Mergers: The Opportunity List

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At merger-minded Litton Industries, each of the 50 divisions draws up an annual "opportunity review," which looks five years ahead at technologies, situations and companies that the firm ought to be getting into. The managers of the fastest-growing firm in U.S. business history judge potential merger mates by three measures, in order of importance: 1) Does the product line fit with ours? 2) Is the management right? 3) Is the price right? One company that seemed made to measure was well-managed and profitable Diebold, Inc., the nation's largest manufacturer of banking equipment, with 1965 sales of $77 million from safes, depositories, pneumatic tubes, etc. Last week, after Litton Chairman Charles B. Thornton and Diebold President Raymond Koontz agreed on a swap of stock worth about $93 million, Litton announced a "preliminary" deal to absorb Diebold.

If Diebold shareholders and the Federal Trade Commission approve, as seems likely, the merger should be suitably synergistic. Diebold* will substantially lift Litton's most rapidly rising group—business equipment—which has been built by Litton's acquisition of such companies as Monroe Calculating, Cole Steel Equipment and Royal McBee.

"Tex" Thornton anticipates a big expansion in the banking business; with Diebold locked in, a Litton salesman will be able to outfit a whole bank, from typewriter to vault. For its part, Diebold expects to use Litton's broad technology and fat treasury to expand. Under the terms of the deal, Litton will not have to dilute its common stock; it plans to exchange 1,118,000 "participating preference" shares for Diebold's 2,601,000 common shares. Though the preference shares are convertible into Litton common on a one-for-one basis, Diebold investors will be induced to hold on to them because the conversion factor will rise yearly, reaching just over two common shares for each preference share in 1989.

Litton, whose sales are now at an annual rate of $1.1 billion, continues to expand in many other fields. Last week it bought the Institute of Computer Management, a school for computer programmers—of which Litton needs a considerable number. It is also examining 40 to 50 vastly varied firms, including Wilson Marine Transit and other Great Lakes shipping lines. Says Thornton: "We never sit still—before or after a merger."