In the beginning, there was ERC International Inc., a professional services firm in Fairfax that opened its doors in 1976 and spent years searching for ways to diversify its business. The search led the company into 19 acquisitions and mergers in eight years.
One of those efforts took the company into environmental and energy work and in 1988, ERC decided to spin off one of its branches, ERC Environmental and Energy Services Inc., by selling stock in the subsidiary to the public.
That gave ERC two listings in the stock tables.
The hope of ERC executives, led by the late Jack E. Aalseth, was that the spinoff of ERC Environmental would help boost the price of ERC International stock, which had been languishing for some time.
The theory was that the spinoff would make ERC International, the parent, an easier company for stock analysts to understand and would improve its reception on Wall Street.
To test this theory, Aalseth and his colleagues studied other companies that did spinoffs to see what effect the spinoffs had on their stocks. They found that, in most cases, the spinoffs had helped the stocks of the parent companies.
Unfortunately, as it turned out, ERC's spinoff didn't really do much to help its stock price. There could have been a dozen reasons. But whatever the reason, the experience was a frustrating one for Aalseth.
On the other hand, ERC Environmental, whose shares came out at $7, did relatively well.
In any event, in October 1989 ERC International agreed to be acquired by Ogden Corp., of New York, a firm with several lines of work, including management services and building solid-waste-recovery plants.
At the time the $80 million Ogden deal was announced, ERC stock was selling for about $9 a share. The buyout gave ERC shareholders Ogden stock worth about about $13.83 for each ERC share. It also took ERC International out of the stock tables.
When Ogden bought ERC, Ogden also got ERC's 69 percent interest in ERC Environmental, which will report an estimated $4.8 million profit on sales of $80 million for 1990, according to analyst Peter C. Keefe at Johnston, Lemon & Co.
In 1989, ERC Environmental reported a $3.6 million profit on sales of $72.3 million.
When J. Mark Elliott, president of ERC Environmental, reported on the firm's third-quarter profits last fall, he noted the firm showed a 17 percent gain in its environmental-consulting, engineering and testing business and a 44 percent gain in its energy business.
Late last year, Keefe told J&L clients he believed that eventually Ogden would want to buy the rest of the stock in ERC Environmental. He was correct.
On Oct. 23, Ogden offered to buy the 31 percent of the shares held by the public for $14.75 a share in cash. The stock was then trading at about $12.
The ERC Environmental board responded by appointing independent directors William R. Gould, Hilliard W. Paige and Alan S. Boyd as a special committee to study the offer. The committee hired Alex. Brown & Sons Inc. to give them a fairness opinion and they came eventually negotiated a $15.13 a share price.
The deal apparently has the approval of the ERC Environmental board and will get an okay from the Ogden board later this month. It will have to be approved by holders of two-thirds of the publicly-held shares.
Is the $15.13 price fair? Keefe said he was delighted to get the $15.13 because he had first recommended the stock at $9. He said he had estimated the value of the company last September at about $19 a share. But, he noted, the market value of many stocks had declined sharply in recent months.
So, assuming the $15.13 price holds and the deal goes through, Ogden will spend about $33 million to complete its acquisition of ERC Environmental.
And then both ERC companies will have disappeared from the stock lists, caught in the ever-changing complexion of corporate life in Washington.
When last we left the folks at General Kinetics Inc. in Rockville, they were getting lots of flak from shareholders for their plan to create 500,000 shares of preferred stock.
The firm's executives and directors wanted to create the shares so they could be used to head off any hostile takeover efforts. The shareholders were upset about the plan because the board would be empowered to issue the shares -- worth 10 votes each -- at any time and, apparently, to anyone they chose.
It seems the shareholders prevailed. The General Kinetics board has decided to drop the preferred stock idea "in the best interests of the company and its shareholders."
When the plan came up for a vote at the firm's annual meeting in November, the protest was so loud that the board adjourned until it could figure out what it wanted to do.
Now, having scratched the plan from its agenda, the board has asked stockholders to reconvene on January 15 to conclude the annual meeting. One proposal that is still alive is to increase the number of shares authorized to 10 million from 2 million.
That idea, by itself, probably will pass. The shares could be used for stock splits or other means to enlarge the amount of stock available for trading.
General Kinetics was one of the better performers of 1990, rising to $10.75 from $6, a gain of 79 percent. The firm has two lines of work: metal cabinets and racks for Navy ships and facsimile machines that are secure against electronic eavesdropping.
It took almost eight months, but federal regulators gave savings and loan institutions permission to invest in the shares of JHM Mortgage Securities L.P. of McLean, whose shares trade on the New York Stock Exchange.
The permission is expected to be a boon to JHM, a Washington limited partnership that invests in various mortgage-related securities.
Fifty percent of JHM is owned by John Hancock Mutual Life Insurance Co.
The story begins on March 21 when JHM received a letter from the Office of Thrift Supervision (OTS), which regulates savings and loans. The letter said that thrifts could invest in JHM shares.
But publication of that news in this column in May prompted questions about the original OTS letter from Harris Weinstein, then the new general counsel at OTS.
Shortly afterward, the March 21 letter was withdrawn pending review.
That review has been going on since March and featured 12 separate meetings with the OTS, according to Stephen P. Gavula, chairman of JHM. Gavula said the review by OTS, while lengthy, had been careful and deliberate. "We're extremely pleased," he said.
The new letter of permission from OTS contains several added restrictions on the ability of thrifts to invest in JHM stock. One provision is that thrifts cannot invest more than 15 percent of their capital without getting special permission from regulators. In any event, the limit would be 25 percent.
The next step is for JHM to draw up a plan for thrifts to invest. Gavula and his colleagues at JHM are especially interested in exchanging assets with the thrifts.
For instance, thrifts that are in financial distress may be forced to sell their mortgage-related securities or their mortgage payment-servicing operations.
Gavula would give the thrifts the chance to swap those securities or operations for JHM stock. The thrifts, as shareholders, would get dividends on JHM's portfolio and a piece of future profits in the young company.
The stock, selling for $7.25, with an estimated $1.20 dividend, offers a yield of 16.6 percent.
When Gavula first discussed the JHM investment plan for thrifts, he noted that the troubles of the S&L industry offered JHM some good business opportunities. The idea of anyone profiting from the problems of S&Ls may have been offensive enough to prompt the OTS to give the plan more study. But the OTS now seems convinced that the JHM plan can do the thrifts more good than harm.endquad