Update: Dexter to Sell Two Units

Updated from 7:55 a.m. EDT

Dexter (DEX) gave its hostile suitor, International Speciality Products (ISP), the cold shoulder when Dexter announced Wednesday that it was selling off two of its major divisions for $675 million.

Tuesday, ISP announced that it would launch a $45 per share cash offer for Dexter. ISP -- which has tried to woo Dexter for about six months -- is the manufacturing company's largest shareholder, with a 9.9% stake.

ISP, based in Wayne, N.J., made an initial offer of $45 a share in December, and raised it to $50 in May before returning to the original offer.

"We believe that ISP's offer is a full and fair one and in the best interests of all Dexter shareholders," said Samuel Heyman, chair of ISP, in a letter to Dexter's chief executive, K. Grahame Walker. "Should the Dexter board, however, be unwilling to enter into the proposed merger agreement, we would request that it at least take action to remove the 'poison pill,' and any other legal impediments to the purchase of shares, so that Dexter shareholders can decide for themselves whether to accept ISP's offer." A "poison pill" is a legal device sometimes imbedded in corporate charters to thwart hostile takeovers. In this case, ISP has been prevented from building a stake in Dexter larger than 10%.

Meanwhile, Windsor Locks, Conn.-based Dexter will sell its electronic materials, adhesives and polymer businesses -- which together generated $236 million in sales last year -- for $400 million in cash to Germany's Loctite, and will sell its nonwoven materials business, which had net sales last year of $285 million, to Finland-based Ahlstrom Paper Group Oy for $275 million, the company announced Wednesday.

"We are very pleased to be delivering on our commitment to maximize the value of Dexter's wholly owned businesses for the benefit of all the company's shareholders," Walker said.

Dexter's shares closed up 4 1/16, or 9%, to 48 5/16 in morning trading Wednesday. ISP shares closed flat at 5 1/4.

It was not immediately clear how the selloff will affect ISP's tender offer. In a statement, Heyman said, "Dexter's proposed piecemeal dismemberment of the company, if allowed to stand, we believe will destroy value for Dexter shareholders and is in keeping with the company's longstanding disregard for [shareholders'] interest."

After-tax proceeds from the sale are expected to be around $530 million. Dexter still owns about 18.8 million shares of biotech firm Life Technologies, a stake valued at about $900 million. It also owns an aerospace codings business with sales around $50 million.

The company will seek to sell its remaining assets, said Robert Goldberg, an analyst at New Vernon Associates who covers Dexter. He said Dexter originally tried to sell the entire company -- and was courted by several biotech firms -- but settled on the piecemeal strategy when it couldn't get the price it wanted. By Goldberg's analysis, the company is fairly valued at $52 to $53 per share, considerably higher than the $45 offer on the table from ISP.

Goldberg used to have an accumulate rating on Dexter, but took it off once it was clear Dexter was in play. "It's an arbitrage situation, pure speculation," he said. "We are fundamental analysts." New Vernon does not perform underwriting.

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