Chief Stockholder Plenum Questions Gradco Systems Spinoff Proposal


Plenum Publishing Corp. said Wednesday that Gradco Systems Inc.'s announcement that it is considering spinning off its computer printer products subsidiary raises more questions than it answers.

Bernard Bressler, Plenum's corporate secretary and counsel, said Gradco provided so few details of the tentative plan that it is impossible to comment on its substance. Gradco said it may separate its Printer Systems unit from its Gradco Japan subsidiary.

"We don't know whether it's a good plan or bad plan because it's not a plan," Bressler said. "The issue is, we want to understand it now. This is not like the rediscovery of the wheel. Of course a spinoff is an option."

Plenum, a New York-based publisher of scientific journals, is Gradco's largest stockholder and is leading a proxy fight to replace the company's top mangement, including chief executive Keith B. Stewart. Bressler said the spinoff proposal is aimed at swaying shareholders to support Gradco.

"It obviously has been done in the context of the proxy fight and it is obviously an attempt to convince shareholders to keep Mr. Stewart on the board," Bressler said.

But Newton H. Lee, Gradco corporate secretary, countered that the spinoff plan was not a "fight instrument" but part of management's continuing efforts to maximize shareholder returns.

He said the company will make financial results for the printer and copier businesses available under a spinoff plan so that shareholders can better understand the company's performance. He added that Plenum has failed to disclose its own plan for managing Gradco.

Bressler said Plenum has not presented any strategic plan because Gradco has not made pertinent data available.

He also said Gradco has not disclosed how management proposes to finance the debt repayment or the spinoff transaction, which would split Gradco's two subsidiaries into separate publicly traded and managed entities.

Allen Strand, an analyst at Bateman Eichler Hill Richards in Los Angeles, said the proposed spinoff would be a good move, but he said he doubted the plan would sway any votes toward Gradco management in the proxy battle. He said there probably isn't much of a public market for Gradco Printer Systems shares.

Printer Systems "is in the red so it probably won't trade for anything," Strand said. "I think stockholders would be much happier if they simply sold it to someone else. This is the next best thing. But I don't think anybody will change their vote based on this announcement."

Plenum and its chairman, Martin E. Tash, own 9.4% of Gradco stock and are fighting to take control of Gradco's board in a shareholder vote scheduled for Oct. 12. They have also sued Gradco and Stewart for allegedly misappropriating more than $12 million in assets from the company's Gradco Japan subsidiary.

Bressler said that Plenum has informed Gradco of its conditions for a settlement, but the conditions were rejected and no counteroffer has been made. Gradco said in its press release Tuesday that it is interested in an "amicable" settlement of the shareholder lawsuit.

Bressler also questioned why Gradco management indicated in its press release that the spinoff will entail more asset write-downs when Gradco already took write-downs after it formed the two operating subsidiaries in a restructuring last March.

"Why is that necessary when management wrote off $15 million at the end of the fiscal year?" he asked. "I don't understand that."

Lee said that a write-off would naturally be associated with any spin-off and that Bressler's question reflected a lack of knowledge about the company. Gradco stock closed at 6 1/4, down 1/4 Wednesday in light trading in the over-the-counter market.

Gradco makes sorters for copier machines and computer printer products. For the year ended March 31, it lost $28.1 million on revenue of $89.5 million. The company reported operating losses of $2.3 million on revenue of $20.3 million in the first quarter ended June 30, largely because of the loss of its biggest customer, Xerox Corp.

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