Called Largest Hostile Takeover Bid in High-Tech Industry : Daisy Systems Makes Play for Cadnetix Corp.
In a deal touted as the largest hostile takeover attempt by a California high-technology firm, a computer-aided-design company in Silicon Valley on Thursday launched a bid for a similar firm with a price tag that could reach $94 million.
Daisy Systems of Mountain View, a pioneer in developing software and machines for designing computer chips, wants to acquire Cadnetix Corp. of Boulder, Colo., which creates equipment for designing the circuit boards that hold the chips.
Daisy’s revenue for its latest fiscal year was $100.9 million, off about 6% from the year before. Cadnetix’s sales in its latest year were $62.4 million, up almost 35%.
Daisy has acquired 7.6% of Cadnetix’s stock in recent weeks, gradually pushing the stock up 20%. The stock closed at $7.25, down 25 cents, in over-the-counter trading Thursday. Daisy plans to offer $8 a share in cash for 51% of Cadnetix’s stock.
Dependant on Employees
Investment bankers and industry analysts said the unsolicited offer, which follows an unsuccessful friendly approach last spring, is the largest hostile bid undertaken by a California high-tech firm.
Unsolicited bids are rare in high technology because the businesses are usually built around people with special talents. If the people do not want to work for the new bosses, they can leave.
In this case, Daisy is betting that top Cadnetix personnel would stay on or that the similarity between the businesses would allow Daisy to operate despite resignations.
“There is a hope on the part of Daisy that the key Cadnetix people will be excited by the business benefits and will stay,” said Michael E. Tennenbaum, vice chairman in the Los Angeles office of Bear, Stearns & Co., the investment bankers for Daisy. “If they don’t stay, they (Daisy executives) feel that they are sufficiently conversant that they could endure some defections.”
The deal has been orchestrated by Bear Stearns’ corporate finance division in Century City. Bear Stearns has pledged to raise a minimum of $50 million in financing for the transaction. Daisy said it has $50 million in cash already available.
Cadnetix executives could not be reached for comment.
According to Dataquest, the Silicon Valley market researcher, the North American market for computer-aided design and manufacturing systems was $3.7 billion in 1987 and is expected to grow to $5.6 billion by 1992. Growth, while not as torrid as several years ago, is still considered among the strongest in the high-tech industries.
These systems use computers to find the most efficient and logical design for advanced chips and circuit boards. The computers also evaluate the performance of the designs.
As in other segments of high technology, the field is undergoing consolidation. At least a dozen of the nearly 80 computer-aided-design companies have closed or been acquired by larger concerns in the past 18 months.
Some analysts said the acquisition of Cadnetix could be a smart move for Daisy, an original market leader that has slipped badly in recent years.
Robert Herwick, an analyst with Hambrecht & Quist in San Francisco, said Cadnetix would provide Daisy with a much needed presence in the market for machines that design circuit boards.
“It’s a natural business fit between two companies,” Herwick said. “Strategically, it’s a sound move from Daisy’s point of view.”
Daisy’s primary competitors, Mentor Graphics of Beaverton, Ore., and Valid Logic Systems of San Jose, have made recent acquisitions to expand their design capabilities.
However, Donald Brown, a computer-aided-design product analyst in Tarrytown, N.Y., questioned the potential advantage. He said jumping from chip design to boards is not necessarily a natural progression but involves two distinct activities.
“It seems logical, but in practicality it has proven tough to combine the two activities,” Brown said.
Moody’s Investors Service said earlier this year that Cadnetix faced companies that are “technologically and financially stronger.”
In an attempt to meet its competition, Cadnetix is acquiring two companies in the field, HHB Systems and Simucad. The deals are scheduled to close Wednesday.
If the deals go through, the amount of Cadnetix stock outstanding would be increased and Daisy would have to pay $94 million for the 51% stake. If the deals are not completed before the proposed acquisition, the cost for Cadnetix would be about $58 million.