In a complex financial arrangement, Donnelly Corp. is shedding majority interest in its start-up, plastic optical-lens subsidiary, Donnelly Optics Corp.
Donnelly Optics, a precision injection molder based in Tucson, Ariz., agreed Dec. 2 to merge with Applied Image Group Inc., a producer of optical imaging systems based in Rochester, N.Y.
As part of an equity swap, Donnelly Corp. will hold a minority stake in the merged company. Terms were not disclosed, nor was Donnelly's stake in the company.
The maneuvers relieve Donnelly, a Holland, Mich.-based maker of mirrors and plastic automotive parts, of a major financial headache for shareholders. Its cutting-edge optics subsidiary, spun off a year ago, recorded high start-up costs after opening its 47,000-square-foot Tucson plant in November 1997.
Compounding that problem, it lost a key contract with computer-chip maker Intel Corp. of Santa Clara, Calif. Intel backed out of a deal in June to use Donnelly Optics' lens systems in a proposed digital camera kit.
After the kit project was shelved, publicly traded Donnelly was forced to absorb a $3.5 million charge to fourth-quarter operating profit, a 23 cent loss per share.
Yet, the company wanted to preserve a stake in the potentially lucrative unit, even while keeping it at arm's length, said Donnelly spokesman Randy Boileau.
``We felt at the time we established it that it was going to become an important business,'' he said. ``But the market takes a long time to develop. That kind of business fits in better with Applied Image.''
Donnelly Optics molds precision polycarbonate lenses using diffractive optics and other advanced techniques. The fledgling firm has introduced standard lenses for the digital-imaging industry and makes a grab-bag of lens systems for personal-computer video cameras, fingerprinting detection devices, automotive headlamps and other products.
The firm employs 45 at the Tucson plant, which has 12 injection presses with clamping forces of 55-250 tons, said Donnelly Optics President Daniel Joseph. Joseph said company prospects are starting to take off, with several new contracts about to begin.
``We participate in many of the same markets as Applied Image,'' Joseph said. ``The merger will give us an entree to new customers and allow us to share technology. This combination creates a significantly more effective entity than we have separately.''
The merger creates an optics firm with greater strength, said Applied Image business development manager Luke Hobson. Applied Image does not mold plastic lenses, but makes a variety of precision optics systems for bar-code scanners, image analysis systems and other products.
The company has three plants in Rochester and one in Buffalo, N.Y. In December, the company also purchased the thin-film technology business of Rochester-based Bausch & Lomb Inc.
Applied Image will set up a separate operating division for Donnelly Optics and maintain the firm's present staff, Hobson said.
Neither firm disclosed sales figures.