Cipher, Archive Move Closer to a Friendly Merger
Archive Corp., buoyed by a strong shareholder response to its $109-million cash tender offer, appeared Tuesday to move a step closer to its goal of acquiring rival Cipher Data Products of San Diego as the two firms agreed to resume their on-again, off-again negotiations for a friendly merger.
The two companies, fierce competitors in the market for computer tape storage systems, signed a confidentiality agreement under which Cipher will provide Archive with non-public financial information provided that Archive does not disclose it to other parties. Costa Mesa-based Archive also agreed not to acquire more Cipher shares, except in connection with an all-cash tender offer.
The two parties met Tuesday afternoon and are expected to release a statement today on the outcome of the talks.
The original Archive tender offer was scheduled to expire Tuesday but was extended until Jan. 31. Archive said more than 11 million Cipher shares had already been tendered and that those shares--in combination with the 675,000 shares Archive already owns--represent 82% of Cipher’s stock.
B. J. Rone, Archive’s vice president for finance, said the offer had been extended so that Archive’s legal challenge to Cipher’s “poison pill” takeover defense could move forward. A hearing on the matter is scheduled for Friday in U. S. District Court in San Diego.
“I have a positive feeling about our meeting (Tuesday), and I am confident we will reach some sort of agreement; hopefully it will be friendly,” Rone said.
Cipher said discussions are “under way or scheduled” with other parties that might be interested in topping Archive’s $7.50-a-share bid, but executives had no further comment. Cipher has retained First Boston Corp., a New York investment firm, to seek alternatives to the Archive offer.
Robert Abraham, a market researcher with Freeman & Associates in Santa Barbara, said Cipher could be attractive to other companies that make data storage equipment because it boasts a wide variety of products. But “no one company jumps out as an obvious choice” to bid for Cipher, he added.
Archive and Cipher had discussed merger at least twice before Archive’s offer, according to federal filings, but the talks broke down. Two weeks ago, the companies announced that they were negotiating a confidentiality and standstill agreement to clear the way for discussion of a friendly takeover at $8 per share, but talks were terminated the following day.
Rone said Tuesday that it was “not a high probability” that Archive would renew its informal offer to sweeten its bid to $8 a share, stating that “they have yet to show anything to justify $7.50 a share, let alone $8.” He said two events that have taken place since the original offer--a shareholder lawsuit against Cipher management and Cipher’s preliminary disclosure of a larger-than-expected loss for the quarter ended Dec. 31--have made Cipher less valuable.
Cipher said it expected a loss of $11 million to $12.5 million for the quarter on revenue of $41.5 million, not counting takeover-related expenses. The company will report final earnings today.
Archive, meanwhile, reported Tuesday that it earned $3.5 million for the quarter ended Dec. 29, up 9% from $3.2 million in the comparable period a year ago. Revenue increased 31% to $47 million from $36 million a year earlier.
Archive and Cipher have been locked in an acrimonious patent lawsuit since May, 1988. Some analysts have said that Archive’s offer might have been prompted, in part, by a desire to force a favorable settlement of the suit, but Archive has denied the charge. Archive’s patent infringement suit and Cipher’s countersuit are expected to go to trial in U.S. District Court in Santa Ana in May.
A combination of Archive and Cipher would create a company controlling 45% of the market for 0.25-inch cartridge tape drives, according to Freeman & Associates figures. The tape drives are used to store backup copies of the information contained on computer disks.
