Edward J. Richardson and Arnold R. Allen, the marathon men at Richardson Electronics Ltd., are clearing their path.
A proposed corporate recapitalization and switch to a Delaware charter, anounced Tuesday, will eliminate some hazards as the company reaches for $200 million in annual sales in five years.
Richardson Electronics, a Kane County-based manufacturer and distributor of components for the electronics ”aftermarket” for replacement and repair parts, expects sales for the fiscal year ending 1987 to reach more than $90 million, up from $75.5 million in fiscal 1986.
Sales have grown at a more than 25 percent annual rate for the last five years under the leadership of Chairman and Chief Executive Officer Edward Richardson, 43, son of the company`s founder, Arthur Richardson.
A year ago, Richardson hired Allen, 54, from Arrow Electronics Inc. to run day-to-day operations as president and chief operating officer. The move gave Richardson more time to plan acquisitions and international growth, including electronic tube manufacturing operations in the People`s Republic of China.
Both men are marathon runners, and local stock analysts are impressed with the strides they are taking with a ”trailing technology” company that has focused on electron tubes while others delved into the high-tech world of semiconductors.
The proposed recapitalization into Class A and Class B shares, to be voted by shareholders Oct. 30, was unexpected but makes sense, said William F. Jelin, who follows the stock for The Chicago Corp. If approved by shareholders, the change will substitute for each common share a half share of Class A stock and a half share of Class B stock.
The class B stock will be entitled to 10 votes per share, while the Class A stock will carry one vote per share. The Class B stock will receive 90 percent of dividends paid on common stock, if the company ever pays a cash dividend.
Scott Hodes, a Chicago lawyer and outside director of the company, said the recapitalization will enable the company to issue additional shares for acquisitions and other purposes without a loss of control by Edward Richardson.
Richardson holds 58 percent of the stock, after an initial public offer in 1983 and the issuance of convertible debt in 1984. A covenant in debentures issued in 1981 to acquire Cetron Inc. requires that Richardson own at least 50 percent of the company until December, 1987.
”Ed Richardson is not opposed to considering a transaction that would sell Richardson Electronics if the right buyer came along at the right price,” Hodes said. However, the recapitalization will ward off corporate raiders, he said. Richardson is in Europe this week establishing new operations there.
Moving the company`s charter from Illinois to Delaware enables Richardson Electronics to take advantage of a Delaware law protecting outside directors from personal liability under certain circumstances, Hodes said.
”We don`t believe Illinois has gone far enough to insulate outside directors from liability when they are doing a good job,” Hodes said. The company`s outside directors are Hodes, Ira A. Eichner, chairman and chief executive of AAR Corp., Kenneth N. Pontikes, chairman and president of Comdisco Inc., and Samuel Rabinovitz, senior vice president of EG&G Inc.
Richardson Electronics likely will grow by moving more heavily into manufacturing and using its distribution network to move additional products, including semiconductors and related electronics components.
Integrating manufacturing and distribution
doesn`t always work, Jelin noted. ”But they`ve made it work.”
TAX LAW WENT EASY ON REALTY TRUSTS
The proposed tax law doesn`t do many favors for real estate investing, but real estate investment trusts escaped fairly well, says Charles R. Gardner, president of Chicago Dock & Canal Trust.
Gardener told the trust`s annual meeting Tuesday that the lobbying organization for REITs, which are stock-owned real estate investment portfolios, succeeded in liberalizing the tax provisions relating to REITs.
”I see more REITs being formed and more property being acquiried by REITs,” he said. Proposed tax law revisions would permit REITs to establish wholly owned subsidiaries to limit the liability of the REIT, to provide services directly in connection with rental property instead of using a third- party contractor and to share the income of so-called master tenants who in turn lease property to others.
At the annual meeting, shareholders representing three-fourths of the trusts` shares approved a 200-for-1 stock split intended to facilitate trading in Chicago Dock shares. The post-split price of the thinly traded stock is estimated at $25 a share, compared with $5,200 a share recently.
Shareholder Thomas R. Trowbridge III, who last month wrote to shareholders opposing the split, attended the meeting but did not speak against the proposal.
ILLINOIS COMPANIES TRYING TEAMWORK
Two Illinois companies have struck a deal, but the action will be in Canada.
State Farm Insurance Cos., based in Bloomington, will use Chicago-based Certified Collateral Corp. to gain up-to-date information on used-car values in the province of Ontario. The information is used to settle auto claims and, in some cases, locate replacement cars.
While insurance companies always have needed to value cars to settle claims, Certified is the first company to use computers to collect such information from a variety of sources, and provide it on an up-to-date basis to clients. ”In the past you`d read the newspapers, refer to guidebooks and call dealers to value cars,” said Howard Tullman, Certified`s founder and chief executive officer.
Nevertheless, it`s taken Certified five years to get into the black. Certified started in April, 1981. ”Let`s put it this way,” Tullman said.
”Our first month we did 11 transactions. Now we do 2,200 a day.”
Certified has about 80 insurance companies as clients in the U.S.
But it`s taken only four months for Certified`s Canadian subsidiary to grab 40 percent of the Ontario valuation market, largely because many clients are units of U.S. companies already doing business with Certified.
Bloomington-based State Farm is one of the biggest writers of auto insurance in Canada, Tullman said. Certified formed a partnership with Canadian nationals to start the subsidiary there.
Next stop: England. ”That will be the next market, probably in the first or second quarter of next year,” Tullman said.
