MSI Turns Down Telxon’s Takeover Bid, Sues, OKs Plan to Block Unwanted Suitor

Times Staff Writer

MSI Data Corp., mounting a vigorous defense against a hostile takeover bid by its chief rival, spurned Telxon Corp.'s $17-per-share buyout proposal Friday and announced other steps designed to thwart Telxon’s bid.

MSI, a Costa Mesa technology firm, said its directors approved a temporary anti-takeover plan designed to make it more expensive for an unwanted suitor to acquire the company.

MSI also filed a lawsuit Friday seeking to block Telxon from proceeding with its $95-million cash acquisition offer.

By rejecting Telxon’s bid, investment analysts speculated, MSI is attempting to buy time to find a friendly third party to acquire the firm. MSI executives also could be considering taking the company private by buying all of its shares themselves. Either alternative would be likely to protect the jobs of top management.


MSI said it rejected the Telxon offer “as inadequate and not in the best interests of MSI and its stockholders.” Several analysts said they doubt if Telxon will raise its bid more than $1 or $2 per share, if at all.

MSI’s stock closed Friday at $17, down 62.5 cents, in trading on the American Stock Exchange. Analysts said the closing price indicates that Wall Street doesn’t think MSI will attract a much higher offer from Telxon or another party.

“The $17 offer is a relatively generous one in the current technology stock market,” said an analyst with an East Coast mutual fund that owns more than 5% of MSI’s stock. “I think it’s unlikely that someone is going to roll in there and offer $20. I don’t see a lot more value there.”

Telxon has said it may raise its offer if MSI “can demonstrate additional value.” Jean Veatch, Telxon investor relations director, said Friday that the company would have no comment on MSI’s action until it can review MSI documents filed with the Securities and Exchange Commission.


MSI’ anti-takeover plan and lawsuit “may be a ploy to get (Telxon) to pay up more. But the fact that they are going to seek legal sanctions is an indication they are going to resist,” said Philip Muldoon, an analyst with the Ohio Co., a Columbus brokerage.

“You have to think that if Telxon takes them over, there will be a loss of jobs at the top of MSI,” Muldoon said. “So for the sake of preserving their jobs, management is going to resist.”

Telxon announced on Sept. 9 that it would offer $17 a share for all of MSI’s common stock. Telxon launched its tender offer on Sept. 12.

Telxon and MSI have been aggressive competitors in the market for portable data-entry systems--small, hand-held devices used by retailers and wholesalers to record information such as inventories.


The two companies, which control about half of the U.S. market for portable data-entry systems, have also been embroiled in a 3-year-old legal dispute. Each has filed a lawsuit against the other, Telxon accusing MSI of illegally obtaining Telxon trade secrets, and MSI countering with a patent-infringement suit against its rival.

On Friday, MSI said it intends “to pursue vigorously” the infringement suit. A trial in that case is scheduled to begin Nov. 22 in federal court in Los Angeles.

In a letter sent to shareholders Friday by MSI President Charles S. Strauch, the company said that it believes that it can win its patent suit against Telxon and that the damages awarded to MSI “could have a very substantial favorable impact on stockholder values.”

The company estimates that if it wins the suit, it could receive damages ranging from $16 million to $71 million, according to SEC documents.


In rejecting Telxon’s offer, MSI said it considered “a number of factors,” including opinions from two Wall Street investment firms, Smith Barney, Harris Upham & Co. and Goldman Sachs & Co., which found the Telxon offer “inadequate from a financial point of view.”

MSI has retained Smith Barney and Goldman Sachs as “independent financial advisers” for the Telxon offer. Each of the firms will receive an initial fee of $250,000, plus an additional $1 million each if Telxon does not gain control of MSI by June 1, 1989, SEC documents show.

MSI said it plans to pursue “a variety of possible alternative transactions” to the Telxon offer in order to “enhance shareholder value.” Those alternatives include “the sale of equity or other securities of the company to a third party, a business combination between the company and another company; a recapitalization or restructuring . . . and the sale of the entire company.”

Strauch disclosed in the letter to shareholders that MSI “has received expressions of interest from other companies which may have an interest in acquiring the company at a more attractive price.”


The company did not disclose the names of those firms, but one analyst said he has heard rumors that Northern Telecom and Allen-Bradley Co. may be interested. Officials of those firms could not be reached for comment.

On Sept. 12, Telxon filed suit in federal court in Delaware against MSI and the state of Delaware, seeking, among other things, to have that state’s general corporation law declared unconstitutional. MSI is headquartered in Costa Mesa but incorporated in Delaware, SEC docments show. Many companies incorporate in Delaware because its laws provide certain protections lacking in other states.

On Friday, MSI filed a counterclaim against Telxon, seeking a court order to block Telxon from going ahead with its offer until the patent suit between the two companies is resolved, according to Paul J. Schneider, MSI’s chief financial officer.