IEI board recommends rejection of Risco takeover offer

Thursday, March 22, 2007

CANTON, Mass.--Responding to Risco's $3.50-per-share offer to buy all outstanding shares of the company, International Electronics' board of directors "recommend that IEI shareholders not tender their shares to Risco and reject Risco's unsolicited offer," read a press release dated March 16. In the release and in an SEC filing, management of the access control manufacturer cited a "belief that the offer price is inadequate," optimism that current management plans are just now bearing fruit, and a "belief that Risco has opportunistically timed its offer to take advantage of depressed 2006 results stemming from unusual costs and delayed savings."
Risco, an Israeli firm doing business in the United States as Rokonet Industries USA that makes access control and intrusion hardware and system management software, tendered its offer with a letter dated March 6. The letter also made demands of IEI management under Massachusetts law that the company convene a special meeting of its stockholders to authorize voting rights, and provide Risco with a stockholder list and inspection rights. "If the IEI board of directors and management continue to try to obstruct our offer, we are prepared to take all steps necessary to ensure that IEI stockholders have the opportunity to benefit from it," the letter read.
Following IEI's recommendation against its offer, Risco responded on March 20 with a letter to IEI stockholders from Risco chairman Moshe Alkelai. "We are disappointed, but not surprised," he wrote, "to learn that last week IEI decided to oppose our offer. Once again, when presented an opportunity to create value for all stockholders, the IEI board and management has dug in its heels and refused to do so."
Calls to IEI president and chief executive officer John Waldstein have not been returned.
Risco, which currently owns 500 shares of International Electronics stock, claims "IEI lacks the resources to effectively compete with many of its competitors, including Honeywell, Tyco, Bosch or Siemens, or even smaller competitors" and that the company's share price, trading at $3.45 on March 21, is destined to fall back toward its average of $1.86 during the period between March 15, 2005 and Oct. 31, 2006, when Risco first made an offer to the IEI board. Risco believes IEI's current stock price is a reflection of its offer.
Following that Oct. 31 offer, according to the IEI SEC filing, Waldstein agreed to travel to Israel to discuss business plans and product development, as well as meet with Alkelai in January in Boston. Risco retracted their offer.
At the January meeting, according to IEI, Alekelai and Waldstein could not agree on a value for IEI, and Waldstein indicated "there was too large of a divergence in valuations to make further conversations worthwhile."
The companies continue to disagree on IEI's value. While Risco makes note that IEI has lost money for 11 of 12 consecutive quarters, IEI countered with second quarter statements released March 20. They show net income of $254,249 over the six months ended Feb. 28, 2007, as compared to a loss of more than $400,000 in the six months ended Feb. 28, 2006. Waldstein indicated in a statement that these results are proof of the success of a new management plan instituted in 2005.
"These results continue to validate our recommendation not to accept Risco's hostile tender offer price," he said in a statement.