MSI Asks Holders to Put Off Deciding on Tender Offer
MSI Data Corp., target of a hostile takeover bid by its arch-competitor, Telxon Corp., asked its shareholders Monday to temporarily refrain from participating in the Cleveland company’s $17-per-share tender offer.
“This has caught us flat-footed,” said Edward Johnson, personnel director and investor relations spokesman at the Costa Mesa technology firm. “We are scrambling--and that is my word, not anybody else’s--to see what it is we are going to do now.”
According to two industry analysts, MSI is likely to begin seeking another suitor to make a higher offer for the company, driven in part by concerns that Telxon would oust some of MSI’s top management if it takes control.
A third analyst, however, said that Telxon has indicated a desire to retain much of MSI’s management team. Telxon has been pretty much a one-man shop under President and Chief Executive Robert Meyo “and could use MSI’s management strengths,” said E. Lawrence Hickey, an analyst with First Analysis Corp. in Chicago.
Telxon announced Friday that it would offer $17 a share for all of MSI’s common stock outstanding. On Monday, the company formally launched its tender offer.
MSI has just under 5.3 million shares outstanding, plus warrants and options representing an additional 300,000 shares, making Telxon’s offer worth about $95 million.
Both Telxon and MSI design, manufacture and market portable data entry systems--small, hand-held devices used by retailers and wholesalers to collect information, such as product inventories, and transmit it to larger computers in regional or national warehousing and administrative centers.
The two companies control about half of the domestic market for portable data entry systems, according to Philip Muldoon, an analyst with the Ohio Co., a regional brokerage in Columbus.
Telxon overtook MSI as the industry leader late in 1984. Since then, the two companies have been at each other’s throat. Each has filed a lawsuit against the other, Telxon charging MSI with bribing a former employee to provide it with some of Telxon’s trade secrets, and MSI countering with a patent infringement suit against Telxon.
The normal degree of animosity between two competing firms has been heightened by those suits and likely has MSI officials worrying about their futures if Telxon is successful, suggested Muldoon and analyst Robert M. Johnson of the Houston brokerage Rotan Mosle.
In a statement accompanying its tender offer Monday, Telxon said that MSI officials last week rebuffed a proposal to negotiate a merger of the two firms.
Telxon investor relations director Jean Veatch said Monday that Telxon has offered to make room in the merged company for many MSI managers, but only “in the context of a negotiated settlement.”
MSI spokesman Johnson said company officials had not told him about any such proposal. He said MSI would have nothing more to say about the Telxon tender offer until company directors meet and decide on a course of action.
That decision, according to a letter to shareholders from MSI president Charles S. Strauch, will be made no later than Sept. 23.
In his letter, Strauch told shareholders that MSI directors believe “that it is not in your best interest to make a decision whether to accept or reject the offer until the MSI board, with the help of its financial and legal advisers, has completed its review and has advised you of its position.”
Thus, wrote Strauch, “shareholders are requested to defer making a determination whether to accept or reject Telxon’s tender offer until they have been advised of the board’s position . . . on or before Sept. 23, 1988, after which you will have 14 days to take the action you desire.”
Offer Expires Oct. 7
Telxon said its tender offer would expire at midnight Oct. 7, Eastern Daylight Time, but could be extended. The company last year raised $40 million in a debt offering and said it plans to use that money, plus bank borrowings, to finance its acquisition of MSI.
Muldoon, the Ohio Co. analyst, said the merger of Telxon and MSI would create “a very formidable company . . . in a $500-million market that is expected to grow rapidly through the 1990s.”
Muldoon said that while the animosity between MSI and Telxon might have made MSI officials anxious, “Telxon has a relatively conservative management and a very thorough management, and I don’t believe the company didn’t consider (easing MSI’s fears) when it put its offer on the table.”
But Johnson, the Rotan Mosle analyst, said that MSI officials must be “worried about protecting their jobs.” While the company could elect to fight Telxon’s offer internally, by raising an antitrust issue or seeking a court ruling to block the tender offer because of the pending lawsuits, Johnson said he believes MSI “is more prone to go with someone from the outside” to make a competing bid.
MSI management, he said, “doesn’t have a lot of shares,” so it does not have a huge financial stake and would not have a controlling vote in a shareholder showdown. MSI Chairman William Bowers is the largest single inside shareholder, with 161,000 shares, or 3% of the company’s stock. All officers and directors together own less than 10% of the company’s shares, according to MSI’s most recent proxy report.
Closed at $17.375
Investors also apparently believe that MSI is likely to seek a so-called white knight suitor to outbid Telxon’s $17-per-share offer. MSI stock on Friday soared 56% to close on the American Stock Exchange at $17.375 a share, up $6.375 for the day.
On Monday, the stock closed at $17.625 a share.
It is trading at slightly above Telxon’s offering price, said Johnson, because investment speculators believe that a better offer will come along.
Both Muldoon and Hickey said they believe Telxon will be willing to boost its offer, but not by more than 15% or so. “They won’t get into a bidding war,” Muldoon said.
Telxon spokeswoman Veatch said Monday that the company has said it would raise its offering price if MSI “can demonstrate additional value.” She declined further comment on that issue.
