Why More Than Half of Prime Computer’s Shares Isn’t Enough

Although MAI Basic Four of Tustin has reported that more than half of Prime Computer’s common stock has been tendered to MAI under terms of its $970-million takeover bid, the offer is contingent on MAI’s obtaining at least 67% of the stock.

The main reason that MAI wants that percentage of Prime’s shares, MAI general counsel Bertrand H. Weidberg said, is that Prime’s articles of incorporation make it difficult to pursue a hostile acquisition of the company with anything less.

A recalcitrant Prime board could delay a shareholder meeting until June, and Prime’s bylaws and articles of incorporation prohibit shareholders from calling a special meeting any sooner.

That would prevent MAI from immediately electing a new board of directors to approve the merger should the outside directors on Prime’s current board continue to oppose the deal.

Further, Prime bylaws require a vote of at least 67% of the shares outstanding to approve a merger under certain circumstances, and MAI wants to be sure it can meet that requirement. In addition, MAI has placed a condition on its tender offer specifying the removal of Prime’s so-called “poison pill” plan. That plan is designed to make a takeover of the Natick, Mass., computer maker prohibitively expensive. Under it, current Prime shareholders would be able to buy new shares at about 50% of the market price in effect when MAI completes the tender.

MAI has filed suit in Delaware to overturn Prime’s “employee protection plan” and other defensive mechanisms that could provide for large cash payments to current Prime employees in the event of a takeover.

MAI also is challenging in court certain anti-takeover protections offered by the laws of Massachusetts and of Delaware, where Prime is incorporated.

One section of the Delaware law could prevent MAI from completing a merger with Prime for 3 years after acquiring a controlling interest in the company unless at least 85% of Prime’s shares were voted in favor of the combination or unless Prime’s board was to approve the deal.

The Massachusetts law could, among other things, prevent MAI from voting its Prime shares for as long as 90 days after it acquired them.