Teledyne Inc., the Century City-based aviation and electronics conglomerate that has been fending off a hostile bid by WHX Corp., said Monday that it has agreed to a surprise merger with Allegheny Ludlum Corp. in a stock swap valued at $3.3 billion.
The deal is expected to create a new conglomerate with annual sales of $4 billion. The merger was announced after the close of trading.
In a phone interview Monday, Teledyne President Donald Rice said it made more sense to merge with Allegheny than WHX.
"Teledyne has had unsolicited takeover proposals from a company . . . with no business operation synergies with [Teledyne]," said Rice, a former Air Force secretary who is slated to become executive vice president of the combined firm.
For Allegheny Ludlum, a Pennsylvania metals company, the merger affords access to Teledyne's pension fund surplus of $851 million, which Allegheny can use to finance its own pension and retiree medical plans that are currently underfunded to the tune of about $490 million.
Under terms of the deal, Allegheny Ludlum shareholders will receive one share of common stock in the combined company in exchange for every share they hold.
Teledyne shareholders will get 1.925 shares of new common stock for every share of Teledyne. Big winners in the deal include Teledyne founders Henry Singleton and George Kozmetsky, who control about 18.5% of Teledyne's stock.
Richard P. Simmons, chairman of Allegheny Ludlum, will become chairman of the board of the new company. Teledyne Chairman and Chief Executive William P. Rutledge will become the new firm's president and chief executive.
The merger announcement comes only a few weeks after Teledyne's board rejected a $1.78-billion, $32-a-share offer from WHX, parent of steelmaker Wheeling-Pittsburgh Corp., its fourth bid since November.
On March 22, WHX threatened a proxy fight to seek the removal of Teledyne's directors.
On Monday, a WHX spokesman said the company was reviewing its options.
"We don't understand how the shareholders of Teledyne can benefit from acquiring Allegheny Ludlum," a WHX statement said. "It appears that the deal does not provide any cash. It increases the number of shares outstanding and merely entrenches Teledyne management."
Not surprisingly, WHX Chairman Ronald LaBow, who was named to Teledyne's eight-member board of directors last spring, was the only director to vote against the merger proposal. LaBow could not be reached.
Teledyne, a diversified firm with interests in aerospace products, industrial goods and consumer products such as the Water Pik shower head, employs 18,000, including 3,600 in California, and has $2.5 billion in annual revenue.
Allegheny Ludlum, based in Pittsburgh, employs 6,000 mainly in western Pennsylvania, and had 1995 revenue of about $1.5 billion.
Created in a 1980 management-led buyout from former steelmaker Allegheny International, the firm makes specialty metals for use in products as diverse as automobile air bags, airplanes and safety razor handles.
The companies said no decisions have been made on layoffs or consolidating operations. The combined firm, to be called Allegheny Teledyne Inc., will be a holding company with the Teledyne technologies unit still headquartered here and an Allegheny metals unit based in Pennsylvania.
Teledyne and Allegheny Ludlum share complementary metals operations that, when combined, will make the company a world leader in their production, said Arthur H. Aronson, president and chief executive of Allegheny Ludlum, who becomes an executive vice president of the combined company.
Combined with other cost savings, the companies estimate the planned merger would result in an annual pretax earnings gain of $85 million and after-tax cash flow increase of $50 million.
"It seems across a wide range of areas to be a great fit for both companies, both operationally and in terms of the pension and other opportunities that the combined companies bring," said Jon Kutler, president of Quarterdeck Investment Partners in Century City. (Teledyne is one of Kutler's clients.)
Teledyne shares closed unchanged Monday at $28 on the New York Stock Exchange, and there were reports that Teledyne shares soared $3.875 to $31.875 in after-hours trading. Allegheny closed 50 cents higher at $19 in NYSE trading.
Allegheny Ludlum first approached Teledyne a year ago, said Teledyne spokeswoman Rosanne O'Brien. At that time, Allegheny Ludlum was interested in acquiring Teledyne's specialty metals business. Teledyne said no, according to O'Brien.
In February, Allegheny Ludlum, through investment banker Goldman, Sachs & Co., again approached Teledyne, this time with the offer of a strategic merger. That deal was eventually accepted, and the boards of both companies approved the deal Monday.
The merger is subject to shareholder and regulatory approvals. Teledyne has postponed its April 24 shareholders meeting.