A big legal clash is brewing after diversified manufacturing company Technitrol Inc said it wants to scrap its $33.8m acquisition of GTI Corp – only a few weeks before the deal is due to be completed. The news was announced only days after GTI revealed figures showing a rapid deterioration in its performance and the shares plunged to leave it with a stock market value of $17.9m. Philadelphia-based Technitrol claims that GTI is in breach of certain of its representations and warranties in the merger agreement signed in May. This, says Technitrol, entitles it to scrap the merger agreement. But GTI, which is conducting its own investigation, queries Technitrol’s claims. After a preliminary review it says that substantial questions exist as to whether breach of the merger agreement has occurred and that, if any such a breach has occurred, whether Technitrol has a right to terminate the merger agreement or fail to close. The dispute is a huge disappointment to UK company Telemetrix Plc, which owns 57% of GTI. However, Telemetrix chief executive Tim Curtis is adamant that, on the basis of the merger agreement, GTI’s recent figures do not give Technitrol an excuse to pull out. They don’t have an out based on adverse material changes, he said. As lawyers for the two sides prepare for a lucrative scrap, the dispute will be watched with close interest as rapidly changing market conditions frequently change circumstances shortly after mergers have been agreed. In its second quarter to June 27, GTI saw revenues plunge 55% to $10.2m and shipments by volume slump by 47% after management blamed downward pressure on prices for networking products for which the company provides components. GTI recorded a $3.7m second quarter loss compared with a profit of $6.5m in the same period last year. Under the merger plans, GTI’s Valor Electronics offshoot would be combined with Technitrol’s Pulse. A Technitrol spokesperson refused to discuss which of GTI representations and warranties were the subject of the dispute and said the company was waiting to hear the results of GTI’s own inquiry. GTI’s shares plunged almost 30% to $1.4 on the news while Technitrol edged ahead by 0.9% to $20.4 as investors welcomed a possible end to the take-over.
