Signal Cos., Allied Will Merge to Create One of Nation’s Largest Firms
Signal Cos. and Allied Corp. on Wednesday entered into a merger agreement that, when completed, will create one of the nation’s largest industrial companies, with annual sales of nearly $17 billion and assets of nearly $14 billion.
The merger, which must be approved by two-thirds of Allied shareholders and by a majority of Signal stockholders at special meetings this summer, will create “an advanced technology company which we believe will be a powerhouse in the marketplace,” according to Edward L. Hennessy Jr., Allied’s chairman.
La Jolla-based Signal and Morris Township, N.J.-based Allied are each diversified, Fortune 500 companies with complementary operations in the aerospace, automotive and oil and gas industries. Allied was ranked as the 26th-largest U.S. industrial corporation last year, while Signal was ranked 61st. Only 15 U.S. industrial companies generated more than Allied and Signal’s combined revenues in 1984.
‘A Lot of Synergy’
The merger will “make for a lot of synergy,” according to Irving Katz, an analyst at San Diego Securities. “The combination appears to make a very successful high-technology company.”
Under the merger agreement, Signal, with 54,000 employees worldwide, and Allied, with a worldwide labor force of 114,000, will become wholly owned subsidiaries of Allied Signal, the holding company that will be created by the merger.
Hennessy will become chairman of Allied Signal, which will also be based in Morris Township.
Signal Chairman Forrest N. Shumway will become vice chairman and chairman of the executive committee of Allied Signal, while Signal President Michael D. Dingman will become president of the combined companies. Each will continue in their present positions at Signal.
The combined company’s 19-member board of directors will consist of nine nominees each from Allied and Signal, plus one director of Allied who was once a director of two Signal subsidiaries.
About 28,000 employees of the merged Allied Signal will be based in California, Arizona and Colorado, Shumway said.
To execute the merger, Allied will buy 22 million shares, or 20% of Signal’s outstanding common stock, for $45 per share, or $990 million. Each of Signal’s remaining shares will be exchanged for one share of common stock in the newly created Allied Signal.
Tax-Free Stock Swaps
In addition, each share of Allied stock will become one share of Allied Signal common stock. The stock swaps are intended to be tax-free.
Signal common stock closed Wednesday at $38.875, down 87.5 cents, while Allied closed at $40, down $3.875.
All Signal shareholders will be treated equally, which means that, if 100% of the company’s stockholders agree to the tender offer, then Allied will buy 20% of everyone’s holdings, according to analysts. If 50% of Signal shareholders agree to the tender offer, for example, then Allied would buy 40% of their collective shares.
Shumway described the deal as “excellent” for Signal shareholders because each share of Allied Signal would carry a $1.80-per-share dividend, up 80% from Signal’s current dividend rate.
The new company “now touches every market and is in many ways like General Electric, a high-tech manufacturing firm,” said Laurence Lytton, vice president of Drexel Burnham Lambert in New York. “Allied and Signal had both embarked independently on that track. Now they can move together.”
About two-thirds of Signal’s $285 million in 1984 earnings and nearly half of its $6 billion in sales were generated by its aerospace, electronics and instrumentation operations, led by Los Angeles-based Garrett Corp. The subsidiary is a leading supplier of aircraft engines, components and systems as well as automobile turbochargers.
Allied aerospace operations, led by Bendix Corp., combined with its automotive segment, led by Fram, represented about 42% of Allied’s $10.7 billion in sales last year and about 41% of its $488 million in earnings.
Officials said Allied’s chemical and oil and gas segments could combine with Signal’s process technologies and services for the oil and gas industries to create “higher value-added products.”
Allied’s oil and gas operations accounted for 19% of 1984 sales but 37% of profits last year. The company is scheduled to complete the sale of 50% of its Union Texas Petroleum subsidiary next month to an investor group that includes Union Texas management.
Allied will receive $1.4 billion in cash and another $300 million in Union Texas preferred stock. The sale will virtually end Allied’s direct oil and gas industry involvement, and Allied will list its 50% equity in Union Texas as an investment.
THE ALLIED-SIGNAL MERGER AT A GLANCE Signal is a high-tech and engineering company. Aerospace, electronics and instrumentation operations represented 49% of 1984 sales and 72% of operating profit; engineering and construction services, 31% and 7%; process technologies and services, primarily for the oil industry, 8% and 20%. Employees: 54,000. Fortune 500 ranking: 61.
Allied is a diversified company, with interests in the aerospace, automotive, chemical and oil and gas industries. Allied’s automotive segment represented 25% of 1984 sales and 23% of net income; chemicals, 23% and 20%; aerospace, 17% and 18%; oil and gas, 19% and 37%. Employees: 114,000. Fortune 500 ranking: 26.
Allied Signal, as the merged companies will be known, will be one of the largest high- technology and engineering companies in the world, and approximately the 16th-largest U.S. industrial company. Aerospace operations will account for 35% of total sales, automotive business for about 20%, engineering and construction for 15% and chemical operations for about 13%. The company will have about $1.3 billion in cash on hand and annual research, development and engineering expenditures of more than $1.1 billion.
Financial Data In millions of dollars, as of Dec. 31
SIGNAL COS. ALLIED CORP. ALLIED SIGNAL 1984 1983 1984 1983 (estimate)
Revenue 6,006 6,062 10,734 9,899 16,740 Net income 285 103 488 98 773 Total assets 5,511 5,184 8,189 7,647 13,700 Shareholders equity 2,805 2,633 3,043 2,747 5,848
