Prime Computer’s Stock Soars on Belief That MAI Basic Four Will Acquire Firm

Prime Computer’s stock price soared to a 52-week high Friday, fueled in part by a growing conviction among investors that MAI Basic Four of Tustin will prevail in its hostile takeover bid for the Massachusetts computer maker.

Prime closed Friday at $19.125 a share, up 50 cents for the day, on a volume of nearly 1.3 million shares in New York Stock Exchange trading.

Prime’s stock was trading at less than $17 per share when MAI launched its $970-million tender offer Nov. 15. Until Wednesday, the price had hovered around $17.50, leading analysts to speculate that investors were not convinced MAI could make the deal work.

MAI is blocked by a federal court preliminary injunction from acquiring any of the Prime shares tendered to it by stockholders. And Prime has continued its strident opposition to MAI’s acquisition offer.

In a letter released to the press Friday, Prime Chairman David L. Dunn called for MAI to withdraw its offer, which Dunn characterized as “highly conditioned, extremely leveraged, unfinanced and inadequate.” Dunn also questioned the motives and integrity of MAI Chairman Bennett S. LeBow; those of his investing partner, William Weksel, and of the investment banking firm of Drexel Burnham Lambert, which has agreed to raise at least $875 million to help MAI fund the takeover.

Dunn, who was responding to a letter from LeBow, said Prime is reluctant to provide MAI with confidential financial information in light of the fact that Drexel has made a tentative agreement to plead guilty to felony securities fraud charges.

Dunn also cited a previous consent decree signed by Weksel to settle allegations that Weksel made material misstatements of the financial condition and operating results of a company Weksel and LeBow controlled.

“You yourself are the subject of several private lawsuits relating to . . . the violations of law which were part of the SEC’s complaint against Mr. Weksel,” Dunn wrote to LeBow. “Accordingly, we are skeptical that Drexel, Weksel and yourself would treat Prime and its stockholders any better than you have treated your customers and/or stockholders in previous situations.”

A spokesman for LeBow said the New York financier would not comment on Dunn’s letter.

In a Jan. 4 letter to Dunn--which MAI released to the press Thursday--LeBow charged that Prime’s opposition to the MAI acquisition offer is robbing Prime shareholders of millions of dollars in potential profits that are being spent instead for legal fees.

Prime and MAI are suing each other in federal court in Massachusetts over the acquisition bid, and MAI is suing Prime in state court in Delaware in an attempt to overturn various Prime anti-takeover measures.

Despite the appearance of the rhetoric from both sides, several industry analysts said Friday that they believe MAI ultimately will prevail and acquire Prime.

John Logan, a Boston analyst who has been following Prime for years, said he believes it is likely that although Prime’s public opposition to MAI is strident, the discussions about the offer being conducted privately among Prime directors and officers are probably more civil.

LeBow’s letter was basically a rehashing of MAI’s original offer and, analysts suggested, merely an attempt to keep its bid visible to the investment community while the matter is being held up in court.

In it, he said that if Prime dropped its opposition and the two companies were able to negotiate “a friendly transaction, substantially reduced financing costs might result. . . . We would prefer to share these potential benefits with your stockholders rather than pay them over to professional advisers and financial institutions.”

Employees, customers and suppliers of both companies “will benefit from a rapid, negotiated conclusion to the combination of Prime and MAI Basic Four, and the many millions of dollars not wasted on fighting a takeover battle could instead benefit our respective stockholders,” LeBow wrote.

Because of the pending court battle, MAI has extended the expiration date of its tender offer to Wednesday.

More than 50% of Prime’s shares had been offered to MAI by the end of December. In his letter to Dunn, LeBow said that means that Prime shareholders have “clearly communicated their desire to accept our offer by tendering their shares.”

‘Fear and Greed’

Logan, who is vice president of the Aberdeen Group, a Boston market research firm, said that holders of Prime stock “are now in the grip of fear and greed . . . $20 a share is more than they hoped to see for years to come because Prime is losing market share in all of its major markets.”

But, Logan said, “there is also fear that their stock will be tied up if they tender and that LeBow will back out and they won’t get the $20.”

MAI President William B. Patton Jr., however, scoffed at speculation that MAI has any intention of backing off.

“We have always felt that this will go through, and we are completely confident that it will and are pleased that analysts now are saying it will,” he said.

Wolfgang Armbruster, an analyst at PaineWebber Inc. in New York, said that Prime’s rising stock price is a clear sign that investors, especially risk arbitragers, are convinced that MAI will be able to complete the acquisition. (Arbitragers specialize in identifying takeover targets and acquiring their shares while the price is still low, profiting as it climbs.)

Analyst Expresses Optimism

Armbruster said that he has been following the Massachusetts and Delaware court cases involving MAI and Prime and believes MAI will achieve its goals in each.

Although the judge in Delaware rejected MAI’s bid to overturn Prime’s anti-takeover defenses, Armbruster said, “he also stated that if this were only obstacle to the transaction, then he would remove it.”

The issues in the federal case in Massachusetts, he said, have to do with the adequacy of financial disclosures by MAI. “Disclosure problems are relatively simple to remedy,” Armbruster said. “All MAI needs to do is to make amended filings with the judge” until the judge is satisfied.

The other concern voiced by U.S. District Judge A. David Mazzone in Massachusetts is whether Drexel can market the bonds needed to obtain the $875 million in financing it has promised to raise for MAI.

Drexel recently agreed to pay a $650-million fine as part of its tentative settlement of securities fraud charges, and Mazzone said he wanted assurances that Drexel is financially sound.

Armbruster said that with Drexel’s becoming increasingly visible in the MAI-Prime fight, “their reputation is on line and they cannot fail. So it is safe to assume that Drexel will come up with the financing.”

Drexel officials could not be reached for comment Friday.

Logan suggested that Drexel’s role in any deal might not be as certain as Armbruster seems to believe.

Prime’s profits have been shrinking along with its market share over the past 2 years, he said, and his firm believes that Prime will “have a horrible fourth quarter” and might even post a loss.

If the financial picture is grim enough, Logan said, Drexel might not be able to convince potential bond purchasers that there is sufficient cash flow in the company to pay off the debt.

In a letter, Prime Chairman David L. Dunn, left, called for MAI to withdraw its offer, which Dunn characterized as “highly conditioned, extremely leveraged, unfinanced and inadequate.” He also questioned the motives and integrity of MAI Chairman Bennett S. LeBow, right; LeBow’s investing partner, William Weksel, and the investment banking firm of Drexel Burnham Lambert, which has agreed to raise at least $875 million to help MAI fund the takeover.