Tuesday Business D SECTION
JULY 13, 1999 www.startribune.com/business
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Star Tribune
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Top TSI investor sides with company
in takeover battle
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Neal St. Anthony
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On business
A money manager who is the single-largest shareholder in TSI Inc. said
Monday that he backs management in resisting the sweetened $14-per-share cash
offer from Minneapolis businessman John Fauth which values the Shoreview-based
maker of sensors and instruments at about $161 million.
George Mairs, the senior stock picker at St. Paul-based Mairs & Power,
which owns 10.6 percent of TSI stock, said TSI management is taking the
necessary steps to better focus research spending and reward shareholders.
"Here's a company that has grown their earnings 19 percent annually since
they've been publicly held," said Mairs, who has held TSI in his Mairs & Power
Growth Fund for more than a decade. "They have a fine long-term record but the
progress has not always been smooth.
"The company is spending about 13 percent of revenues on R&D, which is
twice what 3M Co. does. [Chief Executive] Jim Doubles and his team have said
they would be more selective about how they spend on R&D. And the market is not
valuing small-caps fairly right now. We've been around long enough to know the
market eventually will value them fairly. We like the company."
TSI's board said Monday that it's reviewing Fauth's latest offer. The
company has asked stockholders to vote their proxies with the board in advance
of the pivotal July 22 shareholders meeting.
Mair's comments add a new twist to the battle between Doubles, 58, who
succeeded the founder and longtime chairman of TSI two years ago, and Fauth, 54,
a former Citicorp lender who has been chief executive of privately held
Churchill Companies since he founded it in 1982.
TSI's stock closed at $13.25 per share Monday on brisk volume. The stock of
the firm had risen from a split-adjusted $4 in early 1995 to a peak of $11.50 in
1997. It slipped to around $8 per share last year. Fauth initiated the proxy
fight after the TSI board rejected his $12.50-per-share offer in June, which has
driven the price lately.
[PHOTO]
George Mairs: "We've been around long enough to know the market eventually will
value [TSI] fairly.
Fauth argues that because of TSI's historically low trading volume and
scant analyst coverage, it's too small to achieve higher valuations as a public
company.
Mairs and TSI agents have speculated that Fauth would gut the research
budget to pay acquisition debt he would incur through his "JFJ Acquisition"
vehicle, JFJ filed a hostile tender offer late Monday.
"There's a hell of a lot of conditions attached to this thing," said Dick
Flint, a longtime attorney for TSI.
Shareholders are being asked by Fauth to put him and two associates on the
board, displacing three of eight current directors and dropping Minnesota
anti-takeover provisions and other bylaws that now preclude Fauth from getting
control of the firm without approval of the directors.
Fauth, who has purchased about 9 percent of TSI, said in an interview that
he is a business builder who would retain Doubles - although Doubles no longer
would be chairman of the board.
"We think highly of him," Fauth said. "My history is to build businesses
around core competencies. I would accelerate their competencies in terms of the
number of products and the breadth in which they serve the markets. To say our
intent is to slash budgets is incorrect. We are not a slash-and-burn
organization.
"We think this company has been very well-run and their financial
performance has been good. However, there's been very little creation of
shareholder value."
TSI, which earned $7.8 million, or 68 cents per share, on revenue of $85.3
million in fiscal 1999, makes precision measurement instruments. It employs
about 700 people.
Fauth, also a director of Kinard Investments, heads Churchill Companies,
which includes 29 companies that Fauth has acquired or started since 1986, and
Churchill Capital, a money management firm of $700 million-plus.
The Churchill Companies include Sterner Lighting, Worthington Aviation and
Hoffer's Inc., a Wisconsin-based glass company.
"We're doing more than $100 million [in business at Hoffer's]," Fauth said
as an example of his business-building prowess. "We've tripled their locations,
grown in revenues and profits, and we employ three times as many people as in
1986," when Churchill acquired the company.
Clint Morrison, an analyst at John G. Kinnard & Co., called TSI "a good
company" and a "stellar performer over the long haul. It's had a tough last
couple of years and been in a market not friendly to small companies."
"The shareholders say, 'What have you done for me lately?'" Morrison said.
"The company has had some investments that have not paid off as quickly as they
thought."
The TSI board paid Doubles, a 14-year veteran, a relatively modest $248,921
last year, less than top dogs at several smaller, less profitable firms,
according to the Star Tribune's 1999 survey of executive compensation.
Directors and officers of TSI own 1.44 million shares, or 13 percent of the
company's stock.
Doubles owns 135,849 shares.
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Reprinted with permission of the Star-Tribune, Minneapolis-St. Paul.
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