Samsung Makes Takeover Bid for Irvine’s AST

Samsung Electronics Co., the Korean giant that has come to the financial rescue of AST Research Inc. repeatedly in recent years, made a $469-million bid Thursday to acquire the computer manufacturer outright.

Saying that it could not “continue to pour money, technology and management resources into Irvine-based AST without having direct control,” Samsung offered to buy all of the company’s outstanding shares for $5.10 apiece, or about 35 cents more than the closing price of AST’s stock on Thursday.

Samsung, which already owns 49% of AST, also would assume $307 million in AST debt, much of it already guaranteed by Samsung as part of its efforts to prop up the struggling company.

“Samsung is at a crossroads in its relationship with AST,” said W.R. Choi, Samsung’s executive director for international finance. “Our view is that AST will find it difficult to be a viable independent company going forward without additional assistance.”

In fact, the Samsung deal was proposed just as AST reported its 11th consecutive quarter of losses, and a loss of $418 million for 1996.

Choi would not rule out the possibility of layoffs if the acquisition is completed, and said that Samsung would launch an extensive review of the computer manufacturer’s operations. AST has 4,200 employees worldwide, including 750 in Orange County.

But Choi said that the AST brand name would be preserved, that the company would still maintain U.S. headquarters in Irvine, and that Samsung still believes AST has the potential to rebound.

“Despite the recent difficulties, Samsung’s firm belief is that AST still has tremendous value in its brand name and operations,” said Choi, speaking from Korea with the assistance of an interpreter.

Samsung’s offer was met with a cool reaction from AST. In a written statement, Y.S. Kim, AST’s chief executive, said the company had established a committee of three board members “to evaluate Samsung’s proposal, along with other options.”

“These events, while significant, do not alter our primary goal--to return AST to profitability,” Kim said. “It is business as usual.”

The move could herald the end of an era for AST, which was founded in 1980 in a Santa Ana garage by three immigrants who built the company from scratch into one of the top 10 computer manufacturers in the world.

Throughout the 1980s, AST was one of Southern California’s greatest high-tech success stories. But two of the company’s three founders left after a series of management squabbles, and the company seemed to lose the decisiveness and reflexes that had long been its strengths. In recent years, AST has been losing market share and money at a worrisome pace.

Analysts said Thursday that the proposed acquisition would lend stability and credibility to a company that needs both.

“I don’t think Samsung would be investing the money if they didn’t think they could get a good return,” said Scott Miller, an analyst at Dataquest in San Jose. “What I see is Samsung with more at stake, and that’s a good thing.”

In June 1995, Samsung bought 40% of AST for $378 million in what was widely considered a financial bailout. Samsung subsequently raised its stake through further investments and loan guarantees, and currently owns about 49% of AST at an average price of $14.21 per share.

But even though Samsung has installed its own executives at the company and streamlined its operations, the losses continued to mount and AST’s stock price sank.

Tuesday, Samsung executives presented the bid to AST board members at the company’s quarterly meeting at its Irvine headquarters. Samsung already has significant management control over AST, with a majority of the company’s board of directors and a former Samsung official serving as AST’s chief executive.

But the acquisition must be approved by AST’s independent board members, meaning the four directors on AST’s 10-member board who are not affiliated with Samsung.

Samsung’s offer was made after stock markets closed on Thursday, but AST shareholders said they believe the deal will be completed after wrangling over the price.

“We think it’s ridiculously low,” said Mark Kim, principal in the San Francisco offices of D.E. Frey & Co., a money management group that tracks Korean companies and has invested its clients’ money in AST.

“We’ve been waiting for this to happen, but we believe the final outcome will be that Samsung will be picking up AST in the $6 to $7 range,” Kim said.

For its part, Samsung went to great lengths to portray AST as a company that would be foolish to spurn the offer. Samsung even issued a press release that detailed “Wall Street’s negative outlook for AST.”

Samsung is one of the world’s largest manufacturers of computer components, and invested in AST in an effort to gain a foothold in the U.S. computer industry. Analysts said the proposed takeover would make it easier for Samsung to supply AST with parts and share technologies.

AST’s latest financial report provides a clear look at why Samsung decided on a complete takeover. Under its mixed ownership last year, AST saw its losses increase dramatically while revenue--paced by plunging international sales--dropped by more than 10%.

AST’s $417.7-million loss for the year ended Dec. 28 equaled $8.22 a share and was more than 1 1/2 times the $128.6-million loss, or $7.01 per share, for the company’s fiscal 1995.

Revenue for the 12 months was $2.1 billion, down from $2.3 billion a year earlier. AST said that its domestic sales fell just 1%, to $1.14 billion, while international sales plummeted 22% to $927.8 million.

In a somewhat positive note, AST reported that improving sales in the final months of the year helped it cut its losses from last year.

The company said that shipments of both desktop and notebook computers increased substantially in the final quarter and that sales in its North, Central and South American markets actually rose by 21%.

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Samsung Bids for AST

Samsung Electronics Co.’s bid to take over AST Research Inc. comes at a time when the computer manufacturer has been bleeding red ink for nearly three years. The company’s average stock price has also tumbled.

Deal Details

* $469 million offer, or $5.10 a share for all outstanding shares

* Samsung assumes $307 million in AST debt

* AST brand name would remain

* Layoffs could occur

****

*--*

Sales Net income/loss 1994 (millions) (millions) 1st qtr. $591.3 $13.2 2nd qtr. $584.5 -$8.1 3rd qtr. $495.4 -$39.4 4th qtr. $640.1 -$21.7 1995 1st qtr. $670.2 -$6.5 2nd qtr. $662.0 -$31.6 3rd qtr. $403.4 -$96.4 4th qtr. $612.9 -$128.6 1996 1st qtr. $530.0 -$115.8 2nd qtr. $553.8 -$98.7 3rd qtr. $408.5 -$128.6 4th qtr. $611.4 -$68.0

*--*

****

Stock Ups and Downs

*--*

High Low Average 1992 $23.25 $11.25 $17.22 1993 $25.25 $13.25 $17.33 1994 $32.25 $10.75 $18.02 1995 $18.94 $7.88 $13.89 1996 $8.88 $4.00 $5.96

*--*

Wednesday’s close: $4.75

****

Key Events at AST

1980

Pakistan-born Safi U. Qureshey and Thomas C.K. Yuen and Albert Wong, both from Hong Kong, found AST, sketching business plan over lunches at Carl’s Jr. in Irvine. Company sets up shop in Yuen’s Santa Ana garage.

*

1984

Public stock offering raises $19.32 million, making founders millionaires.

*

1990

Wong resigns after argument with Yuen over product mix, marketing strategies.

*

1992

Yuen resigns in disagreement with Qureshey over management powers.

*

1993

AST buys Tandy Corp.’s Texas-based computer operations for $175 million and enjoys first billion-dollar year, but takes a $53.7-million loss after a $125-million charge related to Tandy purchase.

*

1994

James T. Schraith, senior vice president for sales and service operations, appointed president by Chairman/CEO Qureshey.

*

1995

July: With AST in financial tailspin, shareholders approve $378-million investment by Samsung Electronics, giving the giant South Korean firm 40% of stock and minority of seats on board of directors.

September/October: Schraith and three other top officers resign in management shake-up.

November: Former Apple executive Ian Diery replaces Qureshey as CEO; latter takes a 50% pay cut and remains chairman, but is out of daily operations.

*

1996

June: Samsung increases stake to nearly 50%; Samsung President/CEO Kwang-Ho Kim replaces Qureshey as chairman.

August: Diery resigns and is replaced by Samsung electronics executive Young-Soo Kim, an AST director who engineered Samsung’s AST investment.

*

1997

January: Samsung makes bid to acquire all of faltering AST.

Sources: AST Research, Times reports

Researched by JANICE L. JONES / Los Angeles Times