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Geis replaces Omlor at YSI

Last week ITT, the company that acquired YSI this year, announced that Ron Geis of ITT was appointed general manager of YSI. Geis replaces former president and CEO Rick Omlor, who will stay on as the company’s executive advisor, according to a press release ITT issued on Oct. 25.

Neither executives from ITT nor YSI returned calls and e-mails last week. But according to a YSI prospectus on the merger agreement, in 2008 Omlor and five other YSI executives agreed to a minimum two-year contract after the date of acquisition in order to maintain continuity of leadership during the transition period. The agreements, also offered to Executive Vice President Gayle Rominger, VP finance and CFO Leon Erdman, and vice presidents of research & development, operations and human resources, guarantee executives the same compensation with a “parachute payment” at the point of departure. The employment agreements were established in 2008 because the company had been considering a merger since 2007 when several of its shareholders, including Antioch College, voiced interest in liquidating their holdings, according to the prospectus, which was issued to YSI shareholders in August.

The merger created cash for shareholders at YSI, and those who held the most stocks were among those who voted early for the merger. The acquisition pushed the company’s 357,171 common shares up from a book value of $150 per share at the beginning of 2011, to an estimated $765–$775 a share, according to the prospectus. A group of 19 directors, executives and other investors were the largest shareholders with 175,402 common shares or 49 percent of the shares. Among the largest single shareholders was Ohio University Foundation, with 13 percent of the stock; then Antioch College and Continuation Funds Inc., which this summer liquidated its holding of 44,000 shares, or just over 12 percent of the total, to receive $35 million. Antioch University was also among the group of large shareholders. The largest single stockholding entity was the Employee Stock Ownership Plan, or ESOP, trust, which owned 95,000 shares, or 27 percent of the company’s total shares, according to the prospectus.

In addition to its early executive employee agreements, last spring when ITT made its first purchase offer, YSI also signed retention agreements with 33 senior employees guaranteeing a maximum bonus of $1.5 million for those who stayed on for at least 18 months after the merger.

ITT, described in an Oct. 24 Wall Street Journal story as “the epitome of an industrial conglomerate,” valued YSI. In 2010 YSI’s net sales crested to their highest $100 million, and Janney Montgomery Scott LLC financial advisor’s analysis of the acquisition gave YSI an “implied present enterprise value” of approximately $215–$291 million. However the actual purchase price was closer to $310 million, according to ITT figures last month.

ITT’s acquisition of YSI coincided with a split of the $11 billion international defense and water company into three publicly traded entities. Xylem, the one that includes YSI, is expected to see revenues of $3.6 billion this year, according to Securities and Exchange Commission information quoted in an American Water Intelligence analysis of ITT’s finances dated August 2011. Xylem was expected to replace ITT in the Standard & Poor’s 500 Index when the division was officially completed on Oct. 31, according to a Bloomberg Businessweek story last week.

The acquisition of YSI for Xylem illustrates “a rate of confidence by ITT management in its own capacity to carry on two complex corporate projects at once,” according to the American Water analysis. And partly because Xylem is focused on the “dynamic water services industry,” the company is expected to earn an EBITDA (earnings before taxes, depreciation and amortization) multiplier in the 10x range, according to American Water. An EBITDA 10x describes “a company that is growing at a steady-state rate,” according to Rules of Thumbs, a venture capital guide Web site.

Xylem will be headquartered in White Plains, N.Y. The parent company, however, has said publicly that the operation at YSI will continue to be located in Yellow Springs for now. ITT spokesperson Tom Glover was quoted in the Dayton Business Journal last summer, saying “…to be clear, the facility in Yellow Springs is one that we intend to utilize going forward.”

YSI has 394 employees in 22 locations that develop and manufacture sensors, instruments and software for environmental water monitoring, with about 160 located in the village. While the acquisition agreement provides for YSI to continue most operations as before, the future of the company’s ESOP and YSI Foundation are uncertain. The merger agreement states that the company shall convert its ESOP to a profit sharing plan, make the necessary distributions and discuss what to do with the ESOP. The agreement also specifies that the YSI Foundation will pay its current outstanding gifts before its trustees are replaced by ITT appointment.

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