Timing of AST Memo Seen as Sign of Likely Cash Deal : Negotiation: Warning about stock trades comes as Irvine computer firm pursues an equity sale.
A memo advising employees against trading company stock has workers at AST Research Inc. on edge as they await the outcome of negotiations the personal computer manufacturer is holding to raise cash through an equity sale to another company.
AST Chairman Safi Qureshey issued the memo Wednesday, which some analysts interpret as a signal that the world’s sixth-largest PC company is close to making a deal with a unit of the Samsung Group in South Korea, with which the company has said it is negotiating, or with another firm.
In the past two weeks, AST executives have taken a group of about 10 Samsung executives on tours of the company’s Irvine headquarters, according to an employee who requested anonymity.
AST spokeswoman Deborah Paquin said the memo warning against stock trades was a routine document similar to those the company distributes to upper management when major announcements are pending, such as the release of quarterly earnings reports.
Company lawyers decided to distribute the memo to a greater number of headquarters employees to guard against lawsuits regarding the company’s ongoing negotiations, she said.
“Part of it is that they’re just being careful,” said Ian Gilson, an analyst at Van Kasper & Co., a Los Angeles investment bank. “But there’s no way to keep such a memo secret, and I’m sure they knew that when they issued it. I’d say it’s waving a flag that something’s due to happen.”
On Feb. 9, AST confirmed press reports that it is negotiating with several companies, Samsung among them, after the South Korean electronics giant said it might buy a minority stake in the troubled PC maker. AST has suffered two consecutive losing quarters and closed its manufacturing plant in Fountain Valley this month, laying off 440 workers there.
Also this week, Standard & Poor’s Corp. said that it might downgrade the company’s credit from its current B- rating, saying that AST’s current cash balances have sunk dangerously low.
AST has less than $15 million available on its $225-million credit line, and its cash holdings dropped to $68.7 million as of Dec. 31, from $153.1 million last July, according to the rating agency.
Regarding the possibility of AST securing a minority partner, the S & P report said that “unless the investment represents a very significant cash infusion, it is unlikely to have any positive implications for AST’s rating.”
But any cash received from a stock sale would raise AST’s credibility with distributors and corporate buyers, said Miles Prescott, an industry analyst with Renaissance Group International, a market research firm in Pepperell, Mass. The company also would benefit from access to the electronic components made by Samsung, he said.
Securities lawyers said the memo illustrates the tensions any publicly traded company faces as it attempts to negotiate a business partnership.
Corporations must be closed-mouthed to comply with federal laws designed to prevent the flow of information that could be used by insiders to trade stock unfairly, but executives must also be aware of the effects of such secrecy.
