TransTechnology Chief Tenacious in Bid to Acquire Lundy Division
TransTechnology Corp. Chairman Arch C. Scurlock seems to be in no hurry to get what he wants from Lundy Electronics & Systems Inc.
For four years, he’s tried unsuccessfully to persuade Lundy to sell its defense products division to TransTechnology, a Sherman Oaks-based aerospace, defense and textile products firm. Over the past year, Scurlock has stepped up the pressure as TransTechnology has made a series of purchases of stock in Glen Head, N.Y.-based Lundy, raising its stake last month to 14.5%.
Scurlock says the deal is a natural: Lundy’s defense products business makes aluminum-coated glass fibers that produce false radar images when emitted from a plane, and one TransTechnology division already makes flares that are shot from planes to divert heat-seeking missiles.
But Lundy keeps spurning the offers of TransTechnology. Lundy’s president, Edward J. Mulvey, said TransTechnology, which had $113 million in revenue its last fiscal year, has yet to offer a fair price.
Lundy’s stubbornness in refusing to sell its defense products division, along with TransTechnology’s growing stake, has convinced some Lundy shareholders and market professionals that Scurlock may resort to buying the entire firm in order to get the division.
Scurlock insists that he isn’t planning a hostile takeover bid for Lundy. He describes his relationship with the company as friendly, although he concedes that TransTechnology first bought stock in the company last fall to get the attention of former Lundy President William Stout, who had turned down two separate offers to sell the defense products business to TransTechnology.
Scurlock’s latest offer is to pay $8 million for the division, which generated about $12 million of Lundy’s $50 million in revenue in the fiscal year ended June 30.
With that offer having failed, he said, his immediate goal is to increase TransTechnology’s stake in Lundy to 15% because that will, in the opinion of TransTechnology’s accountants, allow the firm to add that percentage of Lundy’s earnings to its own.
Lundy’s largest individual shareholder, Long Beach businessman Nickolas W. Edwards, who owns nearly 9% of the company’s stock, believes Scurlock wants to take over the firm. He is skeptical of Scurlock’s insistent denials.
“He likes to emphasize that he is friendly with management and that he’s management’s friend,” Edwards said. “He emphasizes the word ‘friendly’ at all times.”
Also expecting a takeover bid is Charles A. Leeds Jr., an analyst in the risk arbitrage department of Herzfeld & Stern in New York who has studied TransTechnology’s moves. Leeds is telling his clients that there is a 70% chance that TransTechnology will move to acquire all of Lundy before Feb. 1.
“He is known for being tough and aggressive,” Leeds said of Scurlock. “There’s no real chance he wants to be a passive investor here.”
If TransTechnology does acquire Lundy, Leeds said, it would probably keep the defense products division and sell off the other Lundy operations, which include a computer graphics division and a business that makes the machines banks use to read checks.
TransTechnology has left its options open. In a Securities and Exchange Commission filing last November, the company said it might acquire control of Lundy, gain a larger role in directing Lundy’s affairs, acquire one or more Lundy subsidiaries or sell its shares in the open market.
Edwards sees similarities to TransTechnology’s acquisition in 1982 of Breeze Corp., a Union, N.J.-based maker of cable and other industrial parts. TransTechnology acquired 6% of Breeze’s stock in November, 1981, and increased its ownership to more than 11% one month later before a merger was negotiated the following May.
‘History’ of Acquisition
“Scurlock has a history of beginning acquisitions slowly and acquiring companies,” Edwards said.
TransTechnology has grown rapidly over the past three years, in part because of acquisitions such as Breeze and T. J. Electronics, an Arlington, Tex.-based maker of electrical connectors that it bought last year. Earlier this month, TransTechnology bought Flight Connector, a manufacturer of electrical connectors in Rancho Dominguez, for $5 million.
The company now employs about 1,500 people nationwide, including about 400 at two Space Ordnance Systems plants in the Santa Clarita Valley, which manufacture the decoy flares and other explosive devices.
Scurlock has made overtures to buy Lundy’s defense products division since late 1981. Edwards, who was a director of Lundy until 1983, recalled that Scurlock offered $1.7 million in 1981 for the division. But that was well below the $2.5 million Lundy directors were willing to sell it at and the $3 million they really wanted, he said.
Scurlock said he made a subsequent offer to buy the division for about $3.5 million. Lundy directors rejected that offer also, however, because they felt the business was improving and thus worth more, Edwards said.
New Property Considered
The latest offer of $8 million is considerably higher, in part because it includes property the defense products division owns at its plant in Pompano Beach, Fla. The property was not part of earlier negotiations.
Scurlock said the sale might have occurred had it not been for a change of Lundy presidents. Stout was fired by the board of directors last November in a move unrelated to the TransTechnology developments. He was replaced by David Seltzer, the executive vice president, who served as interim president until Mulvey, a battery company executive, started work three months ago.
Scurlock and Mulvey have met only once, when Mulvey visited Scurlock’s personal offices in Arlington, Va., on Aug. 28. They had what both men described as a friendly lunch, although neither would go into detail about what was discussed.
Whatever the outcome of the drawn-out efforts to buy the division, TransTechnology has done well with its investment in Lundy. The company has spent $3.66 million, or an average of $11.32 a share, including commissions, for the 323,800 shares it owns. The stock was selling for 13 1/8 Monday, giving it a market value of $4.25 million, about 16% above its investment.
Against Selling Division
Edwards, who last year rejected an offer by Scurlock to buy his shares, said he doesn’t want Lundy to sell the defense products division because he believes it has a healthy future. He said he may even try to buy the company himself through a leveraged buy-out--an acquisition financed largely with borrowed money in which the acquired company’s own assets or cash flow are used as collateral--if he can make the financial arrangements.
Leeds expects TransTechnology to increase its stake after the expiration of some Lundy warrants--options granting someone the right to buy stock at a specified price--held by a number of investors. The warrants, involving 250,000 shares, expire Dec. 31 and their expiration is expected to depress the price because it will increase the number of shares outstanding.
If TransTechnology begins heavy buying of Lundy stock again, Leeds said, the pressure will increase on Lundy to placate Scurlock.