For two companies so closely aligned, Samsung Electronics Co.'s proposal last week to acquire AST Research Inc. had all the romance of a shotgun wedding.
Samsung started with a cordial letter stating its “wishes to commence negotiations” to buy the 51% of the Irvine computer manufacturer it does not already own. But in the ensuing pages of a release issued by the Korean company, Samsung proceeded to pound AST over the head.
Samsung said it would not “continue to pour money, technology and management resources into AST without having direct control.” AST’s recent stock price, however dismal, still “overstates AST’s fundamental value,” Samsung said.
Then, for good measure, Samsung provided a page of bleak forecasts from analysts. “We see little hope of recovery for AST,” one said. “Prior management’s decisions continue to plague AST even today,” said another. Samsung’s unstated message to AST in all this material seemed clear: “Take this offer because it’s all you’re going to get, and it’s your only hope.”
For its part, AST appeared to be blindsided by the news, even though its top executives these days are affiliated with Samsung, and industry observers have been speculating about a Samsung takeover for more than a year. AST’s chief executive, Y.S. Kim, issued a tepid news release saying the company had established a committee to study the Samsung proposal, “along with other options.” Here at AST, he said, “it is business as usual.”
Why was the deal sprung on AST? Because Samsung didn’t have any choice, said Wes Walraven, who heads a team of Salomon Bros. advisors working with Samsung on the proposal. Many mergers and acquisitions are worked out behind the scenes and presented to the public as done deals, with executives from both sides smiling. But in this case, Samsung was bound by the terms of an agreement struck when Samsung first invested in AST in 1995.
According to that agreement, any takeover bid from Samsung had to be presented as a formal and complete offer to the three independent members of AST’s board of directors. That three-person committee would be obligated to disclose the offer publicly before weighing it and making a recommendation to the complete board.
What about the harsh language in the Samsung release? It may not be pleasant, Walraven said, but it’s accurate. “Every time AST has needed money in the last two years, they’ve called Samsung,” he said. “Nobody’s calling those other shareholders for capital. We hope AST recognizes that this is a very fair offer.”
Wall Street appears to agree. AST’s stock closed at $5.06 per share on Friday, still below Samsung’s offering price of $5.10 per share, meaning investors aren’t betting the bid will go higher.
Greg Miller covers high technology for The Times. He can be reached at (714) 966-7830 and at firstname.lastname@example.org.