Target of Tustin’s MAI to Cut 1,200 Jobs, Reshuffle : Reorganization by Prime to Trim Work Force 10%
Prime Computer, target of a $970-million hostile takeover bid by MAI Basic Four in Tustin, announced a sweeping reorganization and cost-cutting program Wednesday that will eliminate 1,200 jobs, or 10% of its work force.
Prime said more than half the layoffs will be in its home state of Massachusetts, with the remainder spread throughout its U.S. and international operations.
The Natick maker of minicomputers employs about 800 people in California. A Prime spokesman said he didn’t know how many California workers might lose jobs.
But most of Prime’s California employees work in sales, and layoffs in the company’s sales force will be minimal, spokesman Joe Gavaghan said.
In Midst of Takeover Battle
The layoffs will occur in phases during the next 6 months, beginning in January. No employees have received layoff notices yet, the company said.
The corporate shake-up comes amid a 6-week takeover battle between Prime and MAI, a manufacturer of business computers. The Tustin-based firm is controlled by New York investor Bennett S. LeBow.
Prime has rejected MAI’s $20-a-share cash tender offer as inadequate. The offer is scheduled to expire at midnight EST today, but the deadline is expected to be extended.
Prime’s stock closed Wednesday at $17.375 a share, up 25 cents, in New York Stock Exchange trading.
A significant layoff at Prime has been the subject of rumors for several weeks. Earlier this month, Prime President Anthony L. Craig circulated an internal memo to company employees outlining general reorganization plans. The memo did not mention layoffs, but job cuts were widely assumed to be the key.
Prime officials contended Wednesday that the job cuts were not directly related to the MAI offer, although several industry analysts questioned that.
‘Streamlined Operation’
Prime spokesmen described the layoffs as another step in the consolidation process begun in February, when Prime acquired Computervision in a $435-million hostile takeover. Prime has already cut 700 jobs since buying the computer maker based in Bedford, Mass.
Prime spokesmen said the layoffs would have been necessary despite the MAI bid, but they said the action is being taken sooner as a result of the takeover bid.
“Clearly it (the reorganization) sends a message to shareholders that we are interested in running a very streamlined operation . . . and it speaks well for us as far as the MAI situation,” said one Prime official, who asked not to be named.
The changes are expected to result in savings of about $50 million in 1989, Craig said in a prepared statement.
He said the savings are in addition to another $50 million that Prime said it has saved by combining Prime and Computervision and should increase Prime’s operating income for 1989 and beyond.
But the company said its pre-tax operating earnings for the fourth quarter will be reduced by $40 million to $45 million as a result of one-time expenses resulting from the reorganization and the cost of its takeover fight with MAI.
Prime’s fourth-quarter sales are off sharply, probably because of uncertainty created by the MAI offer, said John Logan, vice president of a Boston market research firm.
Logan, a former Prime marketing executive, said about 20% of Prime’s total yearly orders are usually made during the last 6 weeks of the year.
“No prudent buyer can go to management and say, ‘Let’s buy Prime equipment’ until this matter is resolved,” Logan said. “The MAI situation has frozen the sales of Prime during what should be its largest sales period.”
Robert M. Johnson, a technology analyst with Rotan Mosle in Houston, said the cost-cutting will have the effect of boosting Prime’s earnings and helping to increase the value of Prime’s stock. Prime management is under pressure to find an alternative to MAI’s proposal that will offer its shareholders a similar return on their investment, Johnson said.
Other Cuts in Industry
“If Prime can get analysts and investors believing that its stock will go near $20 (per share) because of these cuts, then you can make a good case they should turn down LeBow’s bid,” Johnson said.
MAI officials declined to comment on the action by Prime.
The Prime job cuts are the latest of several major layoffs in the computer industry during the last few months.
Earlier this month, two disk-drive makers--Miniscribe Corp. of Longmont, Colo., and Seagate Technology, of Scotts Valley, Santa Cruz County--announced major layoffs. Miniscribe plans to reduce its work force by 2,000 people through the end of January. Seagate laid off 1,000 people.
In November, Advanced Micro Devices, a Sunnyvale semiconductor manufacturer, said it would lay off 1,000 people by early January.
In a related matter, a federal court judge in Boston is expected to rule today on a motion by MAI that would allow the Tustin firm to proceed with its tender offer.
Earlier this month, U.S. District Judge A. David Mazzone issued an injunction blocking the MAI offer, saying that MAI’s federal filings failed to disclose required information about Drexel Burnham Lambert’s role in financing the offer.
