This article appears in today's boston globe. It describes corning's purchase of netoptix yesterday. The conditions it describes furthers my belief that FBCE is an excellent company to own.
The light at the end of fiber-optics deal
By Steven Syre and Charles Stein, Globe Staff, 2/15/2000
Tiny Netoptix Corp. of Sturbridge, down and nearly out after another failed turnaround strategy at this time last year, found a buyer willing to hustle up a stunning $2.1 billion for its fiber-optic business yesterday.
Call it another amazing tale of the new economy: The acquisition agreement, with Corning Inc., drove Netoptix stock up by 20 yesterday to 156. It traded at just 3 3/4 last March.
The man behind the comeback, ultralow-profile investor Gerhard Andlinger, was the biggest winner of them all. Andlinger's firm injected $6 million in cash into Netoptix and began calling the shots 13 months ago, in return for 2 million shares plus the right to buy 2 million more at $1.50 each. That stake was worth $624 million yesterday.
Just last month, Andlinger had appeared at a luncheon for investors hosted by the brokerage Adams, Harkness & Hill in Boston to pitch the company. One of the few institutional investors present at the meeting recalled what sounded like a slow and methodical exit plan. Now, all that has changed.
'His workout schedule just went from years to months,' said portfolio manager Philip Fine of Loomis Sayes & Co. in Boston. 'He did a great job for himself and his investors.'
Why was Corning willing to shell out so much in stock for a company with revenue of just $4.7 million in the last reported quarter? To get its business of selling glass filters that speed traffic over fiber-optic communications networks.
Corning, already a big player in fiber optics, is racing against competitors like JDS Uniphase Corp. to offer a full range of fiber components and modules for big telecommunications clients. Just three months ago, Corning paid $2 billion to buy Oak Industries Inc., a telecommunications equipment manufacturer in Waltham.
Filters like those made by Netoptix split light that's pouring through a fiber-optic cable just as a prism would, increasing its capacity by dividing the light impulses into many more streams of information.
Andlinger is no stranger to turning around struggling companies. His Tarrytown, N.Y., firm has put money into more than 50 companies in America and Europe since it was formed 24 years ago.
Born in Austria, Andlinger first visited the United States as a high school junior, one of the winners in an English-language essay contest sponsored by the New York Herald Tribune. He returned to attend Princeton University and later Harvard Business School, eventually landing a job at the company that would be his on-and-off employer for years, ITT Corp.
Andlinger left ITT three times: jumped twice, pushed once. Upon his final exit, he joined other ex-ITT executives to create a firm to invest in and often purchase troubled companies that could benefit from their management experience.
'He gets involved personally at the operational level,' said Paul O'Brien, the former New England Telephone chief who's now involved in several young technology companies. He's also a Netoptix director, as of last month. 'I think Netoptix is a classic example of that,' he said.
They made lots of money along the way, though yesterday's Netoptix deal clearly appears to be the biggest win ever.
There were a few clunkers: Andlinger's mid-1980s acquisition of the bygone sunglass leader Foster Grant went sour. The Leominster company, buried by cheap Japanese imports, filed for Chapter 11 protection in Bankruptcy Court a few years later.
Netoptix had gone through several reinventions before Andlinger came on the scene. Once known as Galileo Electro-Optics Corp. and more recently just as Galileo Corp., the company had been a defense contractor that supplied night-vision products to the military.
The end of the Cold War led Galileo into another business, making glass-coated parts that gave an electrical charge to the toner in a printer or copier, allowing the ink to adhere to the paper.
But the client that accounted for half of all the company's revenue, Xerox Corp., abruptly dumped Galileo in 1997, with disastrous results.
Yet another new strategy, this time involving medical products, never really got off the ground, and Galileo looked like it was in big trouble. Andlinger moved in with a cash infusion in January 1999 and began to move the company into fiber-optic communications.
Investors praise the strategy and the recruitment of key managers, particularly a German engineer, Ralf Faber, who became president of Netoptix last month.
'They just reinvented themselves,' said Fine. 'They sold off the medical stuff and hired some sharp techies from Germany. You only had to talk to these guys for about 90 seconds to realize they were for real.'
Clearly, the acquisition of Netoptix happened in a hurry. The deal came together so quickly, Corning officials said yesterday, that they hadn't figured out which accounting methods would be used.
Netoptix officials said they were first contacted by Corning officials Jan. 27, a day after the company's annual meeting. Corning executives began touring facilities four days later; early last week they were with Netoptix's Boston lawyers, working out a deal.
One footnote to the annual meeting: A proposal to eliminate a two-thirds majority requirement for a takeover vote did not have enough initial support. The question was set aside, and the meeting reconvened last week to push through a new simple-majority rule.
At these prices, it's hard to imagine it would have mattered. |
