Company to acquire ailing PSC.

Byline: SHERRI BURI McDONALD The Register-Guard

The skies brightened suddenly on Friday for financially struggling PSC Inc., a bar-code scanner manufacturer with headquarters in Portland and a large factory in west Eugene.

Littlejohn & Co. LLC., a Connecticut-based private investment firm that specializes in reviving troubled midsize companies, is acquiring PSC for an undisclosed sum and will provide the manufacturer with a $20 million line of credit, PSC officials announced on Friday.

There are no plans for layoffs of PSC's 850-employee work force or to change workers' salaries or benefits, said PSC's chief executive, Ed Borey.

PSC notified its 600 west Eugene employees of the deal on Friday.

PSC is one of Eugene's largest high-tech manufacturers, and its fate has hung in the balance as the company has struggled with nearly two years of financial losses, brought on in large part by the scanner maker's $124 million in debt.

As part of the deal, Littlejohn bought that debt from PSC's lenders for an undisclosed amount and will assume majority ownership of the company, taking the public company private within three months, PSC officials said. As part of the move, the shares held by existing stockholders will become valueless, PSC officials said.

PSC for months has said it was seeking a buyer to rescue the firm in a transaction that would wipe out shareholder value, so the company's stock has been trading for just a few cents a share.

As part of the deal with Littlejohn, PSC has filed for Chapter 11 restructuring in U.S. Bankruptcy Court in Manhattan

PSC officials hailed the announcement as a victory for the company, which has dramatically reshaped itself, first through acquisitions and then by consolidation and layoffs, over the past five years.

"The cloud of uncertainty has been lifted," Borey said.

He called the announcement "great news" for employees, suppliers and customers. "Reactions of employees have been extremely supportive and positive," he said.

Creditors will be taken care of, Borey said. PSC filed a request with the bankruptcy court to allow it to fully pay creditors following normal billing cycles, Borey said. The deal also reassures customers of PSC's long-term viability, he said.

"It will be business as usual, only now we have the money to operate the business," Borey said.

Industry observers said the move appears to be a positive step for PSC.

"For the moment, the prospect for PSC seems much brighter than it has been," said Rick Morgan, editor of Scan: The Data Capture Report, a trade publication in Erie, Pa. "The company can concentrate more on running the business, rather than figuring out where it can get the next little piece of financing."

PSC has struggled under heavy debt and quarterly losses since the third quarter of 2000.

Not everyone emerges from the deal whole, however.

For starters, the firm's lenders probably walked away with considerably less than they were owed. PSC's 11 principal lenders include Fleet National Bank, Citizens Bank of Massachusetts, Key Bank, The Chase Manhattan Bank, John Hancock Life Insurance Co. and The Equitable Life Assurance Society of the U.S.

Shareholders, even further down in the pecking order, will receive nothing for their shares, underscoring the inherent risk of investing in volatile tech stocks.

That outcome angers some shareholders.

"The people who made that decision (to complete a deal with Littlejohn) work for me," an incredulous former employee said. The individual had invested heavily in PSC's employee-stock purchase plan and estimates that he has lost $20,000 to $30,000 in PSC's long stock-price decline.

"Quite clearly, they're not acting in the best interest of the shareholder," the former PSC employee said. "It seems ... immoral to me and greedy."

But the company said it was unable to find a way to retain any shareholder value.

PSC "made every effort to work on a program to include the shareholders," Borey said.

"Anyone that lost money is important in our mind," he said. "We had a number of employees that had their stock extinguished, and we were unable to do anything about it."

PSC's shares were mainly concentrated in the hands of a few large investors, including Romano Volta, who controls Hydra Investissements, a Luxembourg corporation, and Whelan & Gratny Capital Management of Menlo Park, Calif.

Since August, PSC has warned in financial filings that it was seeking new financing, which would likely result in wiping out existing shareholder value.

PSC shares traded heavily on Friday, mostly in the 2 to 3 cent range. The stock closed at 1 cent, down 4 cents.

Just why shareholders kept buying a stock that was on the verge of becoming worthless was unclear.

When asked why investors might be doing this, Borey responded: "I have no idea."

Littlejohn apparently thinks PSC is a good bet for its portfolio.

"Today marks a new beginning for PSC that will allow the company to move forward with a strengthened balance sheet and increased financial flexibility," Michael Klein, president of Littlejohn & Co. said in prepared remarks. "The company's issues have been financial, not operational, and this investment will provide it with a capital structure that will enhance, not inhibit, growth so PSC can build upon what has already been accomplished and develop to its fullest potential."

Littlejohn officials declined to be interviewed by The Register-Guard.

Littlejohn, which has four partners and 10 employees overall, was founded in 1996.

It makes control equity investments in midsize companies with annual revenue of $200 million to $800 million that need changes in strategic direction, operating infrastructure or financial structure, according to its Web site, www.littlejohnllc.com.

Littlejohn usually makes two or three purchases a year and keeps five to 10 companies in its portfolio at any given time. Littlejohn typically aims to sell off companies - either to other firms or to the public in a stock offering - once it has put them on sound footing.

Littlejohn probably will hold onto PSC for five to seven years, Borey said.