended March 26. In the first quarter of its current year, MSI’s earnings soared 60% to $1.3 million, while revenue rose 6% to $21.8 million.

But MSI said in July that it expects sharply lower year-to-year earnings for the current quarter, which ends Sept. 24. MSI said its income will drop because of legal expenses, lower production rates and higher expenditures for marketing and sales.

HOW THE COMPANIES COMPARE

MSI DATA CORP. Headquarters: Costa Mesa Chief executive officer: Charles S. Strauch Products: portable data collection terminals Percentage of stock owned by company insiders: 5.5% Employees: 793 Revenue: $90.2 million (fiscal 1988 year ended March 26) Net Income: $4.93 million TELXON CORP. Headquarters: Akron, Ohio Chief executive officer: Raymond D. Meyo Products: portable data collection terminals Percentage of stock owned by company insiders: 9.5% Employees: 970 Revenue: $123.8 million (fiscal 1988 year ended March 31) Net Income: $14 million