Getting a massive cash infusion it sorely needs, beleaguered AST Research Inc. announced Monday that it will sell 40% of the company to Korea's Samsung Electronics Co. in a deal valued at $450 million.
For AST, the world's sixth-largest maker of personal computers, the transaction represents an important trans-Pacific helping hand as it struggles with fierce competition and persistent difficulties digesting a huge personal computer operation it bought in 1993.
In return, Samsung will gain access to a strong network of worldwide dealers and computer resellers for its own PCs as well as the electronic components such as memory chips and display screens that it makes. The deal, far larger than what analysts expected, marks the biggest Korean investment in a U.S. computer company.
Samsung manufactures PCs as a subcontractor for a number of other vendors, but those machines are mostly desktop units, rather than the notebook computers that Samsung needs to compete internationally.
The AST investment will give the company a direct link between its manufacturing operations and worldwide computer sales, said Keith Nam, an analyst in Seoul, South Korea, for HG Asia, a London-based market research company.
"Samsung wants to get more vertically integrated, get its chips onto consumer products' boards," Nam said.
Samsung has agreed to keep its stake in AST at less than half the company for four years.
The two companies announced the deal at a joint news conference in Seoul, where Safi Qureshey, AST chairman and chief executive officer, had flown over the weekend. AST's seven-member board approved the deal Monday, subject to the approval of AST shareholders at a meeting tentatively scheduled for May.
"AST's new relationship with Samsung represents the next step in solidifying AST's position as a leading global supplier of personal computers," Qureshey said, noting that the deal includes $250 million in new equity capital and "a committed source of supply for critical components."
AST confirmed earlier this month that it was negotiating with Samsung but would not give details. Analysts predicted at the time the Korean company would invest $100 million in return for 20% of AST.
The investment provides vital assistance for AST, which has suffered two consecutive losing quarters and has faced a possible downgrade of its credit rating. The company must upgrade a Texas plant that it obtained two years ago with the acquisition of the Dallas-based personal computer manufacturing arm of Tandy Corp.
Samsung will aid AST in paying off the debt it took on when it struck that deal with Tandy. Samsung will provide a letter of credit as backup for AST's existing $96.7-million debt to Tandy. Through a loan or purchases of newly issued stock--or both--Samsung will furnish AST with the money to make a $75-million payment to Tandy due in July, 1996.
"As hot as things are getting in the computer industry, it's not such a bad thing for AST," said Mike McGuire, an analyst at Dataquest market research firm in San Jose. "There's no question they were looking for cash."
AST has long been known as one of Orange County's most remarkable corporate success stories. Vice President Al Gore visited the company in 1993 and lauded it as a model of entrepreneurship and technological competitiveness.
Founded in 1980 by three emigres--Hong Kong-born Tom Yuen, Albert Wong (the A and T in AST) and Pakistan-born Qureshey, the only remaining founder--the company last year sold nearly $2.5 billion worth of PCs and employed 6,800 employees worldwide.
Recently, however, the company has been hurt by a number of delays in bringing new products to market--debilitating snags in the fast-paced computer business that AST blamed on component shortages. During the crucial holiday buying season, AST found itself short of personal computers to sell.
In a move to cut costs, the company closed its manufacturing plant in Fountain Valley this month, laying off the facility's 440 employees and moving production to Taiwan.
"AST's problems say something about the importance of execution," market analyst Richard Zweichkenbaum of International Data Corp. said earlier this month. "Product life cycles are shorter, and as a result you need to have rapid-fire reflexes. To do that, you have to go juggle a lot of balls in the air, and not everyone can do it."
Samsung's purchase of its stake in AST will occur in three stages: First, it will purchase newly issued shares--currently equal to 19.9% of the company--at $19.50 apiece; then, it will offer to buy 18% of existing stock from shareholders at $22 a share, and finally, at the same time as its offer to shareholders, it will again buy newly issued shares for $22 a share, bringing its total slice of AST to 40.25%.
As long as its AST stake does not fall below 30%, Samsung will have the right to elect one less than a majority of AST's board of directors.
AST has agreed not to seek competing offers, but it retained the right to respond to unsolicited proposals and to call off the deal with Samsung under certain unspecified conditions.
AST and Samsung have long had business dealings with each other. Samsung supplies AST with components such as semiconductor chips and video displays for its computers.
Samsung Electronics, which had 1994 revenue of $14 billion, has made big investments in computer technology but has been unable to crack the U.S. market. The AST deal, analysts said, may give the company the break it needs.
The largest Korean technology investment previously, analysts said, was Hyundai Electronics Industries Co.'s $300-million purchase in November of NCR, an Ohio-based computer chip unit of AT&T.;
Times staff writer Julie Pitta and correspondent Hope Hamashige contributed to this report.