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Echlin Inc.
100 Double Beach Road
Branford 06405
(203-481-5751, http://www.echlin.com)
Sales (fiscal year ended August 31, 1997): $3.569 billion
Net income before extraordinary items (fiscal year ended August 31, 1997): $117 million
Chairman, president and CEO:
Larry W. McCurdy
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Business New Haven
3/23/1998
By: BNH
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Editor's note: Echlin was the subject of a BUSINESS WIRE profile just six weeks ago, in our February 9, 1998 issue. Since that time much has happened - notably the hostile takeover bid launched by SPX Corp. - to the company and its stock performance. Hence the revisitation that follows.
The attempt by Michigan-based SPX Corp. to take over Branford's Echlin Inc. in a $3 billion cash and stock offer did not just cause Echlin's stock price to skyrocket. It has also triggered a bipartisan effort in the state legislature to protect Connecticut jobs by altering the state's corporate law to make hostile takeovers much more difficult.
After beginning the hostile takeover bid when Echlin rebuffed offers for a friendly buyout, SPX Chairman John Blystone asked shareholders to indicate their support for a buyout. Since SPX's original offer, a climb in its stock price has boosted terms of the offer from $48 per share to more than $49.
SPX Corp. has not backed down in its effort to win over Echlin shareholders. If SPX can obtain requests from the holders of 35 percent of Echlin shares, it can force a special meeting at which it would attempt to replace Echlin's board with its own candidates.
The war of words heated up when SPX also wrote Echlin's board, accusing them of “extreme defensive tactics” that hurt the company and shareholders for the sake of existing management. Echlin CEO Larry McCurdy called those attacks “not only gratuitous, but false and misleading.” In particular, since SPX is incorporated in Delaware, it is not to a special meeting provision to recall its board members.
In announcing its takeover bid, SPX projected that 3,000 jobs would be cut from Echlin's workforce of 30,000. Motivated by concern for Connecticut jobs, legislators have introduced a bill with bipartisan support to stop the process in its tracks. The proposed measure, H.B. 5695, would bar the ouster of corporate board members without sufficient cause and also permit only continuing directors to consider acquisition offers.
In testifying before the legislature's judiciary committee, Blystone termed the argument that Connecticut jobs would be lost “a red herring.” According to him, only a few Echlin executives have anything to worry about. Where SPX would cut the 3,000 jobs remains unclear.
State Attorney General Richard Blumenthal has endorsed the bill, calling it a step “to assure fairness in corporate governance and prevent corporate raiders from eliminating jobs adversely impacting the community and failing to respect long-term interests of shareholders.”
Gov. John G. Rowland, despite having met with McCurdy to discuss the issue, has not yet taken a stand on the proposed legislation. Stock traders, particularly those who arbitrage equities involved in takeover bids, have taken the meeting as a sign the deal is doomed, sending Echlin shares into a skid below the level of SPX's tender offer.
Perhaps the sharpest irony in this legislative attempt to intervene in a takeover bid comes from U.S. Surgical Corp., which has been mired for months in a similar fight. In this case, however, U.S. Surgical is trying to buy out Santa Barbara's Circon Corp., but Circon's existing board has refused to honor a shareholder vote in favor of the buyout. Unfortunately for U.S. Surgical, Blumenthal's writ does not extend to California.
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