Newport Electronics Inc. has scrapped its merger proposal with a Silicon Valley firm, clearing the way for a rival bid from a Connecticut investor who is trying to gain control of the Santa Ana-based electronic instrument maker.
But Sensor Control Corp., a Sunnyvale company, said Newport violated the conditions of its merger agreement and will have to pay Sensor a $400,000 termination fee. In a statement, Newport said Sensor "might be" entitled to the fee.
Milton B. Hollander, a Connecticut investor who already owns 13% of Newport's stock, has offered to pay $11 per share for an additional 35% of the firm. Hollander is making his offer though High Technology Corp., a company he solely owns.
High Technology intends to replace three of the five Newport board members if its bid is successful, according to a filing with the Securities and Exchange Commission.
Sensor's decision to drop its bid comes less than a week after Newport Chairman Barret B. Weekes and Norman Gray, a company director, said they will sell their respective 18.6% and 6% stakes in the company to High Technology.
The decision by Weekes and Gray ran counter to the opinion of the rest of Newport's board, which had recently rejected Hollander's proposal in favor of Sensor's bid. Sensor had offered to acquire 43% of Newport's shares for $9.75 each and the remaining shares for $9 each as part of a merger proposal.
Newport said in a statement that 20.4% of its shares had been tendered to High Technology as of Aug. 9, and that it believes that "a substantial number" of additional shares have been surrendered since then.
Newport said Monday that the decision by Weekes and Gray to back the Hollander bid would have made it impossible for Sensor to complete its proposed merger.
"The combination of the High Technology shares, the Hollander shares and the Weekes shares would be sufficient to block the Sensor merger," Newport said.
Sensor President James B. Hawkins on Monday termed the Hollander proposal "a manipulative bid designed to preclude the Newport shareholders from the opportunity to make a fair judgment of the merits of our proposal to acquire all of the Newport shares at a substantial premium over historic trading prices."
Meantime, Newport Electronics reported that net income for the second quarter fell to $86,000 from $175,000 for the comparable period last year. Sales rose slightly, to $4.6 million from $4.5 million.
For the first half, net income totaled $13,000, compared to $443,000 for the first six months of 1988. Sales totaled $9 million, against $8.95 million. The company makes electronic measuring instruments.