TYCO'S $1.4 BIL. ACQUISITION OF KENDALL

TYCO'S $1.4 BIL. ACQUISITION OF KENDALL will result in annual disposable medical product sales of over $730 mil. at the combined company. Under a definitive agreement announced July 14, Kendall, with $816 mil. in 1993 revenues, would be merged with Tyco's packing division to form a $1.2 bil. disposable medical and specialty products business segment. More than 80% (over $650 mil.) of Kendall's revenues come from disposable health care and related products; the product segment accounts for $80 mil. of Tyco's $400 mil. in packing division revenues.

Under the stock-for-stock transaction expected to close by year-end, Tyco International would issue a maximum of $60.45 worth its common shares for each of Kendall's approximately 23.4 mil. shares outstanding (fully diluted). Shares of Kendall closed at $51 on July 13.

"The Kendall merger is a very important step in the strategy we developed several years ago to translate our manufacturing expertise in packaging into higher margin products in the disposable medical products market," Tyco Chairman and CEO Dennis Kozlowski said, adding that the new business segment "will serve as a platform for future growth, both through increased domestic and international market penetration and synergistic add-on acquisitions."

Kozlowski further noted that Tyco's "knowledge in adhesives, coatings, nonwoven products and extrusion fits well with the growing market for disposable medical products." Tyco's "processes and equipment are virtually identical to those currently in use at Kendall," allowing the two companies "to share manufacturing efficiencies and technology." However, the two companies have minimal overlap in terms of product offerings.

The Exeter, New Hampshire-based firm also points out that "Kendall's markets tend to be non-cyclical, a counter-balance to certain of Tyco's businesses that are more sensitive to economic trends." Tyco estimates the disposable medical product market to be $20 bil. in the U.S. and $50 bil. worldwide.

Kendall's business is broken down into four divisions. Kendall Healthcare represents 51% of sales and serves hospitals and alternate site providers; 15% of revenues are generated by the Futuro consumer home health care division in the U.S. and Canada; the International division, comprising 17% of sales, manufactures and markets basically the same products as Kendall Healthcare and Futuro in 80 countries, "with particularly strong penetration in Germany, the United Kingdom and Mexico." Polyken, which generates the remaining 17% of Kendall's sales, competes in "various industrial markets which are similar to those in which Tyco markets its flow control products." In 1993, the firm posted net income of $50 mil.

Tyco, with annual sales of $3.3 bil., also has four business segments: fire protection systems ($1.6 bil.); flow control products ($900 mil.); electrical and electronic components ($350 mil.); and medical, adhesive and other related packaging products ($400 mil.). The medical portion of the packaging division consists primarily of medical chart paper and disposable medical electrodes. The firm operates in more than 40 countries.

The merger transaction is intended to be tax free to Kendall shareholders and accounted for as a pooling of interests. Both firms' boards have approved the deal, which is subject to regulatory review and approval by shareholders of both companies. Tyco says holders of approximately 36% of Kendall's outstanding shares have agreed, contingent upon certain conditions, to vote in favor of the merger.

The Kendall/Tyco stock exchange ratio depends on the average stock price during the 20-day period ending five days before shareholder approval. If the average price of Tyco stock is $46.50 or greater, the exchange ratio will be $60.45 divided by the average stock price. If the average price is between $44.175 and $46.50, the ratio is 1.3 Tyco shares for each Kendall share; for the range $41.85 to $44.175, the ratio is $57.4275 divided by the average stock price. If the average price is below $41.85, the ratio is 1.37222. In all but the last case, Kendall must pay $39 mil. if it terminates the agreement.