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  1. Technology
May 31, 1987


By CBR Staff Writer

Edward Cherney, on behalf of all management shareholders of computer lessor CMI Corp, filed suit Wednesday in Federal Court in Detroit to block a force-out attempt announced earlier in the day by Continental Information Systems, another computer lessor (CI No 690). Cherney, CMI’s founder and chief executive, claims that a planned takeover of CMI violates terms of an agreement among management shareholders and the two outside enterprises that have, between them, the majority of outstanding stock. CIS, of Syracuse, New York, hoping to acquire CMI, based in Bloomfield Hills, Michigan, disputes that. CIS had offered to buy all shares of CMI and to assume its debt as part of a complex takeover deal. The CIS takeover offer was triggered by Cherney and other management shareholders at CMI. The management group had offered an estimated $35m to $45m in cash for all the outstanding shares of CMI, plus the assumption of $55m in debt. CMI’s management had the option to make such an offer under terms of an agreement with two outside shareholders of the leasing company. The force-out agreement gave management, led by Cherney, the option to buy all the stock in the company. However, the terms of the option on all CMI’s stock held by the lessors’ managers also provided for a counter-offer that could force CMI managers to tender their shares whether they were willing to or not.

Slightly means millions

This gave CMI’s two large outside shareholders a means to seek a more lucrative arrangement by which they could obtain all the stock held by CMI managers – and then sell it to another party. CIS is the other party, and its offer is only slightly better than CMI’s, but in this case slightly means millions of dollars. CMI’s two outside owners are Stevens Inc, a stockbroker in Little Rock, Arkansas, and Torchmark, a Birmingham, Alabama, conglomerate mainly in insurance. Torchmark had loaned $55m to CMI, and it hopes to get this debt repaid or refunded as it sells its equity in the lessor. Although there is some disagreement about the holdings of the various parties, it appears Stevens has an undisputed claim to 30% of CMI’s stock, while Torchmark has an undisputed claim to 40%. Management holds an undisputed 20%. The remaining 10% is believed to be held by either management or Torchmark. It had originally been held by Torchmark, but should have been transferred to Cherney and other managers once they met certain performance goals at CMI. Cherney believes they met those goals; Torchmark appears to disagree. So a portion of the dispute concerns just who indeed holds the stock that is being sought by two ardent groups. In any event, CMI’s management believes that the CIS offer does not conform with a year-old agreement among CMI personnel, Torchmark, and Stevens, and the management offer should therefore be honoured. Torchmark and Stevens believe the offer they got from CIS – $50m in cash for all the stock plus a mixture of cash and securities to replace CMI’s $55m debt to Torchmark – is a better deal than CMI’s management had offered. Terms of this offer are thus far secret, but sources close to the scene speculate that the CMI offer did not involve repayment of any debt with cash, while CIS’s offer did include $20m in cash to retire some of CMI’s obligations. CMI’s adversaries have not yet answered CMI’s complaint in the Detroit court, but are expected to do so shortly. Torchmark is said to have filed suit in Alabama to compel CMI management to turn over their stock.

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