Microdot Inc.
Address:
P.O. Box 3001
Fullerton, California 92634-3001
U.S.A.
Telephone: (714) 871-1550
Fax: (714) 680-0175
Statistics:
Private Company
Incorporated: October 30, 1950 as the Felts Corporation
Employees: 4,500
Sales: $500 million
SICs: 3452 Bolts, Nuts, Rivets & Washers; 3496 Miscellaneous Fabricated Wire Products
Company History:
Microdot traces its history to a small fastener manufacturer based in southern California called the Felts Corporation. Established on October 30, 1950, the Felts company turned out a narrow line of clips, nuts and bolts, and tiny cable connectors. These connectors, used in miniaturized hearing aids, are what set the company apart from other manufacturers. At the time, hearing aid cords were unable to withstand frequent bending and often broke off. Felts, however, had developed a durable flexible cord that proved so resistant to breakage that it came with a three-year guarantee. This small market provided the company with an entree into the electronics industry. And, as a trend emerged to miniaturize electronic devices, the demand for ever smaller components began to rise.
Felts took on larger supply contracts in 1955, providing fastening devices to auto manufacturers and electronic components to the emerging aerospace industry. On November 28 of that year Felts became Microdot Incorporated, adopting its new name from one of the company's popular product lines.
On January 6, 1956, Microdot made use of its growing cash flow by acquiring the business of the Nupro Corporation, another small components manufacturer. In 1960, as the business continued to grow, Microdot absorbed several other companies, including San Diego-based Nacimo Products, Micro-Test Inc. in Santa Clara, and another manufacturer called Lerco Electronics. These acquisitions strengthened Microdot's position in aerospace supply markets, which consisted mainly of special computer components and advanced instrumentation.
While it was one of the largest manufacturers of its kind, Microdot remained highly specialized. Further diversification required additional acquisitions, for which the company had insufficient capital. Therefore, in 1960, Microdot went public, later gaining a listing on the American Stock Exchange. In January 1961, now capitalized for further external expansion, Microdot acquired the Spectralab Instruments Company, a leading manufacturer of telemetry instruments based in Monrovia, California. A month later the company took over Owens Laboratories' line of strain gage power supplies and control equipment. Microdot's move into instrumentation devices cleared the way for a bolder presence in that market. In March of 1962, the company purchased Varec, Inc. for $1.9 million. Based in nearby Compton, California, Varec was a leading designer and manufacturer of liquid control gauges, tank-venting equipment and other liquid storage products.
This new emphasis by Microdot on industrial control systems turned out to be highly fortunate. Only months later, President Kennedy delivered his famous speech on space exploration in which he challenged the nation to put a man on the moon and return him safely to Earth, and to accomplish this historic task before the end of the decade. The nation's aerospace industry was charged with developing the systems that would fulfill Kennedy's dream. Grumman built lunar modules, McDonnell Aircraft and North American built the command ships, Martin made the space suits, and companies such as Boeing, Lockheed, and Northrop built launch rockets and other systems.
The race to the moon created plenty of room for subcontractors such as Microdot. With the heavy reliance on liquid fuel systems, as well as water and other liquid controls, Microdot found itself performing a crucial role in the space program. While it took several years for space-related projects to dominate the controls segment of Microdot's business, this demand provided the necessary drive for the company to continue expanding.
In March of 1965, Microdot purchased a 51 percent interest in the White Lighting Company. It increased this share to 65 percent two months later, paying slightly more than $400,000. Microdot was able to provide the lightweight power sources that White required for its line of commercial fluorescent lighting fixtures. That same month Microdot took over Lincoln Dynamics, Inc. This company, whose name was subsequently changed to Microdot Magnetics, dealt mainly with magnet-operated control devices.
The architect of Microdot's rapid growth was a lawyer named Robert S. Dickerman. Originally an advisor to Microdot, Dickerman was drawn deeply into the company's operations. In 1958 he was persuaded to abandon his law practice altogether and join Microdot as president and full-time director. At the time of Microdot's public share offering in 1960, Dickerman was chair of the corporation. Recognizing an opportunity to capitalize on the growth of the instrumentation industry, Dickerman decided to achieve growth rapidly through a series of acquisitions.
Fortunately for the companies Microdot took over, much of the research, manufacturing, and administrative structures of these companies was left untouched. Dickerman believed that synergy alone would provide Microdot with the greatest benefit, and that efficiencies through the elimination of job redundancies could be handled in time.
In fact, Microdot marked sales of only $2 million in 1960, with average sales per employee of $12,000. By 1966, sales had climbed to $15.2 billion and sales per employee was in excess of $21,000. In wider terms, Microdot had grown at a rate of 30 percent each year since it went public.
Dickerman's acquisition strategy also succeeded in drastically changing the company's customer profile. Once dependent on military contracts for more than 90 percent of its sales, commercial projects had grown to half of Microdot's business by 1967. This type of transformation, at a time of rapidly escalating military spending, proved nearly impossible for other companies that were caught in a similar situation.
The primary reason for Microdot's growth in industrial and commercial markets was its acquisition of White Lighting. Consolidated into Microdot from the day it was taken over, the White operations initially stumbled. After its first year, when it contributed more than $1 million to Microdot's total sales, White began to lose money. An effort to immediately cut costs led to the elimination of several unprofitable product lines and the consolidation of several managerial and administrative functions. In all, annual expenditures were reduced by $100,000 and a degree of profitability was restored.
With the Gemini space program in full swing, preparations for Apollo under way, and a booming business with defense contractors, Microdot saw demand for a range of new products. The company introduced seven new product lines, including telemetry calibration devices, pressure transducers, turbine flow meters, and solid state component connectors. These added more than $800,000 to Microdot's annual sales, and helped to make up for the sputtering performance of the commercial sector.
Through its spate of acquisitions, Microdot collected a network of five small factories, concentrated mostly in and around Los Angeles. However, one of these facilities, part of White Lighting, was located in Hialeah, Florida. In addition to Varec and Microdot Mechanics, which the company operated as separate subsidiaries, Microdot operated joint venture companies in Britain and Belgium that manufactured industrial control devices.
Strong sales of about $140 million set the stage for several new acquisitions during 1967. Microdot purchased the Dynisco instrument division of the Abex Corporation in April. This company manufactured heat and pressure transducers, further strengthening Microdot's position in this market. In June, the company acquired the Meyers Company, a manufacturer of metal eyeglass frame and other optical components based in Glendale, California.
By far, however, Microdot's most important acquisition occurred in October, when it absorbed the operations of the Kaynar Manufacturing Company, located in Fullerton, California. Kaynar, a privately owned company founded by Frank A. Klaus, made a line of lightweight self-locking metal fasteners for aerospace and other industrial customers. Because its sales were almost as great as Microdot's, the acquisition represented a virtual doubling of the company's size overnight.
The external growth program continued unabated through 1968. During March and April, Microdot added the businesses of Aircraft Threaded Products and Adams Supply, both suppliers of fastening devices, primarily for aerospace industries. In November, the company acquired Jutco, Inc., a Los Angeles-based manufacturer of molded cables and aircraft support harnesses. During 1969, Microdot took over Drawn Metal Products, and later merged its operations with the Vare Corporation, a steel products company based in Greenwich, Connecticut.
This expansion became unwieldy for Microdot leadership. Under Bob Dickerman, white collar employment ballooned into a classic managerial morass. Progressively dragged down by an increasingly stifling bureaucracy, Microdot's directors turned to the head of Vare, Rudolph Eberstadt, Jr. Eberstadt built Vare from an anemic steel products company--Republic Industrial, which he inherited from his father in 1961--into a major manufacturer of steel moulds. Although an engineer by training, Eberstadt proved highly successful in the business of turning around his steel finishing company. By 1967 the company was sound enough to acquire Valley Mould & Iron, an ingot mould maker. Their subsequent merger yielded Vare, a conglomeration of the names Valley and Republic. While many steel companies were converting to continuous casting, a significant but declining market remained for ingot moulds. As one of the few companies remaining in the business, Vare earned a substantial income from older steel mills that still relied on the obsolete product.
Aware of the fate that would befall his company if he did not diversify immediately, Eberstadt turned to Microdot. By combining operations, he could continue to draw down his steel mould business while channeling profits from the dying trade into Microdot's acquisition funds. Unfortunately, in combining Microdot and Vare, the company's board preserved Dickerman's position and responsibilities on the West Coast, while entrusting Eberstadt with a separate position of authority in Greenwich. This impossible state of affairs ended when the board persuaded Dickerman to retire.
Finally able to place the company under a single vision, Eberstadt began to selectively disassemble those parts of the company that were no longer strategic core businesses of Microdot. In 1973, Microdot sold off Wiley Manufacturing, a crane-making operation, and Clyde Iron Works, a fabricated steel business, and began to wind down several other operations. Not among these, however, was the still-profitable ingot mould business. In fact, the company opened a second mould plant in Chicago. This, combined with two other plants at Cleveland and Hubbard, Ohio, afforded Microdot a leading position in the market, supplying 40 percent of all ingot moulds sold in the United States.
While continuing to draw a profit from these operations, Microdot began to channel further investment into electronic systems and fasteners, including a new line of products intended to meet federal standards for auto safety. Microdot was a leading manufacturer of devices that sounded an alarm in new car models when drivers and passengers failed to fasten their seat belts. Ironically, the company's position in this growing market was due to Bob Dickerman's idea to acquire Malco Manufacturing and the Kent Corporation, both electronic terminal connector manufacturers, in 1971. A similar acquisition attempted under Eberstadt for a similar component manufacturer called Elco Corporation, hit a snag in March, 1973, when a federal judge blocked Microdot from buying more than 50 percent of the company, ostensibly on antitrust grounds.
While Microdot continued to adjust its operations to take advantage of new and emerging markets, Eberstadt succeeded in placing the company on firmer financial ground. Microdot's accounting practices, which he described as "incomprehensible" upon joining the company, had given way to simpler schedules that allowed the chief executive to make more enlightened decisions. However, these procedures also clarified Microdot's position in the industry to observers who were on the hunt for a good strong company to take over. On December 3, 1975, Eberstadt was blindsided by a surprise bid for Microdot from the General Cable Corporation. The bid offered $17 for each share of Microdot which, at the time, was trading at under $12. Apparently deeply offended that his life's work could be merely purchased out from under him, Eberstadt launched a vigorous attack on General Cable and the corporate culture of hostile acquisition. He ran a series of newspaper ads calling the practice unethical, immoral, and harmful to business, and implored other corporate leaders to voice their outrage to those who profited from it: commercial and investment banks.
Surprisingly, Eberstadt got a response. By telephoning other executives, he persuaded many to support his campaign. He charged that General Cable's chair R. P. Jensen launched the bid only to protect his annual bonus, that Morgan Stanley was lobbying for a buyout, and that brokers were hungry for commissions. All these allegations were denied, and the $17 per share offer stood. Microdot (and, later, General Cable) amended its rules to require greater voting majorities to fend off hostile takeovers. On December 8, Microdot's board advised shareholders to reject the offer.
As General Cable began to build momentum for its offer, Eberstadt made a highly unusual--and desperate--move. He proposed that Microdot liquidate; literally, to sell off all its businesses and close. This, he maintained, would provide shareholders with more than $17 per share. Eberstadt then filed suit against Irving Trust, the lead bank in General Cable's bid, charging that the company breached nondisclosure rules and provided General Cable with information while working for Microdot.
Faced with certain defeat on his proposal to dissolve Microdot, as well as his lawsuits, and unable to prevent General Cable from going ahead with its tender offer, Eberstadt began searching for a friendly suitor. He asked another investment banker, Goldman Sachs, to invite bids from other companies. If nothing else, Eberstadt was determined to deny his company to General Cable.
Goldman Sachs quickly turned up Ben Heineman, president of Chicago-based Northwest Industries, the parent company of interests spun off from the Chicago & Northwestern Railroad Company. Heineman's company offered to purchase Microdot for $21 per share, a price General Cable refused to match. Thus, in April of 1976, Microdot shareholders tendered 83 percent of their shares to Northwest, effectively foiling General Cable's bid. Eberstadt later told the Wall Street Journal, "If we had to be acquired, Northwest was the best people to go with." But it was far from a victory for Rudy Eberstadt who, after 16 years as the chair of his own company, refused to be a mere division manager. Shortly after Northwest took control of Microdot, Eberstadt resigned from the company and was succeeded by Larry Blackmon, Microdot's head of operations.
Events were no easier for those who remained with Microdot. While Heineman insisted that Microdot be run autonomously, managers were no longer free to make decisions on their own authority. Instead, an entire layer of management was added to Microdot merely for the purpose of reporting monthly operating statistics to Northwest.
A few months later, when Northwest completed its takeover of Microdot, it had paid a total of $81.5 million for the company. However, Heineman's company began to suffer greatly under the stress of its widely varied business, which included Acme Boot, Lone Star Steel, and General Battery, as well as BVD underwear, a range of food products, and a chemical manufacturer. While business remained strong at Microdot, Northwest was forced to divest several of its businesses.
In 1984, after selling off Northwest's Buckingham Foods business to Beatrice, serious losses at Lone Star Steel prompted Heineman to sell Microdot. Rather than returning Microdot to public ownership or selling it to another company, Northwest elected to turn the company over to a group of senior managers at the division, led by Richard P. Streubel. Streubel's group took control of Microdot for $121 million. While this represented a $40 million profit for Northwest, it was still reportedly $20 million less than the company's book value. But under the circumstances, Heineman's financially distressed company was in no position to hold an auction. Eventually, Northwest itself became the prime takeover target of a number of leveraged buyout artists and later was acquired by Chicago financier Bill Farley.
Microdot, however, virtually disappeared from public view. As a private company it was no longer obliged to issue an annual report or publish its financial statistics. In addition, the company halted news releases to the media and avoided press coverage.
Extreme changes were taking place within Microdot. The company sold off its automobile-related companies and concentrated instead on aerospace markets. As a result of the Reagan Administration's armament and Strategic Defense Initiative programs, this segment was growing faster than any other industrial market. In the process of this reorientation of the business, Microdot reduced the number of its manufacturing facilities from 20 to only six, including one in Britain. Microdot thus emerged with only two operating divisions, an Interconnect Systems group and Aerospace Fastening Systems group.
Despite the retrenchment of Reagan's defense programs during the Bush and Clinton administrations, in the early 1990s Microdot remained concentrated in promising aerospace markets, where civilian and scientific, as well as military, resources are likely to be directed in future years, regardless of corporate and government budget restraints.
Principal Subsidiaries: Microdot Aerospace Ltd. (UK); Interconnect Systems Division; Aerospace Fastening Systems Group.
Further Reading:
Campanella, Frank, "Streamlining to Pay Off in Peak Net at Microdot," Barron's, November 26, 1973, pp. 26-28.
Johnson, Robert, "Northwest Industries Starts to Restructure by Selling Microdot Unit for $121 Million," Wall Street Journal, January 4, 1984, p. 8.
Koshetz, Herbert, "Microdot, to Combat Bid, Plans a Liquidation Vote," New York Times, January 6, 1976, p. 37.
Margolies, Susan, "Takeover Trauma: Microdot Officials Find Jobs Dull after Firm Is Sold to Big Company," Wall Street Journal, pp. 1-30.
Microdot Inc. Profile, Fullerton, CA: Microdot Inc.
"Microdot Inc. to Sue Irving Trust over Role in Proposed Take-Over," Wall Street Journal, January 21, 1976, p. 10.
"Microdot's Directors Urge Rejection of Bid by General Cable Corp.," Wall Street Journal, December 8, 1975, p. 11.
"Northwest Industries Wins 83% of Common in Microdot Tender Bid," Wall Street Journal, March 5, 1976, p. 21.
Rattner, Steven, "Microdot Sounds Alarm on Take-Over Attempts," New York Times, December 22, 1975, pp. 47-48.
Rolland, Louis J., "Microdot Methodology," Financial World, September 6, 1967, pp. 20-21.
"What's in a Name?," Forbes, June 15, 1975, p. 60.
"Wider Markets a Boon to Microdot, Help Spark Rapid Gain in Earnings," Barron's, November 15, 1965, p. 25.
Source: International Directory of Company Histories, Vol. 8. St. James Press, 1994.
