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EG&G To Buy Perkin-Elmer's AI Division (from Executive Briefing, page 2).

Perkin-Elmer's AI operations have been considered to be on the auction block at least since September, when P-E announced it had hired Warburg Dillon Read to "explore alternatives" for the Analytical Division. The statement was taken pretty much universally as a euphemistic invitation for the bidding to begin. At that time, P-E said that an announcement about the final disposition of the operations would be made by the year's end.

Because of this, the subsequent announcement in January that P-E was putting AI up for sale and listing it as discontinued operations seemed to indicate that P-E was having trouble getting the price it wanted; and the price of the announced deal bears out that view. EG&G is paying much less than many in the investment community expected. Compared to original speculation by some analysts, who expected as much as $1 billion, at $425 million, it is very low indeed.

There was some doubt as to whether the AI division would be able to retain its Perkin-Elmer name after the anticipated divestiture. Gregory L. Summe, chairman, president and CEO of EG&G told IBO that the company has full rights to the name and that there is the potential that future products developed by Perkin-Elmer and the current instrument operations at EG&G will be released under the Perkin-Elmer name.

The way in which the announcement was made resulted in confusion and a rash of rumors. P-E officials told IBO the final T was not crossed and the last I hadn't been dotted until one o'clock Monday morning. But the deal was solid enough on Sunday evening that Tony L. White, chairman president and CEO of Perkin-Elmer, could spend the evening relaxing at Disney World.

Whenever the documents were signed, the broadcast media were given the news first, and some Pittcon attendees had seen reports on television early in the morning. IBO heard the first reports in a 7:30 am press conference where Rick Chapman, president and CEO of ThermoQuest began his presentation by announcing the P-E deal. An IBO editor left a press conference to visit the Perkin-Elmer booth, where there were copies of a press release from EG&G with some of the details, but no press release from P-E. As reporters entered the P-E press luncheon, there were still no printed copies of the details of the deal available.

Mr. White addressed the crowd and said, "[The analytical instrument operations] had suffered, not necessarily from neglect, but from some bad decisions...and needed to be rehabilitated. I think that's gone very well."

He went on to say, "We knew from the beginning that this day would come...because the direction of the genomics company and the analytical instrument company were fundamentally incompatible."

While P-E had always left open the option of selling off the unit, this statement was a contrast with the repeated protestations the company had issued in past years claiming that there was also a real possibility that the company would stay together. When IBO asked a P-E AI employee at the luncheon if he had known "from the beginning" that the company would split, he responded that although no explicit statement was made to that effect, employees definitely got that impression.

In general, the reactions of employees appeared to be relief on the part of P-E Applied Biosystems Division employees, stunned wide-eyed shock from EG&G staff ("We own Perkin-Elmer!?), and restrained jubilation from Perkin-Elmer AI workers. And everyone wanted to know more about this company called EG&G.

The unknown factor here is EG&G, for a few reasons. EG&G, while it has a wide variety of instrument operations and had 1998 instrument revenues of $247 million, has not had the image of being a major force in the industry. This is partly because, although it competes in a number of technologies, it is a leading player only in scintillation counters, a relatively small and obscure market.

Leadership will be a crucial element in the future of EG&G and its Perkin-Elmer operations. Leadership can change a company radically and rapidly (witness P-E today compared to five years ago.) Martin Reynolds, EG&G's media representative, told IBO that all of EG&G's Instruments Division will report to the Perkin-Elmer headquarters in Connecticut.

Mr. Summe joined EG&G in February, 1998 as COO and was given the titles of chairman and CEO in December. He is a new face in the analytical instruments industry, and many at the P-E press conference commented on Mr. Summe's youthful appearance. It seemed hard for industry insiders to grasp-the grand old industry-leading flagship company of analytical instruments now a part of a company about whom most know very little, with leadership that looks more like an energetic young executive on the rise than a seasoned elder statesman of a major power in a high-tech industry.

But it would be a mistake to rush to judgement on either EG&G or Mr. Summe.

For most of its existence, EG&G's major business has been contracting with the US government, mainly the Department of Energy, on a wide range of services such as nuclear power and weapons. In 1995, having realized that the government contracting was getting less and less profitable, EG&G left the market that had always been its bread and butter and set out to find itself a new focus.

A key part of EG&G's search for focus was the hiring of Mr. Summe, which the company called, "a significant step in EG&G's strategic plan to transform itself into a commercial technology leader."

Anyone taken aback by Mr. Summe's youthful appearance should take a quick look at his resume before passing him off as a lightweight. In his 42 years, Mr. Summe has been a semiconductor design engineer, a partner at McKinsey & Co., general manager of commercial motors at General Motors, president of AlliedSignal's Aerospace Engines and of General Aviation Avionics, and most recently president of the Automotive Products Group at AlliedSignal. According to EG&G, the company brought him on because of his track record at making technology companies competitive and profitable.

The difference between Mr. Summe's background and Mr. White's is marked. Mr. White came from a healthcare and hospital supplies distributor, an industry most closely related to the commodities side of the instruments industry. Mr. Summe's background is in industries where success was dependant on getting economic performance out of maturing medium- and high-tech operations. The different men seem well suited for the different characteristics of the two sides of the Perkin-Elmer business.

One point of interest is that while it has been assumed that the divestiture of the AI division would lead it away from the biotechnology market, EG&G includes significant operations in life sciences, most notably the Wallac operations which sells plate readers and other biotech products. EG&G also acquired Life Resources Limited last December, which includes some technologies important to biotech research. Combined with the P-E operations, EG&G's biotech products offerings could be quite significant.

IBO will explore EG&G and its acquisition of Perkin-Elmer more in an upcoming issue.
COPYRIGHT 1999 Strategic Directions International Inc. (SDI)
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Comment:EG&G To Buy Perkin-Elmer's AI Division (from Executive Briefing, page 2).
Publication:Instrument Business Outlook
Geographic Code:1USA
Date:Mar 15, 1999
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