MAI Advancing in Bid to Acquire Prime Computer : Nearly Two-Thirds of Stock Tendered to Tustin Firm

Times Staff Writer

Nearly two-thirds of the stock of Prime Computer Inc. has been tendered to MAI Basic Four Inc., and industry analysts said Thursday that Prime’s chances of escaping MAI’s $970-million takeover attempt are growing slimmer.

MAI, a Tustin computer manufacturer, said that 29.3 million shares of Prime stock had been tendered by midnight Wednesday under the terms of its $20-a-share purchase offer.

Those shares and the 1.9 million already owned by MAI and its Brooke Partners affiliate represent 64.8% of Prime’s common stock, or 48% on a fully diluted basis, assuming conversion of bonds.

MAI “is getting much closer to getting Prime,” said Robert M. Johnson, an analyst with Rotan Mosle, a Houston investment firm. “If Prime wants to stay independent, they better get their act together fast or it will be a done deal.”


MAI announced its bid for the larger Natick, Mass., minicomputer maker on Nov. 15. Prime has vigorously resisted the takeover attempt by adopting “poison-pill” anti-takeover plans, fighting MAI in court and announcing a major restructuring that includes 1,200 layoffs.

Industry analysts said Prime is losing its battle to persuade shareholders that it can boost its stock price above the $20 offered by MAI. MAI still faces several legal barriers to completing the deal, however, they said.

Part of Prime’s strategy has been to convince Wall Street that the company is worth more than $20 per share. In a recent letter to Bennett S. LeBow, a New York financier who holds a controlling interest in MAI, Prime Chairman David J. Dunn says the offer “does not reflect the intrinsic value of Prime today or the long-term values achievable by the company for all of its stockholders over the next several years.”

But a majority of Prime’s shareholders--about two-thirds of whom are institutional investors--apparently are not buying that argument.

“A lot of institutions have been badly burned in technology stocks over the years, and so that $20 (per share) cash looks pretty good,” said Melanie McCrossen, an analyst for Standard & Poor’s Corp. in New York.

When MAI announced its unexpected bid for Prime, “analysts were saying it (a merger) didn’t make good business sense,” McCrossen added. “I don’t think anybody has changed their mind about that. But this is an all-cash offer, and that’s very hard to deal with.”

“People who are tendering their shares are basically making a short-term judgment,” said Lawrence Garshofsky, vice president at Kayne Anderson & Co., a Los Angeles securities firm specializing in takeover stocks.

Prime stock closed Thursday at $19.125 a share, up 25 cents, on the New York Stock Exchange.

Analysts said that MAI’s financial adviser, Drexel Burnham Lambert, is determined to complete the Prime deal. It would be Drexel’s first major deal since the embattled investment firm reached a tentative agreement with the government to plead guilty to six criminal charges of mail, wire and securities fraud and to pay a $650-million fine.

Drexel has “really got their reputation on the line on this one, and they don’t intend to screw it up,” said Johnson, the Rotan Mosle analyst.

Drexel is arranging $875 million of financing for the Prime deal through the placement of high-yield “junk bonds.” If the deal is completed, Drexel will receive a maximum of $32.75 million in financing and advisory fees, according to documents filed by MAI.

Prime has won support in federal court for its contention that Drexel’s considerable legal problems will impair its ability to put together takeover deals. U.S. District Judge A. David Mazzone in Boston has blocked the deal until MAI and Drexel can show that their financing arrangement will not violate Federal Reserve Board margin requirements, which limit the amount of stock that can be pledged as collateral in a takeover.

MAI attorneys have said that they believe recent federal court filings will satisfy Mazzone’s concerns about the Fed requirements.

Another obstacle to MAI’s completing the deal are Prime’s shareholders rights and its new employee severance plans. A Delaware judge has upheld the legality of the rights plans and the severance plans. MAI has said its offer is contingent on Prime’s canceling the plans, which would make a takeover much more expensive.