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Whitney Lowers Offer to $1.2 Billion; Prime Accepts

August 05, 1989|DAVID OLMOS | Times Staff Writer

The nine-month battle for control of Prime Computer appeared headed to a conclusion Friday when the company's board reluctantly accepted a reduced tender offer from J. H. Whitney & Co.

The approval of the cash-and-securities bid--valued by analysts at $1.2 billion, or $18.50 a share--was a blow to MAI Basic Four, a Tustin computer company that has wooed much larger Prime since November. Prime, a Natick, Mass., computer firm, rebuffed all MAI's advances and instead initially agreed to a friendly acquisition by Whitney on June 23.

But Prime officials aren't yet claiming victory.

"This is sort of like having a toothache for nine months," Prime Chairman David Dunn said in a telephone interview. "You're anxious to get rid of it, but you'll believe it when you see it. It's been an endurance contest."

Whitney, a New York venture capital firm, was forced to reduce its previous bid, which was valued at $1.4 billion, after its lenders expressed concern about Prime's deteriorating financial condition. Prime last week reported a loss of nearly $19 million for its second quarter.

Prospects Dimmed

Initially, Whitney's financing problems seemed to create a last-ditch opportunity for MAI. The firm originally wanted to buy all of Prime but had recently tried to acquire only its minicomputer business. Analysts had speculated that Whitney might be forced to sell the minicomputer unit to raise additional financing.

"I think their (MAI's) chances are substantially lessened," said Robert M. Johnson, an analyst with Rotan Mosle Inc., a Houston investment firm. "I think Prime wants to run the company in one piece.

The buyout agreement contains no requirement that any of Prime's businesses be sold off to finance the deal, said Robert A. Schwed, an attorney for Whitney.

"We've said before that, over time, we'll take a look at the minicomputer business," Schwed said. "The main attraction here is in the other parts of Prime's business."

In New York Stock Exchange trading, Prime's shares jumped $1.125 to close at $17.75, apparently reflecting confidence that the Whitney deal will be completed, while MAI closed up 37.5 cents to $5.375.

Better Option

Prime's Dunn said the board is "very disappointed" with the lower offer. "However, after review of all the alternatives," Dunn said in a statement, "the board of directors believes that the revised J. H. Whitney offer is the best economic alternative available for Prime stockholders."

Dunn said the Whitney offer was a better option than selling part of its business to MAI. MAI on Tuesday offered to pay $525 million in cash for the minicomputer unit. Prime's minicomputer unit accounted for one-third of Prime's $1.6 billion in sales in 1988.

Whitney's new offer would pay $20 per share for 49 million, or 79%, of Prime's outstanding common shares. The remaining shares would be converted into notes with a face value of $22 in DR Holdings Inc., the company formed to acquire Prime. The market value of the securities is expected to be lower than the face value, however, leading analysts to conclude that the overall offer actually will be worth the equivalent of $18.50 a share.

After its acquisition of Computervision Corp. last year, Prime became the nation's second-leading maker of computer-aided design and manufacturing systems, behind only IBM. Prime also has a computer repair and leasing business.

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