Read-Rite to Applied: 'Thanks, but no thanks.'

Electronic News, March 10, 1997 by Cynthia Bournellis

Milpitas, Calif.--Applied Magnetics' attempt at a hostile takeover bid for competitor Read-Rite Corp. was offically rejected last week after Read-Rite's board of directors placed a unanimous vote to turn down the unsolicited acquisition proposal.

The board said it wanted to remain an independent company in order to capitalize on Read-Rite's market leadership, technology and future prospects. "Read-Rite's independence has been critical to its success to date, and we are confident that adherence to our existing, long-term strategic business plan will enable us to deliver further value to our shareholders, employees, customers, suppliers and the company's other constituencies in the future," said Cyril Yansouni, chairman/CEO of Read-Rite.

To thwart the possibility of further action by Applied Magnetics, Read-Rite implemented a "poison pill" plan the following day, when it announced a dividend distribution of one preferred share price right on each outstanding share of the company's common stock. Mr. Yansouni said the rights are designed to protect and maximize the long-term value of the company for its shareholders by assuring that they receive fair and equal treatment in any unsolicited proposed takeover of the company. Each right will entitle shareholders to buy one one-thousandth of a share of the company's Series A participating preferred stock at an exercise price of $150.

The dividend distribution will be made on March 17. The rights will expire on March 17, 2007. Prior to the time the rights become exercisable, the rights will be represented by and traded with Read-Rite's common stock, and there will be no separate certificates or market for the rights. Following such time as the rights become exercisable, the rights will separate from the common stock and trade separately.

The poison pill approach came as no surprise to the analyst community. "It now makes Read-Rite look less attractive to the acquirer," said Bob Katzive, VP of market research firm Disk/Trend, referring to how the move will increase the preferred stock to a price that Applied will not be able to afford. Applied would not detail its strategy going forward. But in a written statement the company released on Friday in response to investors and analysts questions about whether or not it would try to modify the terms of its proposal, Applied's CEO, Craig Crisman, said, "Our intention is to form a business combination with Read-Rite that creates value for the shareholders of both companies. Accordingly, we would not structure or engage in a transaction that is dilutive to the interests of Applied Magnetics."

In an earlier statement from Mr. Crisman, he said that the company expected the actions from Read-Rite. He said Applied will remain committed to its offer and to pursuing all actions related to that offer, adding that the logic of combining both companies is compelling for stockholders, employees and the customers. He said the company remains confident that Read-Rite's shareholders will recognize the value of Applied's offer and support it. However, on Friday, Mr. Crisman said he was still disturbed and disappointed by market misperceptions and disinformation surrounding its growing capabilities in MR technology and the growth prospects for advanced thin film heads.

"Applied does lead in advanced inductive disk drive technology," said Alexa McCloughan, an analyst at International Data Corp., "but every major vendor is moving off of it, because it is not clear that inductive technology can deliver the capacities that MR technology can offer. Applied is a leader in something that is declining. The ball is basically back in Read-Rite's court."

For now Read-Rite doesn't want anything to do with a merger. Mr. Yansouni argued that Read-Rite is already the largest independent supplier of recording heads for the mass storage industry and is the volume leader among independent manufacturers in advanced inductive disk-drive heads, a technology in which Applied is a strong leader as well.