Beagan swallowed his ire and prepared a revised budget, paring down his estimated 1978 sales by $2.9 million to $15.4 million. He then obtained a $1-million line of credit from Bank of America.
That done, Ericsson's board of directors agreed to continue backing Teltronics's loans. But within Ericsson, some executives argued that the company was wagering too much on Beagan's marketing skills.
Malmstrom defended the U.S. distributor: "The race in the marketplace has been costly, but [Teltronics] is today the area's largest interconnect company. . . . Since we are so close to our new generation of PABXs, I would not recommend a shift in our strategy of supporting [Teltronics], even though we have loan-guarantee exposure."
In May, Nordic American, with Ericsson's blessing, lent Teltronics $1 million. The momentum, Beagan figured, was with him, bolstered by the entry of Gerald Tsai Jr., the well-known Wall Street financier. Tsai made a written offer to acquire a minimum of 20% of Teltronics's stock at $8 per share and to help arrange long-term financing independent of Ericsson. That began to put pressure on Ericsson to act.
Summer of 1978, it now appears was the beginning of the end for Teltronics. Informal talks between Teltronics and Ericsson were under way, but already there were difficulties. By fall, Beagan says, Malmstrom wanted all of Teltronics's Massachusetts operations shut down immediately. Beagan refused, and Malmstrom retaliated, ordering his subordinates to cease issuing the customary "support letters," which guarantee equipment service to Teltronics's customers at prevailing rates should the distribution company prove unable to do so. Again, the two sides differ in their versions of the story. "Support letters," Ericsson's attorney says, "were issued until January 1979." And he denies that Malmstrom complained to Beagan about competition between the two companies in New England.
The other hitch in the talks turned out to be Malmstrom's superiors in Stockholm. They were not convinced that the corporation should make an equity investment in Teltronics.
Nonetheless, Ericsson continued to negotiate with Teltronics, remaining firm in its position. The Swedish manufacturer had stood as guarantor of some $7.9 million in loans for the company, and it aimed to acquire Teltronics's stock at a budget price.
Teltronics, Ronald E. Halvorsen told his boss in a memorandum, "is facing a very severe cash squeeze and must seek additional financing, either debt or equity. Ericsson is in a good bargaining position and should be able to negotiate a lower stock price."
But Halvorsen also warned that negotiations had to be handled delicately, since Beagan had other options to obtain funds. If Ericsson failed to secure an equity position at that time, he cautioned, a future equity purchase might be impossible at a reasonable price, and that could jeopardize the company's long-term objectives to capture a larger chunk of the U.S. PABX market.
Halvorsen's remarks turned out to be prophetic. By August, Gerald Tsai had acquired about 8% of Teltronics's stock on the over-the-counter market. Then, out of nowhere, came Loral Corp., a large manufacturer of electronic products, proposing a purchase of at least a majority interest and perhaps full takeover of Teltronics. That spurred Ericsson to enter into negotiations concerning an equity investment in the company.
The plan was for Ericsson to purchase 14.8% of Teltronics's stock at $8.375 a share and sign option agreements with individual stockholders, to bring the total to 39.8%. The option shares would be acquired at $8 each. But Ericsson apparently got cold feet, and on October 9 it called off the deal, leaving Teltronics to scramble for cash. It was forced to ask Citibank for postponement of a principal payment.
Talks between Teltronics and Ericsson resumed. The plan this time -- the so-called Northeast Concept -- called for Ericsson to acquire more than a third of Teltronics's stock for $6 a share and for Malmstrom to be named chairman of Teltronics's board. Beagan would retain the title of president.
Beagan saw red -- the idea of a new board chairman enraged him. On November 14, he saw Malmstrom at a meeting of Ericsson distributors. "I want $8 a share for Teltronics stock," he remembers telling the Swede, "and I intend to remain chairman of my board."
The situation, however, was now out of his hands. The next day, Ericsson's board of directors met in New York, and in principle approved the Northeast Concept. Two weeks later, Beagan, Malmstrom, and other key executives from the two companies met to set a timetable for Ericsson's acquisition of the Teltronics stock.
When the meeting ended, there was still a difference of opinion about how much Ericsson would pay for Teltronics's stock, but everyone's attention was focused on March. That month, the two parties agreed, the deal would be consummated.
How one interprets the events that followed that meeting is a matter of serious disagreement.
Ed Beagan argues that Ericsson never intended to acquire his company at what he considered to be a fair market price. The Swedish corporation's goal, he maintains, was to put Teltronics out of business so that Ericsson could acquire the small company's assets without paying for them.
But evidence filed in court indicates otherwise. Although the documents in the case, particularly the chronology prepared by the bankruptcy court's trustee, hint at the bad blood between the corporations, they show that until as late as February, the management of the Swedish manufacturer appeared to remain sincere in its offer to buy a chunk of Teltronics's stock. They also list a series of false starts.
Beagan, for example, wrote Malmstrom in December, asking that the negotiations be postponed until early in the new year. Malmstrom responded, agreeing to the postponement and noting that "we'll have to start all over again."
Ed Beagan arrived late at his office on January 16, only to find Malmstrom there waiting for him. What happened in the office is a matter of debate. Malmstrom's attorney denies that business was discussed to any great extent.
According to the bankruptcy trustee's chronology, however, Malmstrom chided Beagan. Why, Malmstrom demanded, had Beagan remained silent on Ericsson's proposal to acquire an equity interest in Teltronics? Why did Beagan take out an advertisement in The Wall Street Journal touting Ericsson's new electronic PABXs when the devices weren't yet on the market? And why, Malmstrom asked, was Teltronics still active in Boston?
