Tollgrade Communications Inc. of Harmar has rebuffed an unsolicited buyout bid worth as much as $79.4 million, saying in a securities filing Tuesday that the offer undervalues the telecommunications company.
Bradford Capital Partners' buyout bid valuing Tollgrade stock in a range from $5.50 to $6 per share doesn't reflect the strength of the company's cash position, the long-term value of its business or potential benefits of a new business strategy, Tollgrade CEO Joseph A. Ferrara said in a letter to the Aspinwall-based investment company.
Tollgrade's management and its new business strategy have the full support of its board of directors, Ferrara wrote in the letter filed yesterday with the Securities and Exchange Commission.
Tollgrade, which has about 260 employees and makes test equipment for telecommunications and cable networks, said the letter basically repeats the substance of its Nov. 24 letter to Bradford Capital, the company's largest shareholder. Tollgrade wrote that letter in response to Bradford Capital's Nov. 18 buyout offer.
Tollgrade shares closed at $4.91 yesterday, up 16 cents, or 3.3 percent.
Tollgrade spokesman Robert Butter said the company's cash on hand alone is close to the offer price. Tollgrade had $61.2 million in cash at the end of the third quarter, and spent $480,000 of that amount on its planned $15 million stock repurchase plan, the company said in its third-quarter earnings report.
Butter declined to elaborate on the company's statement. Neither Steven J. Lynch, president of Bradford Capital, nor Martin Calihan, an agent for the firm, could be reached for comment yesterday.
Bradford Capital, which owns about 11.7 percent of Tollgrade's stock, has participated in venture capital investments and engages in acquisition and development of entrepreneurial businesses.
Under Pennsylvania corporation law, Tollgrade's board has the right to reject an offer it considers not in the best interest of the company, the employees or the community, said attorney Richard D. Rose, co-chairman of the mergers and acquisitions group for Buchanan Ingersoll & Rooney P.C., Downtown.
To fend off an unwanted takeover, the targeted company could file a lawsuit against the suitor, which would provide it with some time to mount a defense, said Ravi Madhavan, associate professor of business administration at the University of Pittsburgh's Katz Graduate School of Business.
"The corporate lawyer's toolkit is rather full," Madhavan said.
Tollgrade could restructure and sell some of its assets, turn to a friendly buyer in the form of a "white knight" or even attempt "greenmail," which is offering to repurchase the unsolicited bidder's stock at a higher price, Madhavan said.
"You are essentially paying them to go away," Madhavan said.
If Tollgrade's board had accepted the offer, Bradford Capital could have negotiated terms of the buyout and conducted its due diligence before buying Tollgrade, Rose said.
But now, Bradford Capital could continue its pursuit of a Tollgrade takeover by mounting a tender offer to the shareholders, Rose said. In order for that tender offer to succeed, Bradford might have to raise its offering, Rose said.
Shareholders would be better served by the company following a more focused business strategy, rather than a sale of Tollgrade, Ferrara told financial analysts recently. The company is focusing on providing software services for telecommunications providers.
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