Thermo Electron Returns Spinout Subsidiaries to Private Domain

As part of a corporate restructuring that heralds a new corporate philosophy, high-tech conglomerate Thermo Electron Corp. (Waltham, MA) is pulling several of its publicly-held subsidiaries—including ThermoTrex (San Diego), ThermoLase (Carrollton, TX), and Oriel (Stamford, CT) parent company Thermo Vision (Franklin, MA)—to the private domain.

Previously, Thermo Electron's approach was to take commercially viable business units public in subsidiaries dubbed spinouts; the resultant public subsidiaries were either administered under other publicly held Thermo Electron subsidiaries such as Thermo Instrument Systems Inc. (Waltham, MA), or under the parent company itself. It seemed like a viable approach, but when some of the spinouts had difficulty penetrating their markets, management of the parent company began to reconsider. "We got ahead of ourselves," said Thermo Instrument president and CEO Earl Lewis in early January. "We got a little too enamoured with the spin out concept and created a few too many companies; some didn't do well.

Spin doctoring
A reorganization plan to reduce the number of spinouts from 23 to 15 was announced last summer (see Thermo Electron to Reorganize); the revised plan just revealed calls for four more publicly-traded subsidiaries to be folded back into Thermo Electron, reducing the number of spinouts to 11:

• ThermoLase, a public subsidiary of ThermoTrex, would become a wholly-owned subsidiary of Thermo Electron.
• ThermoTrex would also suffer a similar fate. Shareholders of both companies would receive shares of Thermo Electron common stock in exchange for their holdings.
• Thermo Vision, currently a public subsidiary of Thermo Instrument, would become a wholly-owned subsidiary of Thermo Instrument. Shareholders would receive cash in exchange for their shares of Thermo Vision common stock.
• Thermo Ecotek Corp. would become a wholly-owned subsidiary of Thermo Electron, the shareholders trading their Ecotek shares for Thermo Electron common stock.

Prior to the ThermoTrex merger with Thermo Electron, the company plans to sell approximately 3.7 million newly-issued shares of common stock to Thermo Electron; the purpose of this sale is to increase Thermo Electron ownership of ThermoTrex to more than 80%, which will allow the companies to file consolidated tax returns.

Thermo Electron expects to incur approximately $450 million of pretax restructuring and other charges primarily in the second quarter (ending July 3). The majority of these charges relate to decisions to sell businesses with aggregate annual sales of approximately $350 million. The company anticipates that the net effect of these transactions will be to generate approximately $200 million of cash. The mergers are slated for completion within a year.