Allied-Signal Merger Clears Major Hurdle

Allied Corp. and the Justice Department on Tuesday announced a consent agreement that avoids an antitrust lawsuit and clears the way for Allied’s proposed $5-billion merger with San Diego-based Signal Cos.

As part of the agreement, Allied has agreed in principle to attempt to sell its $9-million air turbine starter business by year-end. If that business had been combined with a competing Signal division, the two would have controlled 70% of the $40-million U.S. market for air turbine starters.

Such a combination would violate the Clayton Act, which prohibits anti-competitive mergers, the Justice Department said.

Plans to File Soon

“With this change in the transaction, I am confident the merger of Allied and Signal presents no competitive concern,” said Acting Assistant Atty. Gen. Charles F. Rule, head of the antitrust division.

The agreement in principle will be filed in U.S. District Court within a few days, Rule said.

The proposed merger of Allied and Signal, announced in May but delayed by the Justice Department, would create Allied Signal, the nation’s 16th-largest industrial company based on combined 1984 sales of $17 billion and assets of nearly $14 billion.

Allied’s Bendix Fluid Power division in Utica, N.Y., is the nation’s second-largest producer of the devices, which start gas turbine engines on commercial and military aircraft. Signal’s Garrett Pneumatic Systems division in Phoenix is the market leader.

If Allied’s sale is not completed by year-end, then it must sell its entire Bendix Fluid Power division by the end of next March. The division reported a total of $50 million in sales last year.

“While we obviously didn’t want to sell off anything, I think we did extremely well,” said a source who is involved with the Allied-Signal merger. “This is the best possible outcome when you consider that all we have to do is divest $9 million in sales” to seal a $5-billion deal. Allied has reported that it will buy 22 million shares of Signal common at $45 per share and swap each of the remaining shares of Signal common--or 88 million shares--for a share in the new Allied Signal company.

Allied has already identified buyers for the business, the source said, adding: “The only concern is that (the buyer) has to be clean from an antitrust point of view. You don’t want to fight the same battle again.”

Allied said it has not determined the pro-rata basis on which tendered shares will be purchased. About 71 million shares were tendered and not withdrawn as of July 29. The merger is subject to approval by Allied and Signal shareholders, who will vote at meetings tentatively scheduled for Sept. 18.

Allied could start purchasing shares as early as Aug. 5, a spokeswoman said.