Up From Bankruptcy: How Daylin Bid for Dymo (original) (raw)
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- June 11, 1978
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June 11, 1978
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LOS ANGELES — When Daylin Inc. last month made a $62 million offer for Dymo Industries Inc. — Dymo was in the midst of fending off an unrequited courtship by Esselte A.B. of Sweden —it set some eyes to rolling.
Less than two years earlier, Daylin had emerged from one of the largest bankruptcies in American history.
In the late 1960s, Daylin was a hot over-the-counter issue, acquiring more and more retail companies, showing handsome earnings year after year, and ballooning into a $500 million-ayear enterprise.
But it grew too fast and some of the growth turned sour. On Feb. 26, 1975, declaring that it was unprofitable and had $160 million in debts it couldn't pay, it filed for court‐supervised reorganization under provisions of Chapter XI of the Federal Bankruptcy Act.
Its turnaround, accomplished through a complex debt restructuring, was so swift and so successful that Daylin itself appears vulnerable to a takeover tender; it was certainly fit enough to play the so‐called “white knight” in the Dymo scenario.
It was a short‐lived role. Esselte proceeded to outflank Daylin by matching its $30-a-share hid and offering brokers an additional 40 cents a sha re to help it
Robert Lindsey is Los Angeles Mtreau chief of The New York Times. acquire the stock. Daylin gave up its bid for the San Francisco manufacturer of labeling, addressing and other products. But Daylin's brief foray into the acquisition arena — and the manner of its withdrawal — revealed a great deal about the ‘company's new strategy and its chairman and chief ex- ecul ive of ficei., Sanford C. Sigoloff.
On the afternoon of May 18, three days after Esselte had announced the tender offer of 24asharefurDymo,DavlinofficialsgotacallfromOldit.manSachsandCompany,theNewYorkinvestmentbankers,advisingthatitwouldhewisetoinvestigateDymo.Daylinearlierhadindicatedtothefinancialcommunitythatitwasinterestedina24 a share fur Dymo, Davlin officials got a call from Oldit. man Sachs and Company, the New York investment bankers, advising that it would he wise to investigate Dymo. Daylin earlier had indicated to the financial community that it was interested in a 24asharefurDymo,DavlinofficialsgotacallfromOldit.manSachsandCompany,theNewYorkinvestmentbankers,advisingthatitwouldhewisetoinvestigateDymo.Daylinearlierhadindicatedtothefinancialcommunitythatitwasinterestedina60‐to $70‐million acquisition in order to add a “third leg”—another product line— to its retail and hospital pharmacy operations.
“We went to San Francisco, saw the products and got a marketing brief ing,” Mr. Signloft said, but Dymo would not disclose any financial details until the company signed a pledge not to disclose the information.
“We previously scheduled a directors’ meeting for Sunday, and at that meeting the board made a decision to sign a confidentiality. statement to study their numbers,” he said. The directors also advised Mr. Sigolott to make a bid for Dymo.
Meanwhile, he said, company financial specialists, lawyers, investment bankers and others had begun what he said turned out to be a “night and day” analysis of Dymo to determine how much Daylin should pay for it. A figure of 30asharebegantoemerge,butitwasn′tcertainwhetherthecompanyshouldfirstbidlower—say30 a share began to emerge, but it wasn't certain whether the company should first bid lower — say 30asharebegantoemerge,butitwasn′tcertainwhetherthecompanyshouldfirstbidlower—say27 — and be prepared for an auction.
On Sunday, Mr. Sigoloff called a bank officer at his home, telling him the essentials of the proposed deal and requesting financing. “He said, ‘I'll give you an answer on Monday.’ “
The next day, he said, the bank said that it would provide funds for the acquisition. On Monday night, Mr. Sigoloff and Daylin's outside lawyer took a midnight flight to New York for a meeting on Tuesday of other advisers, including specialists from Goldman Sachs and First Boston Corporation, its financial counsel.
“There was the lawyers’ team, the businessmen's team, the numbers’ team,” he said. They agreed to make one bid, the company's best shot at $30 right off the bat.
Meanwhile, Dymo executives said they would support the Daylin offer. On Wednesday, the hid was announced publicly. But within less than seven hours, Esselte met flat lira's bid and tossed in a Krsiiiire payment to brokers to help acquire the shares. Mr. Sigoloff said no consideration had been given to raising his company's bid: “Daylin is a disciplined company; we had decided as businessmen 530 was the right amount, and we were not going to go into a bidding contest.”
That determination means Daylin is still looking for its “third leg.”
Mr. Sigoloff, a dark‐haired, 47-yearold Missouri native, the son of a physician, became a retailer by way of nuclear physics.
After graduation from the University of California at Los Angeles in 1950, with majors in physics and chemistry, he worked as a nuclear scientist for 12 years for the Atomic Energy Commission, the United States Air Force, and private industry.
In 1962, he joined Electro‐Optical Systems, an electronics company that was bought a year later by the Xerox Corporation. In 1966, he became president of Electro‐Optical. The following year Mr. Sigoloff became a Xerox group vice president, a fast‐riser in the company. Unwilling to move to Xerox headquarters in Rochester, N.Y., he left in 1969 to enter the investment field.
In 1970, he became a vice president and then president of the Republic Corporation, a conglomerate in serious financial trouble. Mr. Sigoloff helped turn it around in his first three years there. Largely because of the reputation he earned at Republic and through the good offices of a director of Daylin, he was retained as a consultant to the troubled retailer in late 1974. In Janury 1975 he became Daylin's president, and six months later he took the company into Chapter XI proceedings.
It was a period that the youthful-looking executive’ refers to as “tunnel of terror.” Over the next 20 months, the company went through a massive program of divestiture. It sold real estate, jettisoned its chain of Great Eastern discount stores and scores of other drug, auto accessory and other stores - virtually anything, Mr. Sigoloff said, that “didn't have a positive cash flow.”
What remained consisted mostly of assets in two areas — retailing, including 63 Handy Dan and Angels Home Improvement stores and 153 Diana clothing stores for women; and health services and products, principally more than 90 pharmacies located in hospitals in 22 states.
The company worked out with its creditors and bankers a complex arrangement to settle its 160millionindebt.Thesettlementincludedimmediatecashpaymentsof160 million in debt. The settlement included immediate cash payments of 160millionindebt.Thesettlementincludedimmediatecashpaymentsof21 million, $78 million of long‐term debentures (some non‐interest bearing) and distribution of about 78 percent of Daylin's common stock to the creditors.
The plan, he said, envisaged providing the surviving company with an adequate amount of working capital and with enough eventually to develop a new product line to add to its retailing and health services.
“One of the things Daylin didn't want wasto come out cash poor,” Mr. Sigoloff said. “We had an excellent, disciplined creditors’ committee and superb, well‐trained counsel; people could talk and disagree and still trust in each other. The financial investors, including the creditors, wanted the company to survive.”
The final plan also left Daylin with $100‐million tax loss carryover to offset future profits‐the basis for its own attractivenesss as a takeover candidate. W.R. Grace and Company reportedly has looked over the concern with an eye to acquisition and other potential suit- ors are believed to be waiting on the• sidelines, according to investment bankers.
It was largely Mr. Sigoloff's persuasion of creditors that Daylin should not be cash poor following its bankruptcy that allowed it to become a suitor of Dymo.
Mr. Sigoloff said that if the proposed Dymo acquisition had been consummated, it would have come up with the money despite its past financing troubles. He said Daylin would have generated about half the cash internally, borrowing the rest from a bank.
“We had an assurance of the money,” he said. Mr. Sigoloff declined to say which bank had committed itself. Daylin has banking ties to three institutions- First National of Chicago, Security Pacific and United California Bank.
Peter Sweet, a vice president of First National Bank of Chicago and chairman of the creditors’ committee, said:
“Daylin had one of the most complicated debt structures of any company that has filed a Chapter XI. For a company with such debt complexity and overall size to get in and out of Chapter XI in one of the swiftest proceedings In history is an amazing feat.”
In the fiscal year that ended last Aug. 28, not quite a full year after reorganization, Daylin reported earnings of 5.4milliononsalesof5.4 million on sales of 5.4milliononsalesof266.3 million. In its most recent quarter, ended Feb. 26, it reported sales of 73.8million,a22percentincreaseoverthesameperiodoneyearearlier,andearningsof73.8 million, a 22 percent increase over the same period one year earlier, and earnings of 73.8million,a22percentincreaseoverthesameperiodoneyearearlier,andearningsof1.6 million, up 40 percent.
The value of Daylin stock, which trades over-the-counter, has increased from 2atthebeginningofthisyearto‐the2 at the beginning of this year to ‐the 2atthebeginningofthisyearto‐the3 range recently.
Jack Silver, vice president of research for Mayer & Schweitzer Inc., of Jersey City, N.J., a market maker in the stock, said the firm believes that Daylin shares are now reasonably priced but that a moderate rise is likely if earnings continue to increase. .
Now that the company's debt has been set on a predictable long‐term payout schedule, with good *earnings and cash flow patterns, as well as a large tax‐loss carry‐forward that could be utilized profitably in the right acquisition, Mr. Silver said he expected “very robust growth. I'm very high on the company.”
Much of the company's recent growth has been in the health products group, and it has been under fire re• cently in California.
Some of its hospital operations are under investigation by state and local authorities in San Diego. According to news reports, the company is accused of selling drugs to patients at markups of as much as 500 percent and diverting much of this money back to the hospital.
The company denies it has done anything wrong, asserting that such prices are not excessive for a hospital environment and that payments to hospitals are a standard way of doing business in this field. •
Mr. Sigoloff, meanwhile, seems to be enjoying his life as a businessman, although he admits sometimes to missing his days of scientific research. He has been married for 25 years to a woman with whom he attended nursery school in St. Louis; they have three children, aged 17 to 21.
He said that he sees certain similar!. ties in business and science. “The satisfaction [in business] comes from being predictable; you can set a series of goals and make them happen,” he said. “The thing that's most exciting for me Is organizing an imponderably complex problem; the more complex the problem, the more enjoyable it is to try to solve it.”
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