MDI mounts aggressive defense against Raytel tender offer

Raytel has accumulated 30% of MDI shares

Acquisition-minded imaging services firm Raytel Medical is findingthat industry consolidation is easier said than done. The company'stender offer to acquire all the outstanding stock of Medical Diagnosticshas been met with a fierce defense from that company's executives.Despite MDI's efforts, however, Raytel had accumulated about 30%of MDI shares as of the last week of January.

Raytel, of San Mateo, CA, announced Nov. 29 that it had begunan effort to take over MDI, of Burlington, MA, by buying thatcompany's stock through a tender offer to MDI shareholders (SCAN12/28/94 12/14/94). The company offered holders of MDI commonstock $5 a share and set a deadline of Jan. 3 for the offer toexpire.

MDI responded to Raytel's bid by rejecting it as inadequate,and the company urged its shareholders not to tender their sharesto Raytel. MDI also filed a motion seeking to permanently enjoinRaytel's offer, which MDI said violated securities laws becauseRaytel allegedly possessed information not available to otherMDI shareholders. Raytel also filed a motion of its own againstMDI, but both motions were denied in U.S. District Court in Delawareon Jan. 19.

In December MDI adopted a poison pill defense, which is thetarget of a Raytel lawsuit that has not yet been heard. In addition,the two companies are involved in litigation relating to MassachusettsMobile Imaging Venture, a joint venture imaging company MDI andRaytel formed in 1986. That litigation is expected to go to trialin April.

While the firms haggle in court, Raytel has not received amajority of MDI shares and has been forced to extend its deadlinefor the tender offer twice, with the most recent deadline Feb.17. The extensions were due to the fact that Raytel has not beenactively soliciting MDI shares because of the company's poisonpill defense, according to Richard Bader, Raytel chairman andCEO.

By late January, MDI shareholders had tendered to Raytel 1.25million shares, about one-third of the total number of MDI sharesoutstanding, Bader said. Raytel believes it needs a total of 1.8million shares to acquire majority control of MDI.

"The fact that we've picked up that many shares is a fairindication of how the shareholders feel about (MDI) management,"Bader said. "We feel we will end up acquiring MDI."

MDI has a different spin on things, however. The fact thata majority of its shareholders did not tender their shares byRaytel's deadlines is an indication that most shareholders wantto stick with the company's current management, according to JohnLynch, MDI chairman and CEO.

"I am encouraged that a majority of investors in the companyare unwilling to sell shares at the inadequate price offered byRaytel," Lynch said. "MDI's board has acted prudentlyin rejecting the current offer in favor of seeking improved shareholdervalue through alternative means."