Prime Computer, MAI Stocks Rise on Rumors of Sweetened Offers
Prime Computer’s common stock has moved up in brisk trading this week, driven by rumors that MAI Basic Four or another suitor might be preparing to top MAI’s original $970-million offer for the Natick, Mass., minicomputer maker.
The increased activity by Wall Street traders by Friday had driven Prime’s stock price to $20.75 a share--slightly above the $20 per share offered Nov. 15 by MAI in its hostile takeover bid.
At the same time, speculation that Prime might turn the tables on MAI has helped fuel a 45.8% gain in MAI’s stock the past 2 days, analysts said Friday. MAI, a Tustin computer maker controlled by New York investor Bennett LeBow, is about one-third the size of Prime.
Analysts said two other companies rumored to have developed an interest in Prime are Ford Motor Co. and Sun Microsystems, a Silicon Valley computer maker. Cash-rich Ford is one of Prime’s biggest customers.
Tom Foote, a Ford spokesman, said the auto maker’s policy is not to comment on rumors about possible acquisitions. A Sun Microsystems spokeswoman also declined comment.
Prime’s stock rose $1 per share Thursday and was up an additional 12.5 cents Friday to close at $20.75 on the New York Stock Exchange.
“Yesterday, there was a rumor that there would be a higher bid” for Prime, said Jay Stevens, an analyst with Dean Witter Reynolds. “Today, the rumor is less strong. This is a critical time when you can make a lot of money on rumors.”
MAI’s stock has soared 45.8% since it closed Wednesday at $7.37 1/2 a share. The company’s stock closed Friday at $10.75 per share, up $1.75 for the day in Big Board trading.
Analysts attributed the rise in MAI’s stock to rumors about a possible “Pac-Man” defense by Prime, in which the Massachusetts firm would fend off MAI by launching a bid to acquire the Tustin company.
They said MAI’s stock is also being helped by the company’s favorable first-quarter operating earnings, which surprised some analysts when they were reported Thursday.
Although the Tustin firm’s earnings of $5.5 million for the quarter ended Dec. 31 were down slightly from $5.6 million a year earlier, revenue was up 26% to $107.6 million from $85.2 million.
And earnings from operations rose to $15.9 million for the quarter, up 48.6% from $10.7 million.
Net income was affected by the ongoing costs of several recent acquisitions, MAI said.
Several industry analysts said they had expected MAI to post much worse results because the mid-range computer market has been slumping in the United States.
“The earnings came in a lot better than anyone hoped,” said Robert Johnson, an analyst with Rotan Mosle in Houston. “I was looking for 27 cents a share in earnings, and it came in at 36 cents.”
MAI Chairman William Patton attributed the stock’s gain to the earnings report and said the company believes its stock has been undervalued for some time. He would not comment on rumors that Prime might be planning a counterattack.
As of Jan. 30, 72.6% of Prime’s common shares had been tendered to MAI. The offer is scheduled to expire Feb. 15.
Earlier this week, MAI said it had secured key financing commitments totaling more than $650 million from Merrill Lynch & Co. and Canadian Imperial Bank of Commerce for the deal.
As LeBow moves closer to capturing his prey, Johnson said, Prime may by stepping up its search for alternatives to the offer.
Early in the takeover battle, analysts speculated that Prime might attempt the Pac-Man anti-takeover defense--named after a popular video game of the early 1980s in which characters that don’t swallow their opponents are themselves devoured.
Johnson said he also has been hearing rumors from Wall Street traders about a possible bid for Prime by Ford or Sun Microsystems.
“The Ford rumor makes sense because they have lots of cash, Ford is one of (Prime’s) primary customers, and Ford is trying to get into new businesses,” Johnson said. Sun Microsystems, which makes high-powered computer workstations, might be interested in Prime for its large international sales and service organizations, he said.
