Danaher wins Pacific Scientific

Electronic News, Feb 9, 1998 by Jeff Dorsch

Newport Beach, Calif.--The three semiconductor equipment vendors that make up the Instruments group of Pacific Scientific Co. apparently have little to fear from Danaher Corp., which last week agreed to acquire Pacific Scientific in a deal worth approximately $460 million.

A top Pacific Scientific executive last week said HIAC/Royco, Met One and High Yield Technology (HYT) are among the fastest-growing businesses within Pacific Scientific, which primarily manufactures motion control products and safety equipment.

"I think they (Danaher) have every intention of keeping them," said Pacific Scientific COO David Schlotterbeck. The Instruments group will continue under the leadership of Richard Darlow, who was hired last fall from Matheson Electronic Products Group, he added.

The Washington, D.C.-based Danaher, primarily known as a tool manufacturer (it makes the Craftsman line of tools for Sears Roebuck & Co.), has evinced an interest in diversifying into semiconductor manufacturing tools befOre. In 1996, Danaher acquired a 10 percent stake in Tylan General, a supplier of mass flow controllers for wafer processing equipment, and requested a meeting with Tylan General management (EN, July 1 and 8, 1996). Tylan General wasn't interested in being acquired by Danaher, however, and later hired a financial adviser to plumb its strategic alternatives (EN, Aug. 26, 1996).

A few months later, Tylan General agreed to a $155 million friendly acquisition by Millipore Corp. (EN, Jan. 6, 1997).

Pacific Scientific had been in a somewhat anxious state in recent weeks, after Kollmorgen Corp. of Waltham, Mass., launched an unsolicited takeover bid for the company late last year (EN, Dec. 22, 1997). Kollmorgen had approached Pacific Scientific management several months before about a possible combination, without result.

Once Kollmorgen went public with its intentions, Pacific Scientific's board of directors rejected the bid as "financially inadequate" and set about fighting off a proxy challenge Kollmorgen launched. It hired BancAmerica Robertson Stephens, a San Francisco investment bank, as its financial adviser.

Kollmorgen made a cash tender offer for 51 percent of Pacific Scientific's common shares outstanding, bidding $20.50 a share. The stock soon started trading several dollars higher than that price, as investors apparently anticipated a sweetened bid by Kollmorgen or the entry of a third party. Having lined up $300 million in financing by Salomon Smith Barney, Kollmorgen did increase its offer on Jan. 30, upping its cash tender offer to $23.75 a share.

Later that same day, Pacific Scientific's board said it would "promptly review the offer" and make a recommendation to shareholders "in due course."

The board apparently wasted little time. Over the weekend, it concluded an agreement with Danaher, with the acquirer to pay $30.25 a share in cash for all outstanding shares of Pacific Scientific, or about $374 million. With Danaher assuming Pacific Scientific's debt, the value of the deal is about $460 million.

The two companies must reach a definitive merger agreement, and Danaher will make a cash tender offer for Pacific Scientific shares. The transaction must be approved by Pacific Scientific's shareholders at a special meeting. If it is cleared by them, and the customary regulatory approvals are obtained, Pacific Scientific will be merged with a subsidiary of Danaher.

Kollmorgen promptly threw in the towel on its takeover bid in light of the superior Danaher bid, terminating its tender offer, withdrawing litigation against Pacific Scientific and calling off a special meeting of Pacific Scientific shareholders which had been scheduled for the end of this week, which had been called with the purpose of unseating the Pacific Scientific board and smoothing the way for a Kollmorgen acquisition.

Gideon Argov, chairman, president and CEO of Kollmorgen, said in a statement: "Our offer of $23.75 per share for Pacific Scientific was as far as we at Kollmorgen prudently could go based solely on public information. Despite our repeated requests, Pacific Scientific declined to give us access to confidential information that might have warranted a higher offer. Accordingly, we have determined that the appropriate course of action is to terminate our offer.

"The valuation accorded Pacific Scientific by Danaher clearly validates our strategy of focusing on the high-performance electronic motion control market. Our objective remains to be the leading company in this field on a worldwide basis, and we will continue to build Kollmorgen toward that end, customer by customer and product by product."

"We are pleased with the combination of Danaher and Pacific Scientific," said George M. Sherman, president and CEO of Danaher. "The businesses Danaher will be acquiring represent attractive strategic opportunities for our process/environmental controls segment."

Lester (Buck) Hill, chairman and CEO of Pacific Scientific, said, "I'm very excited that our board and management have fulfilled their promise to deliver full value for shareholders.