Samsung in bid to buy all of ailing AST

Electronic News, Feb 3, 1997 by Elaine Chen

Seoul, Korea--Samsung Electronics has offered to buy ailing PC maker AST Research. Samsung, which already owns a substantial share of AST, stated in a letter to the company's directors, " Without Samsung's ongoing operational and financial support, AST's ability to survive as an independent company is questionable." As of last Friday, AST said only that it planned to convene a committee to evaluate the proposal.

Samsung proposed a cash purchase price of $5.10 per share for the remaining portion of AST, with the overall transaction valued at approximately $469 million, including the assumption of approximately $307 million of third-party debt. Salomon Brothers is advising Samsung regarding the transaction. A spokesperson for Samsung stated that "any transaction probably won't close until mid to late April," and that the proposed price was "a pretty fair offer," given AST's recent financial results.

In the letter which delivered the proposal, Samsung CEO Jong Yang Yun noted that his company "has provided AST with considerable financial and operational support," and added, "It is apparent that in order for AST to continue as a viable competitor in the intensely competitive PC industry, significant further support from Samsung will be necessary...Accordingly, we believe our proposal is in the best interests not only of AST's stockholders, but all of AST's constituents, including its employees, customers and suppliers."

In response to Samsung's offer, AST said in a public statement that its board of directors has formed a special committee of three independent directors to evaluate the proposal and "to consider other options that may be available to AST." The company added, "Pursuant to the terms of a Stockholder Agreement between AST and Samsung, Samsung's ability to purchase shares and engage in other transactions with AST is subject to certain restrictions." Although Samsung stated that it owns 49 percent of AST, AST also contested that figure, claiming Samsung only has a 46 percent share with options to acquire an additional 3 percent.

Although AST had once been one of the PC industry's leaders, it has experienced severe problems in the highly competitive markets of the '90s. It recently reported a net loss for the 1996 fiscal year of $417 million, or $8.22 per share, compared with net losses of $263.2 million, or $7.01 per share, in the prior year. Losses for the quarter totalled $68 million or $1.18 per share, a slight improvement over a net loss of $128.6 million, or $2.88 per share, for the prior year's quarter. Revenues for the year totalled $2.104 billion, down slightly from 1995 revenues of $2.348 billion. As of Dec. 28, 1996, the company had $61.1 million in cash and cash equivalents, with $400.1 million in accounts receivable outstanding.

According to International Data Corp. (IDC) analyst Richard Zwetchkenbaum, Samsung probably hopes to gain an improved U.S. position from the potential purchase. "Samsung is serious about playing a major role in the global market for personal computers and convergence products," he said. "AST has a position here than could be used to build Samsung's presence." If Samsung is successful in using AST's brand equity to establish its own U.S. reputation, "the AST brand may sort of be transitioned out" in favor of Samsung's own name, Mr. Zwetchkenbaum predicted.

While AST's public statements up to now certainly display little enthusiasm regarding the possible acquisition, Mr. Zwetchkenbaum attributed the apparent reluctance to "a natural defensive reaction." Given its increasingly poor results, the company also may have little choice but to accept; with Samsung already owning such a large stake, other potential suitors could very well stay away. Mr. Zwetchkenbaum noted that the two companies' "cultures have been in the process of merging," and that in any event, "(AST's) status quo was not sustainable."