MICA files suit against investor group in effort to foil board takeover planThe expansion plans of Medical Imaging Centers of America weresidetracked this month after a group of shareholders launchedan effort to seize control of
The expansion plans of Medical Imaging Centers of America weresidetracked this month after a group of shareholders launchedan effort to seize control of the board of directors of the SanDiego imaging services firm.
The dispute began earlier this month when the investment group,Steel Partners II of New York City, announced that it was callinga shareholders meeting on Feb. 26 to vote on removing MICA's board.MICA responded with a federal lawsuit charging the group withviolating the Securities Exchange Act by understating its stockposition in the company.
MICA filed the suit on Jan. 10 in U.S. District Court for theSouthern District of California in San Diego. In its complaint,MICA charges that Steel Partners has a history of "predatoryinvestment activities, having raided at least 10 corporationssince 1991." The group typically builds a large stake ina small public company and then tries to acquire control of thefirm's board, the complaint maintains.
Steel Partners began building its position in MICA in January1995, and initially told MICA that it was a passive investor,according to MICA CEO and chairman Robert Muehlberg. The groupnow claims it controls 19.7% of MICA, although MICA alleges thatSteel Partners is acting in concert with undisclosed shareholdersand that as a result its position is larger than 20%, a levelthat could trigger MICA's poison pill defense.
Steel Partners claims that MICA's current board is not actingin the best interest of MICA shareholders and it called the Februarymeeting, as is the right of any MICA shareholder with an equitystake greater than 10%. In addition to voting on a new board,the group hopes to have MICA's poison pill defense removed, accordingto Muehlberg. That defense would allow MICA to issue new sharesof stock to all shareholders except Steel Partners, thus dilutingthe group's equity position. The poison pill plan was set up in1991, Muehlberg said.
In its lawsuit, MICA charges that Steel Partners has violatedsecurities laws by concealing its intention to acquire controlof the company. Those laws are designed to alert shareholdersto large accumulations of securities that could signal possibleshifts in corporate ownership, according to the complaint.
MICA is asking the court to rule that Steel Partners has a20% position in MICA and cannot vote its shares at the shareholdermeeting nor solicit proxies from other shareholders. MICA is alsoasking that the meeting be delayed so that the company will havethe opportunity to show that Steel Partners has a larger groupof shareholders than the 19.7% it claims to represent, Muehlbergsaid.
Steel Partners' timing for a shareholder insurgency is curiouswhen viewed in light of MICA's recent history. As a result ofhard times in the shrinking MR imaging services industry, MICAwent through a painful restructuring three years ago that sawthe company post a $30 million net loss in 1993. The company'sstock was delisted for two years and was trading at $2.35 a shareat its nadir (adjusted for a one-for-five reverse stock splitin October).
MICA has since rebounded. Final numbers are not in for thecompany's most recent fiscal year, but through the first ninemonths of 1995 MICA had a profit of over $5 million, Muehlbergsaid. MICA is back on the OTC Bulletin Board and its stock wastrading at about $10 a share last week, an almost five-fold increase.MICA is now in an expansion mode and is pursuing acquisitionsof independent imaging centers.
That expansion has been negatively affected by the activitiesof Steel Partners, according to the complaint. MICA alleges thatthe group approached one of MICA's lenders, DVI, and told thefinancing firm that Steel Partners had acquired a significantposition in MICA and had instructed MICA to stop making paymentson its loans. As a result, negotiations with DVI broke down andhave still not been completed, Muehlberg said.
"Based on the comments, and the fact that Steel indicatedthat they had this position and influence over management, (DVI)was reluctant to discuss any further lending activities with thecompany until they felt comfortable," Muehlberg said. "We'restill being harmed. They're still out there talking to peopleindicating that they are taking control of the company."
MICA charges that the group's actions constitute tortuous interferencewith the company's economic relations and that it should be awardeddamages.
Representatives of Steel Partners were not available for commentas of press time.