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Thermo Electron

Problem

Thermo Electron Corporation must decide whether to proceed with the initial public offering (IPO) of Thermo Electron Technologies stock in order to raise capital for the pursuit of new projects, or to focus on producing revenues through current ventures.

Decision

Thermo Electron should not proceed with the IPO of Thermo Electron Technologies. The corporation should, instead produce two of the most profitable products to generate revenues and maintain control of its essential Research and Development (R&D) component.

Analysis

The R&D center has provided the greatest contributions to the overall corporation. The corporation has consistently increased R&D spending to fund new research projects that have benefited all of its subsidiaries, public and private. If Thermo Electron Technologies goes public, then R&D would be committed to creating products solely for Thermo Electron Tech, and would no longer be able to provide the assistance the other subsidiaries have come to rely on.

Should the corporation proceed with the IPO, the expected gains from the sale of securities would be reported on the Income Statement. This would cloud the transparency of the financial statements. It is more difficult for a novice investor to distinguish the true operating performance of the corporation. While net Income has increased the past three years, the revenue from an IPO would provide a false sense of security. A savvy investor, who could provide much needed capital, would understand that the increase in revenue was due to the sale of stock, and not operations (as should be with such an established corporation). This might discourage any significant capital investment.

We instead propose that the corporation produce one or two of the most profitable products in order to increase the price of shares sold. The first, the microwave camera, offers the best opportunity with the highest world market – possibly exceeding $10 billion. At an average price...