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May 27, 1987

US LEASING LIAISON: CONTINENTAL INFO MOVES IN FOR CMI UNDER FORCE-OUT CLAUSE

By CBR Staff Writer

Taking advantage of a force-out clause in the relationship between lessor CMI and its largest shareholder, the Torchmark conglomerate, Continental Information Systems has moved to gain full control of former rival CMI. The deal is worth $105m. The purchase includes a $50m cash payment by CIS – as Continental is generally known – for all outstanding shares of CMI plus the assumption of $55m in CMI’s obligations held by Torchmark. The payment for stock is presumed to be made as follows: $20m to Torchmark for its 40% holding; $15m to stockbroker Stevens & Co, which had paid $5 million for its 30% interest a year ago; and $15m to officers of CMI for the 30% of the lessor’s stock that they collectively hold. The $55m of debt will be transferred to CIS by Torchmark for $20m in cash, $15m in one-year notes bearing 10% interest, and $20m in convertible debentures with a 9% coupon. CMI, with headquarters in Bloomfield Hills, Michigan, is the second largest independent computer lessor in the US – best known outside the leasing world as the originator of the Serix implementation of Unix for the IBM Series 1 minicomputer; its parent Torchmark has kept its revenue and profit figures private. CIS holds forth from Syracuse, New York. In the fiscal year ended February 28, 1986, CIS earned $11m on revenues of $220M. While CIS stock is traded on the New York Stock Exchange, most shares are held by insiders and institutions. The company’s chairman, Harry Goetzmann, alone owns more than 1m of the company’s 5m outstanding shares. In yesterday’s trading, CIS closed at $11.375, unchanged for the day; volume was just over 14,000 shares. CMI’s founder and chairman, Edward Cherney, is rumoured to have been deposed by CIS. He was unavailable for comment. Whether or not he is retained by his company’s buyers, he will get a substantial part of the cash paid individual shareholders, perhaps as much as $10m. In the past, when he sold an interest in his company to Torchmark, he was paid an amount variiously estimated at $3m to $7m. Cherney, one of the leasing industry’s more colourful characters, is a maverick entrepreneur who has left his mark on the third-party leasing and computer trading world. Active in professional societies and in the business he founded, he is generally viewed as unlikely to walk away from his fast-paced business career. Despite Cherney’s willingness to share ownership of CMI with Torchmark, executives of other leasing companies say that it is doubtful that he would work for longstanding rival Harry Goetzmann. Ironically, Goetzmann is said to be looking toward retirement. And there are rumours that the new CIS, double its former size, may itself be taken over by year-end.

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