Samsung Faces Fight to Turn AST Around
After buying pieces of AST Research Inc. for nearly two years, Samsung Electronics Co. finally has a deal to acquire the computer manufacturer outright but still faces the same basic problem of how to reverse AST’s sliding fortunes.
Samsung said Tuesday it will pay $5.40 per share, or 30 cents per share more than its initial offer last January, for the 31 million shares of AST stock it does not already own.
The $170-million deal would make AST a unit of Samsung, which already owns about 49% of the company. Samsung, the Korean electronics giant, will also assume $307 million in AST debt.
Following the deal, which was approved Monday by AST’s board of directors, Samsung will take the reins of a company that has 4,151 employees and operations around the globe, including a 232,000-square-foot headquarters in Irvine.
An AST spokesman said Tuesday that no layoffs are planned, that the company will continue to be operated in Irvine under present management, and that the AST brand name will be preserved.
“Samsung strongly believes in taking a long-term approach to the PC business and in increasing AST’s global brand awareness,” said Kwang-Ho Kim, chief executive of Samsung North America and chairman of AST’s board of directors.
Neither AST nor Samsung officials were available for further comment. A Samsung spokeswoman said the company plans to make an announcement next week regarding strategic changes at AST.
Industry experts had mixed opinions about Samsung’s prospects for halting a prolonged market share slide at AST, which has reported losses in 11 consecutive quarters and posted a $418-million loss in 1996.
“AST has not been a good investment for Samsung so far, it remains a mistake, and [Samsung] is going to regret it a year from now,” said William Milton, an analyst at Brown Brothers Harriman in New York.
AST’s brand name has become a liability, Milton said, because years of heavy losses and management shake-ups have eroded the confidence of retailers, corporate buyers and even home PC users.
But others said that while AST may never return to the kind of success it experienced while climbing to the top of the computer industry in the 1980s, there is room for the company to survive.
James Staten, an analyst at Dataquest in San Jose, said AST outlined a potentially effective plan to concentrate on the small- to medium-size business market during analyst briefings on Monday.
“They’ve accepted that AST is not going to return to the position it had years ago,” Staten said. “They’re trying to get AST refocused so it’s not competing with Compaq, and the small-business market is a wide-open spot.”
Following the deal, AST will have access to Samsung’s deep pockets and will also benefit in other ways. AST will likely be first in line to get the latest chips, monitors and other components from Samsung at discount prices. Further, by being a division of Samsung, AST will no longer be obligated to publicly report quarterly financial results, providing a respite from newspaper stories about the company’s bleak financial performance.
Of course, Samsung has basically been running AST for the last year, and has so far been unable to halt the company’s slide.
In a news release, Samsung said it has settled a number of shareholder lawsuits filed against AST by investors who considered the initial Samsung bid too low. Details about the settlement were not available. A suit filed in Orange County has not been settled.
The deal is still subject to government approval, and Samsung is expected to make a tender offer for all outstanding shares of AST stock by Monday. The offer is expected to expire on May 19.
If completed, the acquisition marks the end of an era for AST, a company that was one of Southern California’s most successful in the late 1980s and has spawned dozens of other high-tech companies around Orange County.
The company was founded in 1980 by three immigrants--Albert Wong, Safi Qureshey and Tom Yuen--who used their first initials to form the AST name. Following a series of management squabbles, Wong and Yuen left the company in 1988 and 1992 respectively.
Yuen expressed sadness Tuesday at the outcome for the company he helped build.
“My first girl was born the year we started AST,” said Yuen, 45, who is now head of a 3-D sound technology company in Santa Ana. “When I look at her it reminds me of the happiness and the tragedy of having built a company and seeing it go down like this.”
Yuen said he still holds several thousand shares of AST stock that he will keep as a memento.
“I think it’s going to be a challenge for Samsung,” he said. “But it’s no secret that every one of the founders has benefited from AST, and I’m sure we continue to want to see AST survive and provide business and career opportunities for people in Orange County.”
