Previous Cipher Talks Failed, Archive Reveals
Archive Corp.’s $109-million hostile takeover bid for Cipher Data Products of San Diego follows two aborted merger attempts between the two rival computer products manufacturers in 1986 and 1988, the company disclosed Friday.
In documents filed with the Securities and Exchange Commission, Costa Mesa-based Archive revealed that Cipher blames it for backing out of the earlier merger talks, and that Cipher’s chairman has already told Archive that its current $7.50-a-share offer is inadequate.
Archive has acquired 4.6% of Cipher’s stock and Tuesday said it was launching a tender offer to buy the rest of the company’s outstanding shares. Cipher officials said its board is studying the offer, which expires Jan. 22.
Archive and Cipher are leading manufacturers of tape drives used to copy data stored on computer hard-disk drives. The two companies are bitter rivals, not only in the marketplace but in the courtroom, where they are locked in a patent dispute.
The SEC filing states that Archive Chairman Howard Lewis approached Cipher management about a possible merger for the first time in May, 1986. The talks broke down after four months, when the companies could not agree on a purchase price.
In May, 1988, Lewis and then-Cipher President Gary E. Liebl met to discuss a settlement of a patent suit between the two companies. During that meeting, Lewis proposed that Archive purchase Cipher’s quarter-inch cartridge tape drive business and again raised the idea of a merger of the companies. The talks broke down the following month when, again, the firms couldn’t agree on a price, the filing shows.
On Dec. 13, Lewis approached Cipher for the third time to propose a merger. According to the filing, Cipher’s Liebl told Lewis that “the two companies did not have a good track record of working together” and that “there had been promising discussions in the past, but Archive’s board of directors had changed Archive’s direction.”
At a face-to-face meeting Dec. 15, the SEC filing states, Liebl told Lewis that the $7.50-a-share proposal was too low and that he doubted Cipher’s directors would support it. Liebl noted that Cipher’s book value--what the company would be worth if its assets were sold-- was more than $7.50 a share. Analysts have pegged Cipher’s book value at $9 to $10 per share.
According to the filing, Liebl also said he doubted that Archive was serious about its proposal because “it has backed away from two prior transactions with the company.”
But, on Dec. 19, Lewis sent a letter to Liebl informing him that Archive was launching a tender offer for Cipher and requesting a meeting to discuss the offer.
