Judge Keeps MAI’s Offer for Prime on Hold : Concerns Raised About Drexel’s Role in Deal
A federal judge in Boston refused Thursday to allow MAI Basic Four of Tustin to move ahead with its $970-million hostile tender offer for Prime Computer, expressing concerns about the ability of embattled Drexel Burnham Lambert to finance the bid.
U.S. District Judge A. David Mazzone said a preliminary injunction blocking MAI’s bid for Prime, a Natick, Mass., computer manufacturer, will be extended until MAI discloses more information about Drexel’s financial condition.
On Dec. 13, Mazzone issued an injunction barring the $20-a-share tender offer, saying that MAI had understated the role that Drexel is playing in the bid.
Drexel, which is arranging most of the financing for MAI’s offer, reached a tentative agreement last week to plead guilty to felony charges arising from a government investigation of insider trading activity and to pay a $650-million fine to the government.
“All of this raises profound questions about Drexel’s own financial condition, and its ability to obtain the financing needed if the acquisition of Prime is to occur,” Mazzone said.
Mazzone also ruled at the time that MAI had failed to adequately disclose its future plans for Prime and that its financing plan might violate federal margin requirements, which limit the amount of borrowed money that can be used to buy stock.
Mazzone had stayed the injunction pending an appeal by MAI. On Thursday, he removed the stay but refused to lift the injunction.
“We are gratified by the district court’s order and its recognition of the serious economic and legal questions raised by MAI’s efforts to acquire Prime,” the Massachusetts firm said in a statement.
Jeffrey Bagner, an attorney for MAI, said the company will provide the court with additional information about the deal. “We believe the disclosures we can provide will resolve the court’s concerns,” he said.
He added that the company does not believe its proposed financing plan violates federal margin requirements.
Source of Funding
Prime is a leading maker of mid-range computers. MAI, which is less than a third the size of Prime, manufactures and services business computers.
The judge’s order stated that MAI had satisfied his request for more information about the “elaborate relationship” between Drexel, MAI and certain affiliates and employees of both companies. But he was still not satisfied that “there has been sufficient disclosure as to the source of funding to be used by Drexel in connection with the offer.”
“The highly leveraged nature of this proposed acquisition has raised serious questions of whether the offer violates the Federal Reserve Board’s margin requirements,” Mazzone wrote.
Mazzone also asked for further disclosures regarding the effect that Prime’s “poison pill” anti-takeover plan will have on the offer. A Delaware court earlier this month denied MAI’s motion to strike down the plan, which is designed to make a takeover of the firm prohibitively expensive.
Separately, MAI said it has extended its offer until Jan. 11. The offer was due to expire at midnight Thursday.
Prime stock closed Thursday at $17.75 a share, up 37.5 cents. On Wednesday, Prime announced that it is laying off 1,200 employees as part of a restructuring plan that will cut costs by $50 million in 1989.