Sale of Del Global medical group falls apart despite 11th hour negotiations

April 4, 2005

Executives at Del Global thought they had a deal to sell their medical systems group to a foreign financial group. But they were wrong. The deal has come unraveled, and Del might get stuck with more than a sense of disappointment.

Executives at Del Global thought they had a deal to sell their medical systems group to a foreign financial group. But they were wrong. The deal has come unraveled, and Del might get stuck with more than a sense of disappointment.

The letter of intent signed by both parties calls for a $1 million payment to the prospective buyer if Del failed to enter into a purchase agreement by March 4. The buyer, whom Del executives refuse to name, citing a confidentiality agreement, wants the money. Del president and CEO Walt Schneider says the company plans to vigorously defend against any attempt to collect.

The roots of this disagreement go back to last year, after Del's board of directors concluded there was little synergy between the medical group, which manufactures x-ray systems for the medical and dental markets, and its two power conversion companies. They shopped the medical group around, finally settling on a foreign group of investors, which signed in October a letter of intent with Del to buy the group.

A definitive agreement was initially targeted for signing by March 4. The signing was temporarily put on hold, however, until the final language of the agreement could be worked out, according to Schneider. The result was some "good faith (negotiation) back and forth."

Ultimately, the deadline was extended to March 18. But even with that extension, the two sides failed to reach agreement. Del continued negotiating in good faith, said Schneider, who contends that the buyer then backed out, issuing a letter demanding payment of the $1 million fee for not completing the deal.

Schneider refused to identify for DI SCAN any sticking points that may have caused the deal to fail. He did say, however, that negotiations were complex and that several issues required further discussion. Agreements were not reached on those points, and the deal collapsed, he said.

The buyer has not taken legal action to recover the $1 million, said Schneider, who added that he hopes cooler heads will prevail.

While the failure to consummate the deal was disappointing, the company's medical sales appear headed in the right direction. Digital and enhanced conventional x-ray products launched over the last two years appear to have had a positive effect.

Net sales for the medical group during the six-month period ended Jan. 29 increased to $45.4 million from $43.8 million in the previous year's period. Net income scored a $615,000 profit during the most recent six months compared with a loss of nearly $12 million during the same period a year earlier.

Schneider said he hopes to continue building shareholder value, while growing market share in medical imaging. He is not certain what will happen, however, given the loose strings remaining from the company's apparently failed venture to sell the medical group.

"We'll look very hard at where we are today," he said. "The value of the group has increased dramatically. One scenario clearly could be that we decide there'll be no sale and that we'll move forward with the medical group. We'll have a few board meetings and sort through what the right approach should be."