Applied Magnetics Seeks Read-Rite for $1.76 Billion

Applied Magnetics Corp. made an unsolicited $1.76-billion stock bid for rival Read-Rite Corp. in a deal that would create one of the world’s largest makers of heads for computer disk drives.

Applied Magnetics, with about 900 employees, is far smaller than Read-Rite, which has about 20,000 workers. But Read-Rite has struggled in recent quarters and recorded a loss of $43 million for 1996. Its sales last year totaled $991 million, compared with $345 million for Applied Magnetics, which had a 1996 profit of $32.3 million.

Craig D. Crisman, Applied Magnetics chairman and chief executive, said he had approached Read-Rite’s board four times since May to discuss a friendly combination but was repeatedly turned down.

On Monday, he took the deal directly to Read-Rite’s shareholders, offering 0.679 common share of Applied Magnetics stock for each share of Read-Rite. That amounts to a 33% premium over the company’s closing price Friday, Crisman said.

Goleta, Calif.-based Applied Magnetics is also seeking to replace Read-Rite’s directors with a new board that would endorse the merger, he said.

Crisman laid out his case for the merger in a letter sent Monday to Cyril Yansouni, chairman and chief executive of Milpitas, Calif.-based Read-Rite.

“Applied Magnetics believes strongly that the strategic advantages which would result from a business combination of our two companies would be of great benefit to our respective stockholders, employees and customers,” Crisman said in the letter. “At the same time, the business combination would create a significantly stronger entity in an increasingly competitive business environment.”

Yansouni issued a statement late Monday that said he was “surprised to have received a letter today from Applied Magnetics proposing this business combination.” The Read-Rite board will review the proposal, he said.

The offer was announced about 30 minutes before the markets closed. Read-Rite shares rose $3.8125 to close at $32 on Nasdaq before trading was halted. Applied Magnetics stock dropped $2.375 to $52.875 on the New York Stock Exchange.

John Dean, an analyst with Salomon Bros. in San Francisco, said the two companies seem to complement each other well.

“There’s some real know-how inside Applied Magnetics that fits well with the excess capacity at Read-Rite,” he said.

The combined company would have about $1.8 billion in annual sales. The merger would save $100 million a year in research and development and sales costs and an additional $150 million annually in manufacturing costs, Crisman said.

The combined company would have a worldwide market share of close to 30%, which would make it the largest seller of disk drive heads to outside customers, he said. Seagate Technology Inc. is the world’s largest maker of disk drive heads, although it uses most of those in its own products.

Crisman said he does not expect the Federal Trade Commission to try to block the transaction on antitrust grounds.