The Securities and Exchange Commission is scrutinizing MAI Basic Four’s hostile takeover offer for Prime Computer for possible violations of federal stock margin regulations.
Jeffrey Bagner, an MAI attorney, said the Tustin computer company has had “informal, cordial and cooperative discussions” with the SEC regarding the value of the collateral MAI has pledged to finance its takeover offer.
“We’ve answered all the questions the commission has asked,” Bagner said Monday. “As we’ve stated before, we believe the offer complies with the margin rules.”
Federal Reserve Board rules limit the amount of unsecured debt used to back the purchase of stock in a takeover to 50% of the value of the target company’s stock.
MAI has said it will need to borrow $1.5 billion to complete its acquisition of Prime. Of that total, about $875 million will involve unsecured borrowing. MAI has said the 50% rule does not apply to the type of bid it has made for Prime.
In a Feb. 16 letter, SEC Chairman David S. Ruder said the agency was investigating “factual and legal questions relating to possible margin violations.”
Ruder was responding to letters sent earlier this month by several Massachusetts lawmakers, who expressed concern about SEC enforcement of the margin rules. Prime, a leading manufacturer of minicomputers, is headquartered in Natick, Mass.
SEC spokeswoman Mary McCue declined to comment on the matter.
In December, a federal judge in Boston blocked MAI’s bid, questioning the “highly leveraged nature” of the deal and warning that MAI might be in violation of the margin requirements.
MAI, a company controlled by New York investor Bennett S. LeBow, has offered to buy Prime for $20 per share in a deal that values Prime at $970 million.