Suit Claims AST Was Allowed to Deteriorate

AST Research Inc. was hit with a shareholder lawsuit Friday accusing the computer manufacturer of allowing its financial condition to deteriorate so that Samsung Electronics Co. could acquire the company at a bargain price.

The suit alleges that AST has pursued strategies set by Samsung that caused AST’s share of the computer market to shrink and its stock price to tumble. Samsung, which already owns 49% of AST, offered to buy the remainder of the company on Thursday for $5.10 per share.

Irvine-based AST and its top executives and directors have “allowed Samsung to manipulate the financial condition of AST so as to create or exaggerate the present financial hardship,” according to the suit.

As a result, Samsung will be able to acquire the rest of AST at a deep discount and at the expense of other shareholders, according to the suit, which was filed in Orange County Superior Court in Santa Ana.

AST officials said they were aware of the suit but declined to comment.

The suit, which seeks class action status, was filed by Daniel C. Sigler, an Irvine attorney and AST shareholder. The defendants named in the suit include AST and its board of directors, as well as Samsung Electronics.

Sigler said that since 1988 he has acquired about 100,000 shares of AST stock, paying as much as $24 per share. But AST, once one of the most successful computer manufacturers in the world, has lost hundreds of millions of dollars in recent years, and its stock price has tumbled.

AST’s stock closed at $5.06 per share Friday, slightly below the $5.10 per-share offer submitted by Samsung on Thursday. The stock traded as low as $3.93 per share in recent months on the Nasdaq market.

Sigler said he believes that AST’s poor financial condition is largely due to Samsung’s influence and control since the Korean company acquired 40% of AST for $378 million in 1995.

“It’s like Samsung has taken a car worth $22,000 out for a test drive for two years,” Sigler said. “They’ve crashed it and dinged it up, and come back and say it’s only worth $5,000.”

He claims that Samsung steered AST away from the business PC market and into the less profitable consumer market because Samsung makes components for consumer PCs.

Sigler acknowledged that AST was in financial trouble and might have collapsed were it not for Samsung’s financial backing. “But Samsung pulled them back into the consumer line and that sealed their fate as a stand-alone company,” Sigler said in an interview.

Sigler submitted with his suit a letter he says he and four other shareholders delivered to AST last March. The letter urged AST directors to sell the company to Samsung before the stock price declined further.

Sigler said he was seeking to force AST to compensate shareholders for that subsequent decline. Asked what he thought would be a fair acquisition price, Sigler said, “a minimum of $12 or $13 per share.”

Samsung gained control of AST’s board of directors last year, and handpicked AST’s chief executive, Y.S. Kim. But the acquisition is subject to the approval of three AST board members who are not affiliated with Samsung.

In a separate matter, Samsung officials said Friday that they are not planning layoffs if the acquisition of AST is completed. In previous interviews, company officials refused to rule out the possibility of layoffs.