MAI Cuts Cash, Adds Securities to Bid for Prime
Six months into its hostile takeover bid for Prime Computer, MAI Basic Four Inc. on Thursday lowered its $1.3-billion bid for the company by offering 25% less cash and adding securities.
The new package carries a total cash value of $965.7 million and includes the disclosure of the names of four investment firms providing MAI’s financing, something the Tustin-based computer firm seems to have had difficulty securing.
On May 15, Prime’s chairman, David J. Dunn, challenged MAI in a public letter to get its financing in order for the proposed $20-a-share offer by today. If it did, he said, Prime would not invoke anti-takeover measures.
“We were asked where the financing was, and now we’re saying here it is,” said William B. Patton, MAI’s president.
Patton attributed the revised offer to Prime’s recent projections of lower revenue, plus new and costly Prime employee benefit and pension plans. MAI originally offered to pay $20 a share in cash for all of Prime’s common stock and also for certain options and debt securities that could be converted into stock.
MAI is now offering $19.50 a share in cash only for the 49.5 million shares of Prime common stock outstanding. If holders of options and debt securities exercise their conversion rights, increasing the number of shares outstanding, the amount of cash paid per share would decline to as little as $14.65 a share.
Any difference between the final cash price and the stated offer of $19.50 a share would be made up with new MAI bonds.
Executives at Prime would not comment on the new offer until after they meet to discuss it. However, Prime spokesman Joe Gavaghan termed the bonds “of questionable value.”
Offer Expires June 14
The new offer expires June 14, the date of Prime’s annual meeting, where a proxy fight is expected over MAI’s proposed slate of directors. The companies financing the bid and the amounts they are committing are: Drexel Burnham Lambert Group Inc., $550 million; Canadian Imperial Bank of Commerce, $400 million; Merrill Lynch & Co., $300 million, and Brooke Partners, $150 million. The excess cash raised would be used to refinance existing debt at both companies.
Some industry analysts were also not enthused about the lower bid.
“It’s a borderline fair price, but I don’t think it’s a good price,” said Charles Foundyller, president of Daratech Inc., a Cambridge, Mass., marketing research firm.
Prime’s stock closed Thursday at $16.625 a share, up 25 cents from Wednesday’s close. Only a month ago, when MAI’s offer of $20 a share was pending, Prime’s stock was trading at $19.50 a share. On Feb. 2, it had hit $21 a share.
‘In the Best Interests’
Barry J. Tarasoff, an industry analyst with Wertheim Schroder brokerage in New York, said he thinks “it’s in the best interests of Prime shareholders to accept the deal.”
“When Prime threw down the gauntlet a few weeks ago, that was a signal to MAI that Prime didn’t have a higher bid,” he said. MAI could afford to lower the bid without worrying about serious competition, he said.
By late Wednesday, about 67.5% of Prime’s stock had been tendered to MAI, which already owns about 2.4% of the company. Patton said those shareholders who tendered shares will be notified of the new offer and will have the right to withdraw. He predicted, however, that MAI will end up with even more tenders.
But Thursday’s reduced offer could affect the credibility of MAI’s chairman, Bennett S. LeBow, a New York financier who has spearheaded the takeover attempt.
“You tender your shares and you kind of expect the guy to keep the deal,” Foundyller said. “The lower price might lower stockholder opinion of LeBow. They may think that once he takes control, he may change the rules again.”
MAI’S 7-MONTH BATTLE TO ACQUIRE PRIME November, 1988: MAI Basic Four Inc., a Tustin-based computer manufacturing and service company, launches a hostile takeover bid for Prime Computer Inc. MAI offers $20 a share for Prime, a much larger minicomputer maker with headquarters in Natick, Mass. Prime, declaring the offer too low, strongly resists the takeover attempt.
December: U.S. District Judge A. David Mazzone in Boston issues an injunction barring the MAI bid until the company can provide additional details about its financing of the offer. In turn, MAI objects to Prime’s poison-pill anti-takeover plans in Chancery Court in Delaware.
March, 1989: MAI begins a proxy fight to replace Prime’s board of directors.
May: Judge Mazzone lifts the injunction blocking MAI’s offer. The same day, Prime Chairman David J. Dunn challenges MAI by declaring he will sell the company if MAI can come up with the $1.3 billion by June 2.
June: MAI reduces its offer for Prime Computer by 50 cents, to $19.50 per share. The reason, according to MAI Chairman Bennett S. LeBow, is Prime’s lower earnings.
