Proxim Stk Plunge Calls Netopia Purchase Into Question
Updated: Wednesday, March 21, 2001 07:30 PM ET
By Peter Loftus
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--The steep drop in Proxim Inc. (PROX, news, msgs) shares Wednesday couldn't have come at a worse time from the viewpoint of Proxim's management.
On Friday, Proxim shareholders and those at Netopia Inc. (NTPA, news, msgs) are scheduled to vote on Proxim's proposed acquisition of Netopia. But the drop in Proxim shares has lowered the value of the all-stock acquisition, calling its completion into question.
Shares in Proxim, a Sunnyvale, Calif., network equipment maker, have fallen 75% since its planned acquisition of Netopia, an Alameda, Calif., broadband Internet equipment maker, was announced in late January. As a result, the deal's value has dropped to less than $60 million from $223 million.
Much of the decline in Proxim shares occurred Wednesday, when Intel Corp. (INTC, news, msgs), a Proxim customer, said it would begin using a technology that rivals Proxim's for its wireless home networking products. While revenue from Intel is a small portion of Proxim's total revenue, the move was seen as a blow to the future of Proxim's technology, known as HomeRF.
Proxim shares fell $5.88, or 40%, to close at $9 Wednesday. With Netopia shareholders set to receive 0.3 Proxim shares for each Netopia share, the deal now values Netopia at $2.70 a share. Netopia shares closed at $2.94 Wednesday, down $1.47, or 33%. When the deal was announced Jan. 23, Proxim shares had closed at $36.88, which valued Netopia at $11.06 a share, a 53% premium to Netopia's closing price that day.
Proxim Chief Executive David King acknowledged that the slide in his company's shares was an "issue" for Netopia and its shareholders to consider. He said a majority of Netopia shareholders had already submitted votes in favor of the deal. But it's possible they could withdraw their votes, or that Netopia would postpone its shareholders' meeting Friday.
"We'll be in discussions with (Netopia)," King said during a conference call Wednesday afternoon. "We certainly would hope Netopia shareholders would recognize the value in both companies and cause the merger to go through."
A Netopia spokeswoman said the company hasn't made any decisions about Friday's vote. "The board of directors is evaluating the situation and consulting its advisers," she said. She declined to elaborate.
Some 28.2% of Netopia shares are owned by insiders who presumably supported the deal when it was announced. Shareholders owning an additional 8.6% of shares outstanding signed voting agreements with Netopia pledging to approve the merger. The acquisition needs the approval of shareholders who aren't party to the voting agreements who represent 41.4% of shares outstanding.
Under certain circumstances, Netopia would owe Proxim a $6.7 million merger termination fee if it backed out of the deal. It wasn't immediately clear if Netopia would owe such a fee if it balked due to Proxim's tumbling stock price. Netopia has also given Proxim the option to buy 19.99% of its shares for $11 a share, exercisable if Netopia were to back out under circumstances that would trigger the termination fee.
Should the acquisition go forward, King expects Netopia to be neutral to Proxim's earnings for the second half of 2001, and to possibly add 10 cents a share to 2002 earnings. Excluding Netopia, Proxim expects to earn 75 cents to 80 cents a share in 2001 and $1.10 to $1.20 a share in 2002, King said.
King said Intel's move hadn't changed the company's guidance.
-By Peter Loftus, Dow Jones Newswires; 201-938-5267; peter.loftus@dowjones.com |
