Saturday's (May 23, 1998) Financial Post Article
Discreet jilts MGI at the last minute
By KEITH DAMSELL
Technology Reporter The Financial Post
Discreet Logic Inc. has axed its $81-million friendly all-stock offer for MGI Software Inc., a move that caught MGI shareholders by surprise on Friday.
Late Thursday night, MGI received a letter from Montreal-based Discreet stating the company "believes it has the right to terminate" the March 9 deal "based on unspecified allegations of breaches" of the merger agreement by MGI, the Toronto-based software firm said Friday.
The rejection came only hours before MGI shareholders were to vote on the deal between the two companies, both of which make software used in creating special effects for movies. MGI went ahead with the vote anyway, with 97% of shareholders approving the merger.
Discreet had offered 0.162 of a Discreet share for each of MGI's 28.2 million fully diluted shares. But since the merger was proposed in March, Discreet's stock price (dslgf/nasdaq) has fallen from the US$25 level to US$13 5/8, down 5/16 Friday. The stock slide has cut the value of the deal from $150 million to about $81 million.
This week's turn of events left investors baffled and few answers available. Discreet officials were absent from Friday's meeting and refused to comment, instead issuing a brief news release confirming the 11th-hour letter.
Anthony DeCristofaro, MGI president and chief executive, was unable to provide any insight. MGI "strongly disagreed" with Discreet's actions, arguing the synergies between the firms made the merger a perfect fit, DeCristofaro said.
The two firms are expected to meet in the next few days, and it's likely liability for the costs of the failed deal will be at the top of the agenda.
Under the terms of the 365-page management circular, each company must pay the other party up to US$1 million if found in breach of the takeover agreement. In addition, MGI is liable to pay US$4.5 million to Discreet if MGI finds another buyer within the next 12 months.
Analysts suggested the dilutive terms of the offer may be behind Discreet's decision. The deal would have added about 4.6 million shares to Discreet's 30-million float, cutting earnings by US3› a share in the current quarter and up to US3› in fiscal 1999.
The news shaved 15% off MGI's shares (MGI/TSE), which closed Friday down CDN 50› at CDN$2.85.
The Discreet snub didn't stop MGI from holding its scheduled vote, to settle contractual obligations. Despite the overwhelming vote of approval, the merger is "highly unlikely" to be completed, said DeCristofaro.
The offer represented less than fair value for MGI shareholders in any case, said Larry Meade of Toronto's Buckingham Securities Corp. "The currency Discreet is using is their stock and it has been downgraded." |
