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May 16, 1985

NEW YORK (AP) _ Allied Corp. said today it plans to begin its cash offer for 20 percent of the stock in Signal Cos. on Friday, formally launching a friendly combination that will create the nation’s 16th largest industrial company.

The deal, valued at between $4.5 billion and $4.9 billion, will form a leading competitor in the aerospace, electronics, automotive and chemicals fields.

Edward Hennessy Jr., the chairman of Allied, who will hold the same title in the new company, told reporters today that beginning Friday morning, Allied will start its offer to buy 22 million shares of Signal stock for $45 a share in cash.

The merger, approved Wednesday by the directors of both companies, still requires shareholder approval at special meetings this summer and antitrust clearance from the federal government. Hennessy said lawyers for both companies do not see any antitrust problem ″that isn’t solvable,″ but did not elaborate.

If all of Signal’s stock is valued at $45 a share, the deal would be worth $4.9 billion. But Sidney J. Heller, first vice president of Shearson Lehman Brothers Inc., estimated the deal to be worth about $4.5 billion.

The stock of both companies rose in heavy, early trading today after an initial decline Wednesday following the announcement of the deal.

Allied, which fell $3.871/2 on Wednesday, was up $1 at $41 a share in the early going today. Signal, down $1.25 on Wednesday as the most active stock on the New York Stock Exchange, was up $1.371/2 at $40.25 a share in early trading today.

After the purchase of 20 percent of Signal’s stock, each remaining share would be traded in a tax-free transaction for a share of the new company, to be called Allied Signal. Each Allied share also would be swapped for a share in the new company.

The idea to merge Allied and Signal came about when the two companies first discussed a joint bid for Hughes Aircraft Co.

But Hennessy said after the merger agreement that there would be no bid for Hughes, a leading defense contractor.

″I think it would be foolhardy to take on two major acquisitions at the same time,″ he said.

The new company also will be left with huge cash holdings, which Hennessy estimated would be $2.3 billion. But he said there are no plans now for further expansions.

″I think we have enough on our plate right now to put these two companies together and make them operate successfully,″ he said at a news conference today in New York. ″Meanwhile, the cash is growing. That’s a very comfortable feeling.″

Also at the news conference were Signal’s chairman, Forrest Shumway, and its president, Michael Dingman. Shumway is to become vice chairman and chairman of the board’s executive committee, and Dingman is to become president of the combined company.

Both Hennessy and Shumway said that during their merger talks, neither company was approached by other parties about a possible combination.

Based on 1984 results, the combined company would have revenue of $16.7 billion, earnings of $773 million and assets of about $15 billion, Hennessy said.

He also said no layoffs or transfers are planned as a result of the combination.

″It’s basically a union of equals,″ said Larry Lytton of Wall Street’s Drexel Burnham Lambert Inc. ″Managements will be fully assimilated, like the Signal-Wheelabrator-Frye merger.″

That deal was completed in 1983 without complications. By contract, when Allied purchased Bendix in early 1983, a major shakeup followed at Bendix.

As for the prospect of moving ahead of United Technologies Corp. to 16th place on the Fortune 500 ranking of industrial companies on the basis of sales, Hennessy said, ″I don’t care where we stand on the Fortune 500 list. I want to be associated with a company that has good products, is growing and makes a decent return for its shareholders. And I think by putting these two companies together we’ve done just that.″

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