Motion by Archive to Block Cipher’s ‘Poison Pill’ Denied

Archive Corp. lost a round in its fight to take over Cipher Data Products on Monday when a U.S. District Court judge in San Diego denied Archive’s request for a preliminary injunction blocking Cipher’s “poison pill” takeover defense.

At the same time, Judge Myron Gordon also denied Cipher’s motion to block the takeover by Costa Mesa-based Archive on the grounds that the financing of the deal was in violation of securities laws.

The Cipher “poison pill” includes a share purchase-rights plan--an anti-takeover measure that dilutes the value of a company’s stock to the buyer--as well as “golden parachute” payments worth $1.4 million to Cipher executives. The Cipher board recently added a provision that prevents Archive from taking over the company until outstanding patent litigation between the two firms is resolved.

Cipher, based in San Diego, has sued Archive for infringement of two patents, and some experts have cited Archive’s potential exposure in that lawsuit as one of its motives in pursuing a takeover of Cipher.

The ruling may delay Archive’s effort to acquire Cipher in a $109-million cash tender offer launched in December and could improve the chances of a friendly deal between the two companies. Archive and Cipher entered into merger talks again last week after several previous rounds of discussions broke down.

Cipher Chairman Gary E. Liebl said in a statement: “The ruling gives us time to continue exploring a range of other possibilities designed to benefit our stockholders.” Cipher has said it is talking with unidentified third parties about a possible takeover.

Archive executives could not be reached for comment.