A hostile takeover battle involving the two biggest players in the hand-held data entry market ended early Monday as Telxon Corp. dropped its $123-million bid for MSI Data Corp.
Each company also agreed to drop costly legal actions that it had filed against the other in a settlement that will cost Telxon $5 million in cash.
The complex agreement clears the way for Symbol Technologies Inc. of Bohemia, N.Y., to acquire MSI through its previously announced $23-per-share tender offer, which values the Costa Mesa technology firm at $142 million. MSI actively sought rescue from the Texlon bid and has accepted Symbol’s offer.
Several analysts called the settlement a clear sign that Telxon had lost the battle of the suits--in which MSI had accused Telxon of patent infringement and Telxon had accused MSI of bribing a former employee to obtain Telxon customer information.
Telxon, in Akron, Ohio, is the nation’s leading manufacturer of hand-held devices for entering inventory data. MSI is the second largest manufacturer and had held the lead over Telxon until 1984. Between them, the two control almost all of the domestic market for such devices, which are used to scan bar codes that contain price and product information and are used in a growing number of retail and wholesale applications. Symbol supplies both firms but does not compete in their market.
Telxon announced Monday that it has terminated its tender offer for MSI stock. The agreement also calls for Telxon to pay Symbol--soon to be MSI’s parent company--the $5-million cash settlement. Additionally, Telxon has agreed to purchase at least $40 million in products from the combined Symbol-MSI over the next five years and to license certain patents from Symbol and MSI at above-market royalty rates of as much as 10% of asales.
Telxon President Raymond D. Meyo said Monday that the settlement was “the best course of action” because it guarantees his company access to important new technologies being developed by Symbol and MSI. It also terminates litigation that was costing Telxon $400,000 a quarter.
He said the settlement was not an admission by Telxon that it infringed on MSI’s patent.
Jerome Swartz, chairman and chief executive of Symbol, said the settlement allows Symbol-MSI to maintain Telxon as a major customer and guarantees Telxon a supply of products from Symbol and MSI.
The technical-licensing portion of the pact enables Telxon to continue building bar-code readers under MSI’s so-called Datawand patent and to build a one-piece portable laser scanner terminal patented by Symbol, which supplies about 90% of the portable bar-code scanners used in data entry products.
“The licensing on the Symbol terminal and the MSI Datawand sets up very strong royalty streams for us and avoids (patent) conflicts in the future,” Swartz said. Royalties range from up to 10% on the MSI bar-code reader to 7.5% for the Symbol computer terminal.
“We also wind up with a $40-million supply contract with Telxon, a contract with teeth in it. . . . It has penalties for non-performance by Telxon,” he said.
In its often paradoxical way, the stock market reacted to the news Monday with a sizable rise in the price of Telxon common stock--up $1.12 1/2 to close at $15.75--and a slight dip in MSI’s price per share, which fell 25 cents to $22.75.
Telxon’s stock price was helped, however, by the company’s announcement that it anticipated a strong earnings increase on a 40% sales hike for its third quarter, Robert Johnson, an analyst with Rotan Mosle Inc., a Dallas brokerage, said.
He explained that it is likely that MSI’s stock price dropped slightly below the price being offered by Symbol simply because of the withdrawal of the Telxon tender offer.
Swartz, citing the so-called quiet period imposed by the Securities and Exchange Commission during a tender offer, declined to discuss details of his company’s plans for MSI.
He did say, however, that Symbol does not intend to make wholesale changes at MSI.
“We did not make this offer so we could replace people or facilities (at MSI). . . . There is no huge overlap of people and production facilities” between Symbol and MSI as there is with MSI and Telxon, he said.