Prime Sues MAI of Tustin in Move to Fend Off Takeover Bid
Prime Computer Corp., moving to fend off a hostile takeover bid, filed a federal court suit Tuesday against MAI Basic Four of Tustin seeking a “full and fair disclosure” of information regarding MAI’s $20-a-share tender offer.
The Prime suit is a response to an MAI suit filed in Massachusetts that seeks to prevent Prime from using that state’s takeover laws to block the MAI bid. The MAI suit also seeks to have the Massachusetts law declared unconstitutional.
MAI, a computer maker controlled by New York investor Bennett S. LeBow, on Nov. 15 made its $970-million offer for the much larger minicomputer maker with headquarters in Natick, Mass. Prime has asked shareholders not to tender their shares to MAI until the company announces its recommendation.
Prime said the suit seeks “full disclosure concerning the (MAI’s) relationship with Drexel Burnham Lambert Inc., the uncertain nature of (MAI’s) financing, alleged violations of the federal securities laws by certain of (MAI’s) principals in prior dealings involving other companies and other material facts.”
The Prime suit alleges that Drexel Burnham, a New York investment bank that owns 7.5% of MAI’s stock, has an “invisible hand” role in the MAI bid. The suit contends that LeBow and MAI have distributed material to Prime shareholders that “conceals and disguises the intricate web of involvement and the effective control exercised” by Drexel Burnham in the offer.
Drexel Burnham, which has provided financing for several other LeBow acquisitions, has signed a letter of commitment to partially underwrite $875 million in so-called “junk bond” financing for the deal.
Prime said Drexel Burnham’s role should be more fully disclosed because the investment bank and several of its employees are the subjects of an Securities and Exchange Commission lawsuit, as well as a federal grand jury investigation, that could impair its ability to finance MAI’s buyout.
LeBow, in a statement issued through a spokesman, Peter Rosenthal, said Prime’s claims are “without merit.”
“We are disappointed that Prime has resorted to this legal smoke screen, apparently before the Prime board has made a decision about the merits of our offer,” LeBow said.
The Prime suit alleges that MAI has failed to disclose “material facts” about a past business dealing of LeBow and his business partner, William Weksel, owner of about 5% of MAI’s stock.
Weksel was formerly chairman and chief executive of Information Displays Inc., a bankrupt computer-graphics company in Armonk, N.Y. LeBow owned a majority interest in the firm and served on its board of directors.
In August, 1986, the SEC charged Weksel and another Information Display executive with fraudulently inflating the firm’s earnings and selling personal stock without disclosing information about the company’s worsening financial condition.
In a consent agreement, Weksel agreed to turn over $208,000--the amount that he is accused of protecting from loss by selling out before news of Information Displays’ problems reached the stock market. Neither Weksel nor the other executives admitted wrongdoing.
The Prime suit notes that Prime’s stock “experienced an enormous, and at the time, unexplained surge” in trading activity on the Friday before the MAI offer was announced. More than 2 million Prime shares were traded that day--about five times the average daily volume over the previous 2 weeks.
