Alpha Microsystems Intends to Buy General Automation in Stock Swap
Hoping to gain the size and clout to better compete with the giants of the computer industry, Alpha Microsystems said it intends to purchase struggling General Automation in a stock swap valued at about $3.3 million.
In acquiring the Anaheim-based business computer maker, Alpha Micro would nearly double its revenues, to $100 million, but also would have to contend with the losses that have been mounting at General Automation over the past year. Alpha Micro also makes business computers and is based in Santa Ana.
Under terms of a non-binding letter of intent, all General Automation stockholders will receive one share of Alpha Micro stock for each 10 shares of General Automation stock they currently own.
Alpha Micro stock closed Monday at $5.75, down 37.5 cents, in over-the-counter trading. General Automation, traded on the American Stock Exchange, closed at 62.5 cents, down 12.5 cents.
Based on Monday’s closing price of Alpha Micro stock, the indicated value of the deal would be nearly $3.3 million. The actual value, however, will depend on the price of Alpha Micro stock at the time the deal closes. Final details of the agreement, which also could affect the deal’s value, have not been completed, General Automation Chairman Alexander W. Giles said.
As part of the transaction, Alpha Micro said it is prepared to provide as much as $2 million cash to General Automation.
The agreement comes at a crucial time for General Automation, which has been struggling to return to profitability after losses of $11 million last year and another $879,000 in the first quarter of its current fiscal year, which began July 1.
Two weeks ago, General Automation said it had been unable to reach a merger agreement with Wespac Technologies, an Irvine computer company it had been talking with since October. At the same time, the firm said it was exploring a possible merger or financial transaction with other unidentified parties.
The motive for the merger, Giles said, is the desire of both companies to improve their positions against competitors such as International Business Machines and Digital Equipment that have far greater financial, marketing and technical resources.
“Alpha Micro recognized that they needed to create some more critical mass,” Giles said. “That’s essentially the same feeling we have. When you’re a $100-million company, you have a little more muscle in the marketplace.”
Giles said more consolidation in the computer industry is likely as small- and medium-size computer companies join forces to compete with larger rivals. Officials of MAI Basic Four, based in Tustin, have cited the need for industry consolidation as a chief reason for their firm’s proposed $970-million tender offer for Prime Computer of Massachusetts.
General Automation is the slightly larger of the two firms, with revenue of $51 million last year; Alpha Micro’s was $46 million. Although both make business computers, there is little overlap among their customers, company officials said.
“We really felt this was a good opportunity,” Giles said in an interview. “We are not competitors, and our products are really complementary.” However, Alpha Micro and General Automation computers use different operating software, which means that programs written for one company’s products won’t work on the other’s.
Robert B. Hitchcock, Alpha Micro chairman and chief executive, said in a statement that the merger “will benefit both companies by achieving economies of scale, particularly in the areas of facilities, manufacturing, and general and administrative costs.” He said Alpha Micro was particularly attracted by General Automation’s “extensive dealer network.”
“Although General Automation has experienced recent financial troubles,” Hitchcock said, “we believe that their product, dealer network and customer base are solid.”
Giles said Alpha Micro officials have said they do not expect the merger to result in a significant number of layoffs. Alpha Micro officials were not available for comment. The combined work force of the firms is about 700.
Giles, a New Jersey management consultant who has served part time as General Automation chairman since August, said he plans to leave the company after the deal is completed.
COMPARING THE COMPANIES
Alpha Microsystems General Automation Headquarters Santa Ana Anaheim Number of Employees 310 400 Products Computer hardware and Computer systems software products and products Earnings (loss) $1.7 million * ($11 million) ** Sales $46.4 million * $50.9 million ** 52-week stock $7.50/$2.875 $2.375/$0.625 price range Monday’s closing $5.75, down $0.625, down stock price 37.5 cents (OTC) 12.5 cents (Amex) Shares outstanding 3,172,900 (Aug. 28) 5,637,388 (March 31) Market value of $18.2 million $3.5 million common stock
* Year ended Feb. 28 ** Year ended June 30
