StockerYale takeover try may go hostile

StockerYale Inc. is threatening to engage in a hostile takeover of Ontario-based rival Virtek Vision International, if Virtek does not voluntarily agree to the Salem optics company’s offer to buy it out.

In a press release, the firm said it “would strongly prefer to proceed with the acquisition on a negotiated basis” but “StockerYale is prepared to proceed with making an offer on an unsolicited basis, if necessary.”

StockerYale imposed conditions on the takeover, including a minimum two-thirds tender condition for any takeover bid. The Salem-based firm said it hoped to complete the deal early in the second half of calendar year 2009, and said that it has formed a subsidiary, StockerYale Waterloo Acquisition Inc. to facilitate the buy out. Virtek is located in Waterloo, Ontario.

The offer came a week after Virtek spurned a similar offer made May 13 by StockerYale. This time, StockerYale enhanced the carrot – upping the original $22 million price by about $1.5 million, or a Canadian nickel, to 70 cents a share – as well as waved a stick – the hostile takeover threat at the original price of 65 cents a share.

The “stick,” however, might be more attractive to some shareholders, since it would be entirely in cash, while the proposed buyout would include about 7.8 million shares of StockerYale stock, representing a fifth of a company that – the Nasdaq stock exchange has warned – faces delisting at the end of June.

Virtek said that it rejected the original proposal, partly because of the “stock price history and financial conditions” of StockerYale.

StockerYale, however, said that Virtek’s largest institutional shareholders have expressed their support for the acquisition, arguing that either offer would result in greater value than Virtek’s share price on May 13, or Virtek’s above-average price a month or three months preceding that.

StockerYale did not spell out where it would get money for the purchase, particularly if it was entirely in cash. The company has operated at a loss for over a decade, and it regularly borrows money for operating capital, often discounting stock to its lenders, or pledging assets of companies it has previously purchased, as collateral.

Last quarter it borrowed $2 million after suffering a $2.2 million loss. Presumably it would go to some of those same sources to finance the acquisition.

Meanwhile, StockerYale continued to maintain its three-week silence on a special shareholder meeting to give the company the right to issue a reverse stock split, as well as to reincorporate in Delaware.

The reverse split would increase the stock’s sales price in an effort to prevent the Nasdaq from delisting the company.

StockerYale already had moved from the Nasdaq Global Exchange to its Capital Market because it could not maintain the required $10 million in equity required for listing on the Global Exchange. The Nasdaq warned at the end if last year that it would delist the company’s stock altogether if it couldn’t keep its stock price over a dollar for 10 consecutive days by June 25. The company hasn’t come close, and the market’s reaction to the takeover bid was slightly negative, with sale price dropping almost 5 percent on the day the acquisition intention was announced.

The company announced on May 20 that it had the necessary approval of shareholders representing a majority of the proxies returned to pass the reverse split measure, but did not have the necessary two-thirds of shareholders representing the majority of all outstanding shares to reincorporate to Delaware.

A similar measure to reincorporate failed last year. StockerYale says shareholders would benefit because Delaware’s corporate law is more “flexible,” but critics of the proposal contended that Delaware law was not as favorable to shareholder rights.

On May 20, StockerYale said it adjourned the shareholder meeting without taking any action until Friday, May 23. But the company has still not announced, nor returned phone calls about, what – if anything – happened at the meeting.