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July 14, 1997 02:00 AM

ARMSTRONG MODIFIES DOMCO BID

Craig Urey PLASTICS NEWS STAFF
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    When an unstoppable force meets an unmovable object, a flurry of lawsuits are sure to follow. At least that's the way things have been going lately in the vinyl flooring industry.

    Armstrong World Industries of Lancaster, Pa., and Sommer Alli-bert SA of Paris have been trading legal volleys and merger maneuvers since May over possible realignments in the industry.

    In the latest round, Armstrong has modified its earlier bid for Domco Inc. of Quebec in an effort to skirt the objections of Sommer, Domco's majority stockholder.

    Instead of asking for two-thirds of Domco's shares at a price of C$23 per share (US$16.71) Armstrong now says it will settle for a simple majority of 51 percent. And in order to get past the fact that a less-than-friendly Sommer holds 69 percent of Domco's stock, Armstrong is asking Domco to issue enough new shares at C$23 each to push Armstrong over the 50 percent mark. Armstrong also extended the deadline for Domco's response to Aug. 15.

    Armstrong had been negotiating with Sommer to buy the French company's flooring assets, including Domco, for $775 million, Armstrong officials said. But Sommer instead turned to Tarkett AG of Frankenthal, Germany. Sommer and Tarkett announced in May a $535 million merger of the companies' flooring businesses.

    In June, Armstrong launched a two-pronged legal offensive against Sommer. One suit in U.S. District Court in Philadelphia alleges Sommer broke a confidentiality agreement by talking to both Armstrong and Tarkett at the same time. The suit seeks to block the Sommer-Tarkett merger. Armstrong on July 8 added both Tarkett AG and Sommer's chief executive officer as defendants of that suit.

    Another suit filed in Ontario seeks to force Domco's directors to consider Armstrong's offer seriously.

    Sommer on July 7 started to fight back, suing Armstrong in Quebec Superior Court for libel and breach of confidentiality, for publicly disclosing the two firms' earlier negotiations. Sommer is asking for C$8 million (US$5.84 million). Company officials have also pledged to take further legal action against Armstrong in a variety of legal venues.

    Analysts seem skeptical about Armstrong's ability to wrest Domco from its parent.

    ``It definitely seems like a defensive maneuver to us,'' Brendan J. Hartman, a securities analyst with Solomon Bros. in New York, said of Armstrong's recent actions.

    Armstrong has reason to fear a $1 billion Domco-Sommer-Tarkett alliance that would rival its own $1 billion-per-year flooring business. Such an alliance would be troublesome to Armstrong, Hartman said.

    ``A Tarkett-Domco team is going to be a tough competitor in Armstrong's own back yard,'' he said.

    While it is theoretically possible for Domco to issue the extra shares to Armstrong, Hartman said most market watchers think it is unlikely Domco's board would make such a move.

    But Armstrong officials vow their offer for Domco is legitimate.

    ``It's doable,'' Armstrong spokeswoman Cam Callova said of Armstrong's 51 percent offer. ``Truly, this is an action that the Domco board could take. ... We want Domco.''

    Sommer did not respond to requests for comments. The company issued a press release saying it would not comment on Armstrong's latest stock offer. Officials from Domco and Tarkett also could not be reached for comment.

    The ferocity of the fight between the American and French giants may have something to do with the current state of the industry.

    ``The vinyl flooring market is stagnant,'' Hartman said.

    That leaves the big players with little room to grow other than expansion. And other than Domco, which reported C$356 million (US$258 million) in 1996 sales, there are very few acquisition targets for companies like Armstrong.

    ``It's now or never,'' Hartman said.

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