E Ink Investors May Try to Block Sale to Taiwanese Firm, Keep Company Independent

6/16/09Follow @wroush

A group of E Ink investors with concerns about Prime View International’s move earlier this month to purchase the Cambridge, MA-based e-paper display company will likely try to prevent the sale when it comes up for a shareholder vote, according to a source familiar with the company.

E Ink has roughly 100 separate shareholders; it’s not known how many of them oppose the sale to PVI, a Taiwanese firm that assembles e-book devices for the likes of Amazon and Sony and is already the largest buyer of E Ink’s display technology. But the source—an insider with deep knowledge of E Ink who requested anonymity for lack of authorization to speak on the record—says the proposed sale agreement, which has already been approved by E Ink’s board of directors, will likely be defeated when E Ink shareholders get the opportunity to vote on it.

A vote has not yet been scheduled. E Ink, for its part, says it intends to complete the proposed $215 million sale. “The Board of Directors of E Ink has voted in favor of the sale agreement with PVI and the company fully intends to consummate the transaction,” E Ink said in a statement released last night through a spokesman. The sale, first announced June 1, is subject to approval by PVI shareholders and regulators in both Taiwan and the United States.

Shareholder discontent about the proposed sale surfaced Saturday in an article by Boston Globe reporter Robert Weisman. That article focused on concerns about the $215 million bid offered by PVI, which some shareholders reportedly believe is too low, given new estimates that the MIT spinoff’s revenue from e-paper sales, which are soaring thanks to the popularity of Amazon’s Kindle e-book devices, could top $110 million this year.

That was one of the shareholder concerns relayed by Xconomy’s source. Investors are doing the math, the source says, and concluding that $215 million is an inadequate offer for a company that may be one of the fastest-growing startups in the Boston area.

But the source lists several other factors that have become sticking points for certain E Ink shareholders. In particular, the source says, companies that are considered strategic investors in E Ink, because they are in related industries such as publishing and electronics, are concerned that the acquisition of E Ink by PVI would give control of E Ink’s unique electronic paper technology to a single company.

In particular, Hearst Interactive Media, E Ink’s largest single strategic investor, is concerned about the idea of being locked into PVI as a supplier of e-paper for its digital newspaper project, called FirstPaper, the source says. (Hearst had not replied to a request for comment by the time this article was published.)

Fears about monopoly control of e-paper may have been exacerbated by a statement from PVI’s chief financial officer, Stephen Chen, on the day the acquisition was announced. Dow Jones Newswires quoted Chen as saying, “We can lower costs and dominate the market by acquiring E Ink.”

The depth of PVI’s pockets, or lack thereof, is another issue for E Ink shareholders, the source says. The company is a small-cap corporation listed on Taiwan’s ROC Over The Counter Stock Exchange, with a total market capitalization of just over $750 million. According to the source, the company does not actually have enough cash on its books to pay the promised $215 million for E Ink, and has been attempting to raise the capital needed to close the deal on the strength of E Ink’s newfound success selling the display material used in the Kindle. Investors would prefer to deal with a buyer that’s able to raise the capital on its own merits, the source says.

We have requested comment from PVI, but as of press time, the company has not responded.

The concerned E Ink shareholders aren’t simply holding out for a higher bid from PVI, according to the source. Rather, there’s a growing feeling among this contingent that the Cambridge company should stay independent, and try to cash in on the rising e-book tide.

We reviewed all of the shareholder concerns listed by our source with E Ink. The company declined to provide further comment.

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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