A Bundle from America

When the shares of Britain's Plessey Co. went on the New York Stock Exchange in mid-July, they brought a sunburst of activity that is rare for new issues in today's market. In the majority of trading sessions during the past two weeks. Plessey was first or second on the most active list and moved up from $2.50 to $2.75 a share. Wall Streeters knew that Plessey was a highly profitable but hardly conspicuous manufacturer of telecommunications gear, radar, electronic components and Garrard phonograph equipment. What intrigued investors most was that the company's small American subsidiary had just acquired Alloys Unlimited, a prime U.S. producer of metal alloys and semiconductor components. In the process, Plessey skirted British and U.S. investment regulations with a plan that could be a model for other foreign companies seeking to enter the American market.

Like all British companies that are eager to expand in the U.S., Plessey had been held back by the Bank of England's curbs on capital outflow. At the same time, Plessey's ambitions to raise growth capital through stock sales in America were frustrated by the U.S.'s 11 1/4% interest equalization tax on purchases of foreign securities. Plessey's financial chief, Eric Frye, and the head of its U.S. subsidiary, Warren Sinsheimer, developed an idea that would overcome both barriers. The idea: the British company would issue a new class of "dollar shares," list them on the New York Exchange and pay dividends in dollars from the firm's America earnings.

Avoiding the Tax. The dollar shares made it possible for Sinsheimer, 43, an acquisition-minded New York City lawyer, to buy the rich American firm. After weighing several possibilities, Plessey's managing director, John Clark, had chosen Alloys Unlimited because of its strength in microelectronic circuitry. A stock swap made sense to managers of both companies, but it had to win the approval of the Bank of England, the U.S. Government and the shareholders of Plessey and Alloys. To work out the deal, Sinsheimer commuted regularly across the Atlantic; once he completed a round trip in 24 hours.

A month ago, an agreement was concluded for Plessey, which had sales last year of $494 million, to have its subsidiary absorb Alloys, which had a volume of $160 million. Plessey swapped 6.5 dollar shares for each Alloys share. Altogether, the transferred stock is worth $130 million and gives American investors a 20% interest in Plessey.

The Bank of England consented to the deal because no pounds sterling will leave the country. The U.S. Treasury ruled that Alloys shareholders will be exempt from the interest equalization tax because the transaction was an exchange rather than a purchase. "Some foreign economies are doing considerably better than the U.S. economy," says Sinsheimer, "but the interest equalization tax has been a deterrent to investments by Americans in foreign companies. We hope that we have shown the way to remove this obstacle."

Computerized Mail. The acquisition of Alloys, which is based on Long Island, gives Plessey access to plenty of valuable technical expertise in microcircuitry and metals manufacturing. The deal also opens wide American outlets for Plessey's goods and processes. One promising item is a mail-handling system, controlled by a computer, that enables 24 women to code 50,000 letters an hour. These codes are read by an optical scanner, which directs the letters to appropriate sorting slots and speeds them through post offices. A $2,400,000 pilot system will begin operation this month in Cincinnati. The American market for this device alone could be an unalloyed boon for Plessey.

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