Prime Computer, avoiding a determined hostile takeover bid from Tustin-based MAI Basic Four, said Friday that it has agreed to be acquired by a New York venture capital company in a friendly deal valued at about $1.4 billion.
Prime, a minicomputer maker, said its directors unanimously approved an offer from J.H. Whitney & Co., one of the nation's oldest venture capital concerns. Whitney said it will purchase up to 79% of Prime's shares for $21.50 per share.
In reaction to the news, Prime stock climbed $3.125 to $19 per share in New York Stock Exchange trading, apparently on the expection that the deal will be completed.
If the deal with Whitney goes through, Prime will have defeated a seventh-month takeover bid by MAI to acquire a rival company more than three times its size. The computer industry, having witnessed few takeover battles, was caught by surprise when MAI launched its effort to acquire Prime.
Losing Prime would be a blow to the firm and its chairman, New York investor Bennett S. LeBow. Analysts estimate that MAI has spent more than $7 million in legal costs, investment banking fees and other expenses to carry on its fight. Drexel Burnham Lambert and Merrill Lynch, MAI's investment banking firms, are guaranteed a minimum of $2.5 million for their services.
The takeover has exacted a toll on the Tustin firm in other ways. MAI has cited "adverse publicity" about the takeover as part of the reason for a 62% decline in earnings for the quarter that ended March 31. MAI's stock has nose-dived from about $12 per share last November, when the takeover effort began, to a close of $6.25 on Friday.
Earlier this week, William Patton, MAI's chief executive and president, announced his resignation from the firm, although the company denied that the departure was related to the Prime bid.
Don E. Ackerman, a partner at Whitney, said the venture capital firm plans to "operate and build the company as an independent entity." Prime's headquarters will remain in Natick, Mass., he said, and none of Prime's operations will have to be sold to help finance the acquisition.
"We like the Prime customer base, and we like the capability of the organization," Ackerman said in a telephone interview.
Ackerman declined to discuss any management changes at Prime, but analysts said they believed Whitney would probably want to retain key Prime managers to run the company after the merger.
Prime is a major manufacturer of minicomputers and is the second-largest producer of computer-aided design and computer-aided manufacturing systems, after International Business Machines Corp. It has 11,200 employees and had 1988 sales of $1.6 billion.
Analysts said the deal with Whitney gives Prime the upper hand in its battle with MAI. But MAI may not be ready to quit yet.
MAI said Thursday, after Prime disclosed it had received a bid from an unidentified buyer, that it intended to raise its offer. MAI officials gave no details of a new offer, and they declined to comment on the Whitney bid Friday.
"I wouldn't be surprised if MAI took another swipe at Prime," said John W. Adams, an analyst at Adams, Harkness & Hill in Boston.
But most analysts agreed that MAI's chances are dim. They said they doubted MAI would be willing to raise its bid more than $2 or $3 per share, and Whitney's strategists probably left themselves some room to match or better a higher bid, they said.
Analysts said Whitney's offer clearly tops MAI's latest bid.
Three weeks ago, MAI lowered its $20-a-share, all-cash offer for Prime to a combination of $19.50 per share in cash for 75% of Prime and securities with a face value of $21 a share for the rest of the company. With securities analysts placing the value of the securities much lower, having the overall size of the MAI bid has been put at $1.1 billion.
Ackerman, the Whitney partner, said his company began to seriously consider a bid for Prime in late May, after MAI reduced its offer.
"When LeBow lowered his offer, we took a closer look because our view of (Prime's) business was that it is worth more than (MAI's) first bid," Ackerman said.
Whitney, founded in 1946, is no stranger to the high-technology business.
In December, 1987, Whitney and Welsh Carson, another venture capital firm, bought Decision Industries Corp., a computer peripherals company, for more than $100 million. Whitney also has made smaller investments in Compaq Computer, Memorex Corp., Storage Technology, Cypress Semiconductor, Miniscribe Corp. and Concurrent Computer Corp.