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Echlin Inc.
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SPX Corporation
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March 6, 1998
To the Board of Directors of Echlin Inc.:
I am writing to you in your capacity as fiduciaries for Echlin's
shareholders. Echlin appears to be pursuing extreme defensive tactics that
violate the principles of good corporate governance and which could destroy
substantial value for Echlin shareholders - and the shareholders of every
other company incorporated in Connecticut.
Indeed, since the day the Wall Street Journal first reported on an
Echlin-instigated attempt to change Connecticut law to curtail shareholder
voting rights, more than $200 million of value has been destroyed for
Echlin shareholders. No other state has ever enacted such a draconian "dead
hand" provision into law, promising Connecticut lasting national nororiety
for abusive corporate governance.
Do you realize what this unprecedented bill would do? Even if 100% of
Echlin shareholders voted to remove directors, they could not be removed
for a year. After a year, even if a new board were elected by 100% of the
shareholders, the new Board could not approve a business combination - even
one all shareholders wanted. Only the old Board - the directors unanimously
voted out by the shareholders - would be able to approve it for five years.
I can't believe you or Connecticut lawmakers intended such an abuse of
corporate democracy.
This is especially misguided because the vast majority of Echlin's
Connecticut jobs are not at risk. As you know, less than 3% of Echlin's
30,000 employees are in Connecticut. Most of these Connecticut jobs are in
the Branford manufacturing facility which SPX has publicly committed to
continue operating. We have also committed to continue Echlin's community
involvement and charitable contributions at least at current levels. We
have pledged to maintain a significant Connecticut presence, explore
expansion opportunities in the State, and evaluate alternatives for the
Branford headquarters. Accordingly, the Connecticut jobs in question are
approximately 115 corporate positions at headquarters. Thus, it should be
quite clear that the issue of Connecticut jobs is a red herring.
Let me also address some misconceptions contained in Echlin's preliminary
revocation solicitation materials.
Echlin's materials question whether SPX has made a serious, bona fide
offer. It is simply untrue that, "All SPX has done is to float a proposal."
Let me assure you that SPX is fully committed to acquiring Echlin, and, as
we stated in our own SEC filings, we will start our exchange offer as soon
as permitted under the federal securities laws. Let me remind you that, on
February 17, 1998, SPX delivered a proposed merger agreement to you which
SPX was, and still is, prepared to enter into with Echlin. SPX has invested
more than $43 million in Echlin shares - giving us a larger ownership
position in Echlin than your entire Board and management combined - and we
have incurred substantial expenses in connection with our proposal.
In addition, SPX has today begun to solicit written demands from Echlin
shareholders to call a special meeting, after having completed SEC review
of its solicitation materials.
Echlin's materials question the business rationale for the combination of
Echlin and SPX, they express doubt about SPX's ability to realize the
anticipated savings, and they assert that SPX is attempting to purchase
Echlin at a price which does not reflect its true worth. Our response has
not changed since we communicated with Echlin last year: meet with us; hear
us out on the rationale for the transaction and its benefits to all
constituencies; show us that there is more value inherent in Echlin.
We recognize that the conventional reaction to an unsolicited merger
proposal is: knee-jerk rejection, a search for a white knight, criticism of
the unsolicited bidder and its motives, and attempts to get self-interested
legislation enacted. You should recognize that the transaction that we have
proposed is not an 80's-style attempt to make a quick buck. On the
contrary, we are not raiders; we are serious business people who run a
business similar to Echlin's and who believe that the combination of the
two companies is compelling - and would benefit both sets of shareholders
as well as all other constituencies involved. Any concerns you may have
regarding the impact of the transaction on your shareholders, creditors,
employees, customers, suppliers and communities can be addressed. We
believe SPX is the ideal merger partner for Echlin.
In keeping with your fiduciary duty, we urge you to negotiate with us a
combination that is clearly in Echlin's best interests. Let me repeat that
our strong preference is to complete this transaction on a negotiated
basis. While we believe we have made a full and fair offer based on
publicly available information, we are prepared to recognize any additional
value Echlin can substantiate in the context of a negotiated transaction.
We are also prepared to consider issues relating to other constituencies
you may identify to us. We are ready to meet immediately with you and your
advisors to quickly complete this compelling transaction.
If you negotiate with us, we hope to persuade you that we should be
Echlin's white knight.
Very truly yours,
SPX CORPORATION
/s/ John B. Blystone
John B. Blystone
Chairman, President & CEO
