Tylan ponders five offers: two are buyouts of a healthier, pared-down high-tech firm.

Tylan ponders five offers; two are buyouts of a healthier, pared-down high-tech firm

Torrance-based Tylan Corp. is the subject of two separate offers to shareholders which would result in the sale of the formerly financially troubled high-tech supply firm.

For the last several weeks directors at the $24.83 million (annual sales) company have been studying five offers to sell the firm outright or refinance its debt. The high-technology parts and equipment manufacturer has a Sept. 1 deadline to repay about $3 million, which is what remains of $10 million in debt Tylan has accumulated in the last few years.

In mid-April the directors agreed in principal to have San Diego-based Vacuum General Inc. acquire 100 percent of the outstanding common shares of Tylan for $4.25 cash each, said Kenneth Cleveland, Tylan president and chief executive officer. The acquisition is worth about $8.7 million, he said.

Concurrent to the acquisition agreement Tylan announced settlement of a lawsuit in which it would receive a one-time payment resulting in a non-recurring gain of 39 cents a share. Cleveland said that part of the settlement required that he not discuss it, but Tylan's latest filing with the federal Securities and Exchange Commission shows the only outstanding legal matter was a patent infringement suit it filed against Unit Instruments Inc.

About 10 days after the agreement in principal was signed the parent company of Orange-based Unit Instruments filed a tender offer to purchase Tylan stock at $5 a share, Cleveland said. Unit Instruments, which "is our direct competitor," is a subsidiary of Erie, Pa.-based Autoclave Engineers Inc., he added.

Thomas Guelcher, Autoclave chief financial officer, said that the tender offer is contingent on the purchase of more than 70 percent of Tylan's stock. The offer, which began April 28, will expire on May 25 unless extended, he added.

Guelcher said there are now about 2 million shares of Tylan available for purchase but the tender offer includes all shares that might be issued as part of future outstanding options. Autoclave officials put the total cost of acquiring 100 percent of Tylan at between $10 million and $12.5 million, Guelcher added.

The Unit Instruments offer is scheduled to expire within a few days of the time the Vacuum General offer is submitted to shareholders. Cleveland said that offer is now undergoing review by company auditors and should be presented to shareholders for their action about May 22.

The two offers are a welcome change for 30-year-old Tylan, which ran into financial problems in the mid-1980s when it diversified its product line into manufacturing a piece of computer equipment, Cleveland said. "Here we are going from a troubled company to a recovering, profitable company that a couple of people are after," he said.

Tylan, which produces a gas monitoring device called a mass flow controller, lost money after it began making diffusion furnaces used in the computer industry. Cleveland, whose specialty is restructuring financially troubled firms, was hired to head Tylan in 1986.

Cleveland said the company lost a total of $7 million between fiscal 1986 and 1987 because of the diversification. The company earned $3.16 million for the fiscal year ended June 30, 1988 on sales of $24.83 million. That compared with a loss of $8.17 million on sales of $23.26 million in fiscal 1987.

The 1988 profit was Tylan's first annual profit in three years and primarily was due to the sale of several subsidiaries, including the diffusion furnace component, Cleveland said. Also sold was most of the firm's Japanese operation.

As of Dec. 31, 1988, Tylan reported second-quarter earnings of $445,000 on sales of $6.69 million. That compared with earnings of $587,000 on sales of $6.95 million for the same period a year earlier. The drop resulted from the subsidiary sales, Cleveland said.

As part of its cost-cutting efforts, Tylan also reduced the number of its employees from 350 to 150 and moved from a 120,000-square-foot facility in Carson to a 30,000-square-foot space in Torrance, Cleveland noted. The sale last year of the diffusion furnace unit to a start-up company headed by a former company vice president resulted in no gain to Tylan but it could collect future royalties from any sales of the furnaces.

In addition to its sales and manufacturing facility in Torrance, Tylan also has facilities in France, West Germany and the United Kingdom. It also has an agreement with a subsidiary of Japan's Toshiba Corp. for the European distribution of an etcher used in semiconductor manufacturing.

Cleveland said the Autoclave offer came as a surprise to Tylan officials. "Autoclave was not in the loop before and had not made an offer before," he said. But Autoclave's offer directly to shareholders "is a pretty simple way to this," he added. They're not doing due diligence, they're taking their chances, so to speak."