Cipher Agrees to ‘Standstill’ Talks on Archive Offer
In an apparent softening of its resistance to an unsolicited tender offer made last month by Archive Corp., Cipher Data Products has agreed to negotiate terms of a confidentiality and “standstill” agreement with Archive, a possible prelude to talks concerning a friendly merger agreement between the two companies.
Confidentiality and standstill agreements are those by which companies agree to exchange non-public information on condition that the parties take no unfair advantage of the information, including buying the other’s stock. Archive already owns a 4.6% stake in San Diego-based Cipher.
The announcement came three days after Cipher’s board rejected as inadequate a $7.50-per-share, or $109-million, offer made Dec. 19 by Costa Mesa-based Archive. Also on Friday, Cipher said it had retained First Boston Corp. to explore “alternative transactions,” including a merger with another company, to boost its stock price.
The two companies are rival manufacturers of tape drives used to store backup copies of computer data stored on hard disk drives.
Cipher also disclosed Friday that Archive had “indicated” on Jan. 4 that it might agree to sweeten its offer to $8 per share. Describing Archive’s possible higher bid as “belated, informal and conditional,” Cipher’s board decided to respond only to the $7.50 offer, turning it down.
But on Monday, Cipher said it had told Archive on Sunday that it was “willing to entertain” Archive’s $8-a-share offer. Any talks between the two firms will be contingent on the approval of the confidentiality and standstill agreements, Cipher said.
“In a letter we sent to Cipher, we suggested that the companies meet on a friendly basis and negotiate something,” said B.J. Rone, Archive’s vice president of finance.
In its statement Monday, Cipher said there was no assurance that the negotiations with Archive would lead to the confidentiality and standstill agreement, “nor as to what the outcome might be if any such agreement is or is not reached.”
Rone described Archive’s $7.50-per-share offer as a “full and fair price,” stressing that Archive was not officially raising its tender offer to $8 per share. Cipher Data executives did not return numerous telephone calls on Monday for comment on the tender offer, which expires Jan. 22.
Analysts speculated Monday that Cipher Data’s willingness to sit down with Archive so soon after asking First Boston to solicit other offers could mean that no better deals than Archive’s are available.
“I think it tells you there aren’t a lot of offers on the table,” said Russell Crabs, an analyst with SoundView Financial Group of Stamford, Conn.
Analysts also said Cipher’s attractiveness to potential buyers was damaged by the company’s disclosure Friday that it expects to report a loss of between $11 million and $12.5 million, exclusive of certain expenses incurred as a result of the Archive offer, for the second quarter, which ended Dec. 31. Cipher reported a $14.2-million loss for its first quarter.
Besides being caught up in a takeover battle, Cipher has filed suit against Archive, alleging patent infringement. In fact, some observers have said that Archive’s takeover attempt could be a means of avoiding the financial impact of an unfavorable judgment in the patent suit.
