MAI Gives Up Battle to Take Over Prime But Plans New Attack
MAI Basic Four gave up Thursday its hard-fought effort to acquire all of Prime Computer but said it would pursue an acquisition of the Massachusetts company’s minicomputer division.
The announcement winds down a fierce takeover battle begun eight months ago by Tustin-based MAI that has cost the two companies at least $60 million in legal and administrative expenses.
MAI said it was forced to abandon its efforts to acquire all of Prime after financiers grew nervous over Prime’s worsening financial condition.
The MAI-Prime battle has enraged some shareholders and disgusted some analysts, and its demise was welcomed in some quarters Thursday.
“This is a textbook case of how one company can destroy another simply by trying to take it over,” said Jay Stevens, analyst with the brokerage firm Dean Witter Reynolds. “Millions of dollars have been spent frivolously on this eight-month pursuit.”
Prime thought it had ended its problems with MAI last month when it lined up a New York City venture capital firm that agreed to a friendly takeover offer. But earlier this week, J.H. Whitney & Co. said its $1.4 billion offer for Prime was in trouble because it was having a hard time getting the necessary financing for a buyout.
Prime insisted Thursday that the deal with Whitney is still on, but analysts said the company may have to entertain MAI’s offer to buy the minicomputer division in order to finance the merger.
MAI’s initial $20-a-share bid last November was controversial in part because Prime is nearly three times its size. Also, since hostile takeovers are rare in the computer industry, the attempt was seen as a bold move by MAI Chairman Bennett LeBow to reposition his company in a tough industry.
Because personal computers are becoming so powerful, the minicomputer industry has suffered in recent years.
Prime resisted MAI’s efforts, saying that the company’s bids were too low and that the two firms would not work well together.
The hostility was costly to both sides. Prime laid off 1,200 workers early this year, an action analysts said was prompted in part by cost-cutting brought on by the takeover battle. In addition, the president of each company quit amid the corporate struggle.
MAI said it has spent at least $20 million trying to take over Prime and has suffered a decline in earnings since the battle began. Prime said it has spent about $40 million resisting MAI’s advances and has lost business in the meantime.
On Wednesday, Prime reported a loss of $19 million for its second quarter ended July 3, down from earnings of $7.2 million a year ago.
“It’s been a waste of time and a waste of money, and it has done serious damage to a company--in this case Prime--that was already involved in a fight for its life in a very desperately competitive computer industry,” said John Adams, analyst with the Bostonbrokerage firm Adams, Harkness & Hill Inc.
Now, MAI has lowered its sights to just Prime’s minicomputer business. During Prime’s annual meeting on Aug. 9, MAI will ask shareholders to install a new board of directors to push for MAI’s proposed acquisition of Prime’s minicomputer division for $600 million in cash and notes. MAI proposed such a deal last week as an alternative to a takeover of all of Prime.
Few analysts think the ploy will work.
“Why would you elect people to run the whole company who only want to buy part of it, at best?,” asked Adams. “They may look at that part of the company and decide not to buy it, either. Then you have people running the company who have no interest in it whatsoever.”
Minicomputers account for about one-third of Prime’s business. The company also provides computer leasing and service, and manufactures high-speed, high-powered computers used by science and industry.
Prime’s stock closed Thursday up 50 cents to $16.25. MAI was unchanged at $5.375.
