UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 1)*
THE DEXTER CORPORATION
(Name of Issuer)
Common Stock, Par Value $1
(Title of Class of Securities)
252165-10-5
(CUSIP Number)
Donald S. Scherer
Howard, Rice, Nemerovski, Canady, Falk & Rabkin,
A Professional Corporation
Three Embarcadero Center, Suite 700
San Francisco, CA 94111
(415) 434-1600
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
July 15, 1996
(Date of Event which Requires
Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(b)(3) or (4), check the
following box [].
Check the following box if a fee is being paid with this statement []. (A
fee is not required only if the filing person: (1) has a previous
statement on file reporting beneficial ownership of more than five percent
of the class of securities described in Item 1; and (2) has filed no
amendment subsequent thereto reporting beneficial ownership of five percent
or less of such class.) (See Rule 13d-7.)
Note: Six copies of this statement, including all exhibits, should be
filed with the Commission. See Rule 13d-1(a) for other parties to whom
copies are to be sent.
*The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which
would alter the disclosures provided in a prior cover page.<PAGE>
CUSIP NO. 252165-10-5 SCHEDULE 13D Page 2 of 11
The information required in the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities
Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of
that section of the Act but shall be subject to all other provisions of the
Act (however, see the Notes).
Page 2 of 11
Exhibit Index Located on Page 5<PAGE>
CUSIP NO. 252165-10-5 SCHEDULE 13D Page 3 of 11
This Amendment No. 1 to Schedule 13D amends a Schedule 13D
previously filed on June 24, 1996 with respect to shares of
common stock of The Dexter Corporation, a Connecticut
corporation (the "Issuer"). This Amendment is filed on
behalf of Stinson Capital Partners L.P., a California limited
partnership; BK Capital Partners IV, L.P., a California
limited partnership; Insurance Company Supported
Organizations Pension Plan; The Carpenters Pension Trust for
Southern California; Richard C. Blum & Associates, L.P., a
California limited partnership; Richard C. Blum & Associates,
Inc., a California corporation ("RCBA Inc."); and Richard C.
Blum, the Chairman and a substantial shareholder of RCBA Inc.
(collectively, the "Reporting Persons"). The only change
from the initial Schedule 13D is the additional information
set forth in Items 4 and 7 below.
Item 4. Purpose of Transaction
In addition to the plans and proposals set forth in the
initial Schedule 13D, which are hereby restated by reference,
the letter attached as Exhibit B was communicated by the
Reporting Persons to the Issuer, as a part of a dialogue that
the Reporting Persons plan to continue with the Issuer and
other shareholders. The Reporting Persons otherwise have no
new plans and proposals regarding the Issuer that have not
previously been disclosed.
Item 7. Material to be Filed as Exhibits
Exhibit A Joint Filing Undertaking.
Exhibit B Letter dated July 15, 1996 from Richard C.
Blum & Associates, L.P. to K. Grahame Walker,
Chairman and CEO of The Dexter Corporation.<PAGE>
CUSIP NO. 252165-10-5 SCHEDULE 13D Page 4 of 11
Signatures
After reasonable inquiry and to the best of their knowledge
and belief, the undersigned certify that the information set
forth in this statement is true, complete and correct.
DATED: July 17, 1996
STINSON CAPITAL PARTNERS, L.P. RICHARD C. BLUM & ASSOCIATES,
BK CAPITAL PARTNERS IV, L.P. L.P.
By Richard C. Blum & By Richard C. Blum &
Associates, L.P., its Associates, Inc., its
General Partner General Partner
By Richard C. Blum &
Associates, Inc., its By /s/ Donald S. Scherer
General Partner _________________________
Donald S. Scherer,
Secretary
By /s/ Donald S. Scherer
______________________
Donald S. Scherer, RICHARD C. BLUM & ASSOCIATES,
Secretary INC.
THE CARPENTERS PENSION TRUST By /s/ Donald S. Scherer
FOR SOUTHERN CALIFORNIA ____________________________
Donald S. Scherer,
INSURANCE COMPANY SUPPORTED Secretary
ORGANIZATION PENSION PLAN
By Richard C. Blum & /s/ John H. Steinhart
Associates, L.P., its _______________________________
Investment Adviser RICHARD C. BLUM
By Richard C. Blum & By John H. Steinhart
Associates, Inc., its Attorney-in-Fact
General Partner
By /s/ Donald S. Scherer
______________________
Donald S. Scherer,
Secretary<PAGE>
CUSIP NO. 252165-10-5 SCHEDULE 13D Page 5 of 11
INDEX TO EXHIBITS
Sequentially
Item Description Numbered Page
Exhibit A Joint Filing Undertaking 6
Exhibit B Letter dated July 15, 1996 7
from Richard C. Blum &
Associates, L.P. to K. Grahame
Walker, Chairman and CEO of
The Dexter Corporation.<PAGE>
CUSIP NO. 252165-10-5 SCHEDULE 13D Page 6 of 11
EXHIBIT A
JOINT FILING UNDERTAKING
The undersigned, being duly authorized thereunto, hereby
execute this agreement as an exhibit to this Amendment to
Schedule 13D to evidence the agreement of the below-names
parties, in accordance with rules promulgated pursuant to the
Securities Exchange Act of 1934, to file this Amendment jointly
on behalf of each of such parties.
DATED: July 17, 1996
STINSON CAPITAL PARTNERS, L.P. RICHARD C. BLUM & ASSOCIATES,
BK CAPITAL PARTNERS IV, L.P. L.P.
By Richard C. Blum & By Richard C. Blum &
Associates, L.P., its Associates, Inc., its
General Partner General Partner
By Richard C. Blum &
Associates, Inc., its By /s/ Donald S. Scherer
General Partner Donald S. Scherer,
Secretary
By /s/ Donald S. Scherer
______________________
Donald S. Scherer, RICHARD C. BLUM & ASSOCIATES,
Secretary INC.
THE CARPENTERS PENSION TRUST By /s/ Donald S. Scherer
FOR SOUTHERN CALIFORNIA ____________________________
Donald S. Scherer,
INSURANCE COMPANY SUPPORTED Secretary
ORGANIZATION PENSION PLAN
By Richard C. Blum & /s/ John H. Steinhart
Associates, L.P., its _______________________________
Investment Adviser RICHARD C. BLUM
By Richard C. Blum & By John H. Steinhart
Associates, Inc., its Attorney-in-Fact
General Partner
By /s/ Donald S. Scherer
______________________
Donald S. Scherer,
Secretary<PAGE>
CUSIP NO. 252165-10-5 SCHEDULE 13D Page 7 of 11
EXHIBIT B
RICHARD C. BLUM & ASSOCIATES, L.P.
909 MONTGOMERY STREET, SUITE 400
SAN FRANCISCO, CA 94133-4625
-----
July 15, 1996
K. Grahame Walker
Chairman and CEO
The Dexter Corporation
One Elm Street
Windsor Locks, CT 06096
Dear Grahame:
We are writing to address your response to our suggestion of
monetizing Life Technologies and using the proceeds to
repurchase Dexter common stock in a shareholder value enhancing
transaction.
CONVERTIBLE DEBT ISSUES:
In your response you stated that monetizing Life Technologies
using convertible debt would:
1) raise Dexter's debt to total cap ratio to above 80%
(implying excessive leverage),
2) cause a default on $175 million of Dexter's senior debt,
and
3) likely cause Dexter to lose its investment grade rating.
We believe that none of these points are reasons to not pursue
our proposal:
1) Appropriate Leverage: First, if Dexter monetized Life
Technologies through a convertible debenture and used
the proceeds to repurchase common shares, Dexter's
aggregate cash servicing costs for debt and equity
would remain almost unchanged. The after tax interest
expense on the convertible debt would be almost
entirely offset by the dividends eliminated on the
repurchased common shares.
Second, we believe that a more relevant measure of
leverage for Dexter than debt to total cap is your
ability to service whatever debt you have, most easily
expressed in the ratio of EBITDA (of the Dexter Core
Businesses only) to interest expense (on all of
Dexter's obligations). Pursuing the transaction we
have suggested would yield an acceptable "operating
cash flow to interest coverage ratio" of three times.<PAGE>
CUSIP NO. 252165-10-5 SCHEDULE 13D Page 8 of 11
Third, Dexter's post transaction debt level has to be
evaluated in the context of the likelihood of the
convertible debt being extinguished with Life
Technologies shares within three to five years. We
assume you must be very confident that the expected
increasing value of Life Technologies would ensure a
forced conversion in the future -- otherwise why cling
to this asset today?
2) Default on Senior Debt: This is a renegotiation task,
not a danger to the company. We strongly disagree with
your conclusion not to pursue a shareholder value
enhancing transaction because you do not want to modify
or replace an existing tranche of debt. If your
existing lenders are not willing to modify their
agreements with you, we would be happy to introduce you
to one or more firms on Wall Street who could help you
solve this problem.
3) Investment Grade Rating: We agree that monetizing Life
Technologies using convertible debt could have negative
implications for Dexter's credit rating. But this has
to be evaluated in the context of the substantial
benefits to Dexter's shareholders vs. the minimal costs
of accepting a lower credit rating for a short period
of time. Dexter is generating excess cash flow today,
has just completed a period of substantial investment
in its Core Businesses, and is therefore unlikely to
have any meaningful borrowing needs for the foreseeable
future. We have previously quantified that the Dexter
shareholders would receive a 15% increase in net income
per share and a 50% increase in available cash flow per
share.
Notwithstanding the above points, Dexter can achieve all of the
benefits of a transaction such as we have proposed, and avoid
any deterioration in the quality of its credit, by monetizing
Life Technologies with a DECS (Dividend Enhanced Convertible
Security). As we have previously discussed, a DECS is very
similar to a traditional convertible debenture except that the
DECS is mandatorily convertible into its underlying security
after a fixed period of time and is therefore considered equity
by the rating agencies.
DECS ACCOUNTING ISSUES:
Although the SEC recently issued a proposal that would
potentially make the GAAP accounting treatment of a DECS
optically unfavorable, it is just a proposal. It may never
pass. Even if it did, the latest view on Wall Street is that it
would not be applicable to the transaction we have suggested.
Finally, even if the proposal was applied to Dexter we think it
would not have any substantive impact on investors' view of
Dexter.
Using the worst possible interpretation, the SEC proposal would
require companies issuing DECS to recognize increases and<PAGE>
CUSIP NO. 252165-10-5 SCHEDULE 13D Page 9 of 11
decreases in the obligation represented by a DECS instrument
through their income statement as the value of the underlying
security that the DECS converts into increase and decreases.
Notably the SEC proposal would require this income statement
charge for a change in the liability of the DECS without
providing recognition for the corresponding and offsetting
increase or decrease in the value of the underlying security
into which the DECS converts. Since a DECS is mandatorily
convertible into its underlying security, the proposed
accounting treatment would not in any way reflect economic
reality, and if adopted experience dictates that investors will
look past it.1
To summarize, an unfavorable optical accounting treatment is not
a valid reason not to pursue a transaction that substantially
enhances shareholder value.
ADDITIONAL ISSUES:
In your press release you noted that the value of Life
Technologies shares have increased 25% since we first began
discussion on this topic. As a result, we believe (as you
recently confirmed on a Buckingham Research conference call)
that Life Technologies today is much closer to its full
valuation as a stand alone company. The increase in price
therefore argues for monetizing Life Technologies at these
levels, rather than retaining it.
As for your suggestion that we need to get the facts straight,
we do not believe that we have made any erroneous statements or
conclusions. We and you agree that Dexter has spent $152
million on R&D in its Core Businesses (excluding Life
Technologies) over the last five years, and $175 million on
capital expenditures in the Core Businesses over the same
period. The sum of these two numbers is $327 million, which
when divided by Dexter's 24 million shares outstanding equates
to a cumulative five year investment in Dexter's Core Businesses
of approximately $13.50 per outstanding share of Dexter stock.
1 There are numerous examples where, in addition to
reporting their GAAP results, companies report and are
valued on some form of "cash earnings" that better
reflects economic reality. Examples that we can easily
cite are two of the largest US airlines and one of the
nations largest textile companies. Both United
Airlines and Northwest Airlines, who are subject to
large non-cash stock related charges, each report and
are valued on "fully distributed earnings," which is
not in accordance with GAAP but much better reflects
economic reality. The second example, West Point
Stevens, emerged from a chapter 11 reorganization with
a large intangible asset amortized over a couple of
years. Investors added the amortization back to its
GAAP earnings, valuing West Point Stevens' aggregate
equity at $700 million despite GAAP losses of $3.94 per
share in 1995.<PAGE>
CUSIP NO. 252165-10-5 SCHEDULE 13D Page 10 of 11
We think the $13.50 of investment per Dexter share is relevant
since Dexter's Core Businesses are effectively valued by the
market at $18.00 per Dexter share today (Dexter's Life
Technologies holdings are worth $260 million, or $11.00 per
Dexter share, implying a $18.00 per share value for the Dexter
Core Businesses). Unless Dexter made very low return
investments in its Core Businesses, shrinking the share base at
the current valuation should represent an outstanding
opportunity to enhance shareholder value.
On the topic of our specific expectations of Dexter's future
performance, while Dexter may not make any aggregate projections
about its future performance, you have certainly provided people
with your expectations of sales growth and operating margin
improvements. We have heard these expectations in two well
attended public forums. Our estimates of Dexter's future
earning power are based on a model with assumptions that are
less optimistic than your publicly stated expectations of sales
growth and margin improvement for the next several years. If
there have been any changes in your sales and operating profit
margin expectations, we (and presumably other Dexter
shareholders), would like to know.
Finally, we applaud your recently completed 1 million common
share repurchase, and authorization for a second million shares.
Our suggestion to monetize Life Technologies and use the
proceeds to purchase more shares is an extension of the logic
that you are using to retire almost 10% of your common stock.
While a full monetization of Life Technologies is our
recommended course of action, a partial monetization coupled
with a share repurchase is also value creating. A partial
monetization would have the additional positive effect, we
believe, of enhancing the value of your residual holdings in
Life Technologies due to better Wall Street coverage of the
company.<PAGE>
CUSIP NO. 252165-10-5 SCHEDULE 13D Page 11 of 11
OBLIGATION TO ACT IN THE BEST INTERESTS OF SHAREHOLDER?
Your press release ended with a commitment to act in the best
interest of shareholders. Respectfully, we think that talking
about a commitment to shareholder value and delivering
shareholder value are two different things. In as much as
Dexter shares are selling today for the same price as they were
in 1986 (even after the recent 25% increase), we believe the
Dexter shareholders deserve more than excuses defending
maintenance of the status quo.
Our suggestion of monetizing Life Technologies and using the
proceeds to repurchase shares of Dexter common stock will:
- provide a permanent 15% increase in earnings per share,
- provide a 50% increase in available cash flow per share,
- modify Dexter's capital structure to provide its
shareholders with the maximum benefit possible from an
expected increase in the operating performance in the
Dexter Core Businesses, and
- be a public statement by the management of Dexter that you
are prepared to be judged and paid based on the
performance of the businesses over which you exercise
meaningful managerial control.
We hope you will seriously reflect on your commitment to act in
the best interest of shareholders, and reconsider this
opportunity to materially enhance shareholder value.
Best Regards,
/s/ Jeff Ubben /s/ Sandy Dean
Jeff Ubben Sandy Dean
Managing Director Managing Director
JWUSLD:s<PAGE>
