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Thermo Instrument Offers to Buy Control of Spectra-Physics AB

Photonics Spectra
Feb 1999
Stephanie A. Weiss

The 1999 photonics acquisition season opened early and loomed large, as Thermo Instrument Systems Inc. of Waltham, Mass., made a $355 million offer to take over Spectra-Physics AB, the Swedish company that owns more than 80 percent of Spectra-Physics Lasers and about 35 percent of Flir Systems Inc.
Earl Lewis, CEO of Thermo Instrument, said the company had been courting Spectra-Physics AB for several years and proposed a marriage more than once before the Jan. 7 announcement that it had offered 160 Swedish krona (about $20) per share for the 17.6 million shares of Spectra-Physics. (The offer was a considerable premium over where the stock had been trading, suggesting that the stock had been seriously undervalued.)

Similar businesses
Spectra-Physics AB (see box on facing page) has five operating groups that manufacture lasers, cameras and other photonic (and nonphotonic) instruments for industrial and scientific applications. Thermo Instrument Systems (see box on this page) has nine divisions with similar instrumentation product lines and a considerable focus on using photonics technologies.
"There's a lot of similarity between our companies and a number of businesses that we're in," Lewis said. "Thermo has several companies that do $600 [million] to $700 million in sales of instruments that use photons somehow to perform what they do. Clearly we think the long-range future of the laser business is strong."
The acquisition was an arrangement between Thermo and the Swedish firm, which asked Thermo not to contact individual operating group managers until after the deal was complete. Lewis was scheduled to meet Patrick Edsell, president of Spectra-Physics Lasers in Mountain View, Calif., for the first time as Photonics Spectra was going to press.
Still, Lewis said, the transition should be smooth.
"We have never made a hostile takeover of a company," Lewis said. "We knew the Spectra-Physics [AB] people because we talked with them two or three years back. We sort of continued those conversations on and off. [Meanwhile,] we looked at Coherent, of course."
Coherent officials could not be reached for comment on any talks between the companies, or for comment on how Thermo's acquisition would affect Coherent's laser business.
Lewis said he also has a personal interest in infrared imagers, the primary focus of Flir Systems in Portland, Ore., and he understands "a little bit about the market." He said he expects Thermo to elect at least one member to Flir's board.

Business as usual?
Shareholders of Spectra-Physics AB are expected to tender their shares in February, and Lewis expects to complete the transaction by March. The deal is contingent on achieving a 90 percent tender, and Spectra-Physics AB's board has recommended that shareholders accept the offer.
After the acquisition, the Swedish company will continue to operate as a public subsidiary, Lewis said, and the subsidiary businesses should continue to operate as usual. Lewis was scheduled to visit the subsidiaries this month to become better acquainted with their technical capabilities and their management.
"Our general philosophy is that as long as a company has a good growth potential and good management, and is getting the growth, we would want it to stay public," he said. "For now, the idea is to work with the people for six months, understand their business, figure out where it's going and figure out how we can help."
Edsell said Spectra-Physics' view is that the acquisition is "just a change in our 80 percent shareholder." The news, he said, would not alter the company's current strategy or business plan.
"For the record, I think we've done a very good job here for the last few years," he said. "We have our plans for the future. There's a lot of exciting things going on in the laser industry, and we're very well-positioned to take advantage of those."

Market reactions
Thermo Instrument stock prices rose from more than $13 per share before the announcement to just over $16 per share a week later. Spectra-Physics Lasers' stock jumped initially after the announcements from $7 per share to as high as $12.50 before settling around $10 a week later. Flir Systems, fresh off its own acquisition announcement (see story on page 64), fluctuated only slightly around $23 but saw high market volumes.

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