Oak Industries’ Materials Unit Sale to Allied-Signal Is Stalled
A lackluster response to Oak Industries’ proposed debt-for-stock swap on Wednesday appeared to once again have stalled the sale of Oak’s materials division to Allied-Signal.
Although the Rancho Bernardo-based company took a step toward profitability on Wednesday when shareholders overwhelmingly approved the materials division sale, later in the day Oak appeared ready to extend for the fourth time a debt-for-stock swap offering that was initiated in February.
The materials-division sale to Allied-Signal has been put on hold until Oak receives commitments from holders of half of its bonds and two-thirds of its debentures. Late on Wednesday, Oak had received commitments for 49%, or $111.9 million of its total outstanding debt of $230 million.
Allied-Signal could decide to pare back a planned $15-million equity investment in Oak if interest in the bond and debenture offering doesn’t increase, Oak officials acknowledged Wednesday. Allied-Signal’s board of directors has the option of reducing its planned equity investment if Oak’s swap offer fails to reduce the company’s debt by at least 85%.
The capital infusion is considered crucial to Oak’s ability to survive, Chairman E.L. McNeely said after a special shareholders meeting at the Rancho Bernardo-based company on Wednesday. The company lost $37.6 million in 1985.
Oak has been forced to extend its swap offer in order to attract hesitant holders of bonds and debentures who “are betting that we’re going to survive at a time when we wished they thought we aren’t going to survive,” McNeely quipped. Oak is offering a combination of cash and Oak common stock for the notes and debentures, which carry interest rates ranging from 9.625% to 13.6%.
If Oak does return to the black, McNeely said, the company would generate revenue growth by acquiring “mid-tech” companies with revenues of between $15 million and $75 million. Although McNeely would not identify acquisition candidates, he said the company’s $200 million in tax loss carry-forwards would make Oak an attractive suitor because it could offset another firm’s taxable earnings.
At Wednesday’s shareholders meeting, McNeely said Allied-Signal had abandoned its plan to name three of Oak’s seven-member board of directors. Instead, Oak will name all seven directors. He did not elaborate.
McNeely told shareholders that the company has yet to receive a solid offer on its Rancho Bernardo office building. “We’re a little bit embarrassed to be in the midst of all this opulence when we’re losing money,” McNeely said. Oak’s headquarters staff, which has been pared back from 200 to about 40, occupies just 25% of the 75,000-square-foot building.
