Nippon Mining to Buy Gould for $1.1 Billion : Ailing Electronics Firm Says Pentagon ‘Cleared’ Deal; Some See Objections on Antitrust Grounds

Nippon Mining of Tokyo, in what would be the fourth-largest Japanese acquisition of a U.S. company, agreed Tuesday to buy struggling Gould Inc. for $1.1 billion.

Gould Chairman James F. McDonald said the decision to sell the computer and electronics concern “was based first and foremost on maximizing share value for our shareholders.”

Nippon, which has had a series of business partnerships with Gould dating to 1981, will offer Gould shareholders $23.25 cash per share. Gould stock has traded for as little as $8 a share in the past year. On Tuesday, the stock was the biggest percentage gainer in composite New York Stock Exchange trading, spurting $7.125 to close at $22.75.

Gould, based in Rolling Meadows, Ill., has been hemorrhaging cash for the past several years as a result of an ill-fated foray into the semiconductor industry and cost overruns on fixed-price defense contracts.

No Pentagon Objection

The company posted net losses of $175.7 million in 1985, $101.8 million in 1986 and $95.6 million in 1987. For the first half of 1988, Gould posted net income of $70 million, but only $17.7 million of that amount came from continuing operations.

Gould spokesman Gerald F. Corbett, without providing specifics, said Gould’s management has already “cleared” the company’s sale to Nippon with the U. S. Department of Defense.

Gould has been liquidating its defense electronics business piece by piece. Corbett noted that the last remaining defense unit, Navcom Systems of El Monte, is up for sale “and will be operated totally separately” in the meantime to keep its military communications and aircraft technology out of foreign hands.

The El Monte plant, which employs about 780 workers, is Gould’s largest operation in Southern California. The company also has plants in Westlake Village and San Diego, along with five Southern California sales offices.

Neither Commerce nor Defense Department officials were immediately available for comment. Last year, Japan’s Fujitsu proposed to buy Fairchild Semiconductor, a pioneer in the U.S. electronics industry, but the deal foundered after Commerce Department officials and others, including some in Defense, objected.

“I see no national security implications here at all,” said Gerald Meyer, professor of international economics at Stanford University. Meyer said Japanese companies would continue to snap up U.S. businesses at a rapid pace because the highly valued yen gives the Japanese enormous buying power.

Michael Borrus, economist at the Berkeley Roundtable on the International Economy at UC Berkeley, also discounted the chances of federal intervention on national security grounds. Because Gould’s better days seem to be behind it and it already has sold off some of its more important divisions, “it strikes me as not being much there there,” he said.

However, the proposed transaction might raise antitrust questions, particularly in the area of copper foil, a key ingredient in the manufacture of printed circuit boards. “The deal would place perhaps 70% of the world’s copper foil resource in one place,” said John Hatch, a spokesman for the American Electronics Assn. He said top officials of the trade association “are not sure that is such a good thing.”

Makes Testing Devices

Antitrust questions were raised in the Fujitsu-Fairchild deal because the combined company would have controlled a majority of the market in a specialized semiconductors used extensively in defense-related technology.

Gould’s copper foil business is part of the company’s electronics materials and components operation, which also makes fuses and couplers for fiber optics.

Gould also makes test and measurement instruments, where it competes against such companies as Hewlett-Packard and Tektronix, and a class of computers known as superminis, which are used in aircraft simulators and other engineering and scientific applications.

The Gould of today thus is a pale shadow of a company that in 1980 boasted revenue of $2 billion. Gould’s woes stem in part from an ambitious attempt to remake an old-line rust-belt conglomerate by Gould’s former chairman, polo player William Ylvisaker. Beginning in the late 1970s, Ylvisaker shed Gould’s battery, electrical products and industrial products operations and plunged headlong into a series of high-technology acquisitions.

But the strategy soured when Gould’s semiconductor business, American Microsystems, was battered in the 1985 industry downturn, forcing a writeoff of $150 million. Huge losses on fixed-price defense contracts, which forced a $130-million writeoff in 1986, also helped cripple the company. Eventually, the company pulled out of such areas as automation systems, semiconductors, medical electronics and defense systems.

In announcing the transaction, Gould Chairman McDonald also cited the company’s “very successful business relationship” with Nippon, which dates to 1981. The companies have a joint venture in copper foil and recently entered into a second such venture in computers, where “we have demonstrated our compatible technical, engineering and marketing skills,” he said.

Nippon chairman Yukio Kasahara said the deal will “enhance Nippon Mining’s competitive position on several key businesses.”

“Despite some of the difficulties experienced by the company in the recent past, we have great confidence in the future” of Gould’s materials and components business, Kasahara said.

Nippon has interests in mining, smelting, refining, electronics, specialty metals and biotechnology. In 1988, it ranked 162 on Fortune magazine’s list of the 500 biggest industrial concerns outside the United States.

GOULD AT A GLANCE

Money-losing Gould Inc., based in Rolling Meadows, Ill., is a computer and electronics company. Its principal products are superminicomputers, test and measurement instruments and such materials as copper foil, fuses and fiber optics. Gould’s defense division in El Monte, its largest operation in Southern California with 780 employees, is for sale. It makes military communications equipment and aircraft instruments. The company’s other Southland facilities are manufacturing plants in Westlake Village and San Diego and five sales offices.

Year ended 1987 1986 1985 Sales (millions) $961.4 $908.8 $923.2 Net losses (millions) $95.6 $101.8 $175.7

Assets $1.18 billion (June 30, 1988)

Employees more than 6,500

Shares outstanding 45.03 million

12-month price range $8-$25.25

Tues. close (NYSE) $22.75, up $7.125

BIGGEST JAPANESE DEALS

If Nippon Mining Co. succeeds in its friendly $1.1-billion bid for Gould Inc., the deal will be the fourth-largest U.S. acquisition by a Japanese firm. The following are the 10 largest Japanese acquisitions and investments in U.S. companies since 1987.

Price Acquirer Target (in millions) Bridgestone Corp. Firestone $2,600 Sony Corp. CBS Records $2,000 Aoki Corp., Bass Group Westin Hotels $1,530 Dainippon Ink & Chemicals Reichhold Chemicals $540 Nippon Shearson Lehman stake $538 Sumitomo Bank Goldman Sachs stake $500 Group of Japanese banks BankAmerica stake $350 Jusco Talbot’s $325 Yasuda Mutual Life PaineWebber stake $300 Mitsui & Co. Joseph Horne Co. $150

Source: Reuters