Upstart Raider Makes a Run at Damon Corp.
Among other things, Damon Corp. is the nation’s largest builder of model rockets and one of the country’s largest kite makers. But on Wall Street, Damon is anything but a high-flier.
The stock of the company, based in Needham Heights, Mass., has long been a laggard, reflecting its record of weak profits and big losses. One week ago, shares of Damon, whose main business is operating the nation’s fifth-largest medical laboratory chain, were trading at about $19 a share. That is less than half the $42-a-share some securities analysts believe it is worth.
Enter Robert L. Rosen, an upstart corporate raider from New York with an eye for a bargain. Through American Magnetics Corp., an obscure high-technology company in Sherman Oaks that he heads, Rosen is leading a hostile, $201-million bid for Damon.
Tender Offer
Last Tuesday, a group led by Rosen that already owns 10.75% of Damon’s 9.4 million shares began a $24-a-share tender offer for the Damon stock it does not own. Damon’s stock soared $5.75 a share on the New York Stock Exchange that day to $24.625. The stock closed at $25.00 on Monday.
Damon officials declined to comment on the bid.
Besides launching the hostile bid, Rosen’s group sued Damon in Delaware to scrap a so-called “poison pill” shield that makes a takeover costly for an unfriendly suitor. In response, Damon sued in federal court in Boston to block the offer, alleging Rosen’s group is manipulating Damon’s stock and making an “illusory” offer.
Rosen, 41, is no novice in the takeover field. As vice chairman of Maxxam Group until 1986, Rosen served directly under Texas takeover specialist Charles E. Hurwitz, who heads the Los Angeles company.
Rosen, who declined to be interviewed, operates mostly through Ballantrae Partners, a limited partnership in New York. His partner is Glen M. Kassan, 45, who was Hurwitz’s chief financial officer at Maxxam.
Last year Rosen’s name surfaced in connection with congressional hearings on corporate takeovers. A report released by a House subcommittee said the New York Stock Exchange recommended in December, 1986, that authorities investigate trading of stock in Pacific Lumber, a San Francisco company that Hurwitz bought for $872 million in 1985.
The report said Herbert Gordon, who lived near Rosen in Westport, Conn., bought shares in Pacific Lumber shortly before Hurwitz’s Maxxam group launched its bid. The report then mentioned a “connection to Rosen.” A congressional subcommittee staff member has said that was he was told that Rosen and Gordon once commuted on a train to New York together.
A spokeswoman for the NYSE confirmed that it asked the SEC to look into the trades in late 1986, but added that exchange officials are unsure if anything came of it. The SEC declined comment.
Denies Leak
Rosen, through a spokeswoman, denied leaking information. “There was no official inquiry or anything from the SEC. It went nowhere,” spokeswoman Lissa Perlman said.
Rosen became chairman and chief executive of American Magnetics last year. Attracted by its debt-free balance sheet, he and Kassan acquired from its founders a 14% stake in the company for nearly $4 million.
For the Damon takeover, Rosen and Kassan formed Nomad (Damon spelled backwards) Acquisition Corp. But the bid for Damon is effectively coming from American Magnetics, which SEC documents show is Nomad’s general partner.
American Magnetics seems an unlikely suitor. Its corporate headquarters is in a two-story brick building on Ventura Boulevard that houses a Coldwell Banker real estate office. Next door is a Thai restaurant.
Despite its small size and unimpressive headquarters, American Magnetics is well-financed. The investment banking firm Drexel Burnham Lambert, which finances Hurwitz, said it is confident it can arrange $95 million for Rosen’s Damon bid.
American Magnetics, which has plants in Carson and Torrance, makes optical character products such as equipment at checkout counters that scans magnetic strips on credit cards for information, and it makes the devices inside automated bank teller machines that read customer’s bank cards. Last year, American Magnetics earned $353,000 on sales of $11.8 million.
Rosen has been trying to diversify American Magnetics. He was outbid earlier this year for Duro-Text Corp., a New Jersey manufacturer of light bulbs. In April, the company paid $12.4 million for a shopping center in Kendall, Fla.
In February, an embarrassing problem for American Magnetics ended when criminal charges in Florida were dismissed against Verney L. Brown, American Magnetics’ president and chief operating officer, as part of a settlement with federal authorities there. In the early 1980s, Brown was vice president of operations at Paradyne, a computer company based in Largo, Fla., and a thriving company when the SEC began investigating it. Eventually, Brown and seven other Paradyne executives were under indictment for 15 months, stemming from the SEC probe.
The indictment accused Brown of lying to the SEC during the investigation of Paradyne and of misleading the Social Security Administration on the status of Paradyne equipment stemming from an $84-million contract awarded to Paradyne in 1981.
Paradyne and the executives denied the charges. Paradyne settled the case with the government by paying $1.2 million in fines and costs, and the criminal charges against the executives were dropped. The company, which has suffered severe financial problems in recent years, pleaded guilty to conspiracy to defraud the government.
Rosen has been trying since June to buy Damon. Damon’s problems stem largely from a fledging, 7-year-old biotechnology venture, Damon Biotech, that has drained company profits. Damon owns about 60% of that company. Securities analysts also criticize Damon for owning vastly unrelated businesses.
Largely because of its investment in biotechnology, Damon piled up $5.8 million in losses over the two fiscal years that ended Aug. 31, 1986. In the year that ended Aug. 31, 1987, the company earned $2 million on sales of $176.2 million.
In addition to the problems of its biotechnology investment, Damon has faced increasingly tough competition in the clinical laboratory business, where its labs analyze such things as blood and urine samples. Damon is the only major independent chain. Nearly all the remaining laboratory chains have been acquired in recent years by large drug companies such as SmithKline Beckman.
Damon has so far spurned Rosen’s overtures and suggestions, including one to spin off the biotechnology stake. According to SEC documents, Damon Chairman David I. Kosowsky has told Rosen that “Damon is not for sale” and suggested “constructive disengagement” whereby Rosen and his group would end their pursuit.
But Rosen, in a letter to Kosowsky on Tuesday, made it clear he takes the takeover game seriously. “Your failure to respond constructively to our proposal has left us no choice but to make an offer directly to stockholders,” he said.
