DeCrane's stock buy-back plan may hit roadblock.

Over the past 15 months, DeCrane Aircraft Holdings Inc. has raised more than $70 million on Wall Street, first with an IPO, then through a secondary stock offering. Now the company is attempting to boost its fortunes once again - by going private.

The El Segundo-based aircraft components manufacturer, in partnership with an affiliate of the Wall Street securities firm Donaldson, Lufkin & Jenrette Inc., intends to buy back its own stock for $172.5 million - or $23 a share for the approximately 7.5 million DeCrane shares outstanding.

Although DeCrane's board unanimously recommended the deal, the transaction remains subject to shareholder approval - and that could be a problem. A group of disgruntled stockholders filed suit on July 21 to halt the deal, arguing that the $23 tender offer is not high enough.

Based on the company's cash flow, earnings and potential for future growth, "the value of DeCrane Aircraft's stock is in excess of the amount offered," said a group of DeCrane shareholders, called Taam Associates Inc., in the suit, which was filed in Delaware Chancery Court in Wilmington, Del.

The group is asking a judge to block the purchase until an independent assessment of DeCrane's value can be completed, and to award unspecified damages.

DeCrane board member Paul H. Casio - general partner at Brantley Venture Partners, a Cleveland-based investment firm that owns almost 500,000 shares in the company - called the suit "without merit."

Attorneys with Rosenthal, Monhait, Gross & Goddess PA, the Wilmington, Del.-based law firm that filed the shareholder suit, did not return phone calls seeking comment. Officials at DeCrane and DLJ refused to discuss the suit or the proposed acquisition.

Jon Kutler, president of aerospace-industry research firm Quarterdeck Investment Partners Inc., characterized the buy-back as a good move for DeCrane, which supplies components used in planes for cabin temperature control, lighting and in-flight communications.

"Being private with a partner like DLJ allows you to repackage the company, grow it, and then do something later when you are much larger, without the overhang of a share price which may or may not be reflective of true value," Kutler said.

At its initial public offering in April 1997, DeCrane stock sold for $12 a share on Nasdaq. The price climbed steadily over the next several months, reaching about $21 in November 1997. But for the past nine months, the stock has been stuck in the $16-$20 range - despite decent financial results and the completion of a series of acquisitions of small and medium-sized supplier firms in the rapidly consolidating aircraft components industry.

For the first quarter, DeCrane reported net income of $1.7 million (30 cents per diluted share), up from pro forma net income of $600,000 (25 cents a share) for the like period a year earlier. Revenue was $29.1 million vs. $26.1 million.

DLJ's offer of $23 a share "reflects what other small aerospace firms are reading at," said Sam J. Pearlstein of investment firm Furman Selz LLP. "But a strategic buyer might be willing to pay more."

Indeed, last week's announcement of the DLJ deal - as well as rumors that DeCrane may be in discussions with another possible acquirer - sent the company's stock soaring for the first time in almost a year. DeCrane shares closed at a record $24.50 on July 22 - well above DLJ's bid price.

Board member Cascio said the current stock price notwithstanding, the $23 tender offer would be sent to shareholders this week. "The shareholders will have to decide," he said.

DeCrane Aircraft was founded nine years ago by R. Jack DeCrane, a former executive in the aerospace division of B.F. Goodrich Co. DeCrane noticed that while aircraft are manufactured by just a handful of huge companies, hundreds of smaller firms supply avionics components for the planes - a sector ripe for consolidation.

And that's what DeCree has done, buying companies that produce everything from racks and trays to hold an airplane's black boxes and computers, to suppliers of in-flight entertainment systems. Proceeds from its two stock offerings have allowed the company to pay down debt and continue its buying spree.

DLJ, meanwhile, has become an increasingly active player in the aerospace market, primarily through its DLJ Merchant Banking Partners II division, a $3 billion fund dedicated to equity-related investments.

With the proposed merger between Lockheed Martin Corp. and Northrop Grumman Corp. now dead, aerospace consolidation efforts will now be directed entirely toward "rolling-up" smaller supplier firms like DeCrane, providing even more opportunities for large investors like DLJ, said Kutler.