UVA-F-1365

Version 2.8

YEATS VALVES AND CONTROLS INC.

On May 2, 2000, W. B. Bill Yeats, Chair, CEO, and founder of Yeats Valves and Controls
Inc. (YVC), met with Kate Porter, his long-time adviser, investment banker, and a member of the
Yeats Valves board of directors. The pair met to prepare for the final negotiations about the proposed
acquisition of Yeats Valves by TSE International Corporation. Serious negotiations for combining
the two companies had started in March, following casual conversations, which dated back to late
1999. Those initial talks focused on broad motives for each side to reach an agreement, and on the
social issues, such as management and compensation in the new firm. The final term sheet on which
the definitive agreement would be drafted and signed was still open for negotiation.

Porter and Yeats had worked together to craft the outline of the agreement. So far, the social
terms of the merger had been broached, although the specific details remained to be settled. YVC
would become a subsidiary of TSE. Bill Yeats would remain as YVCs CEO.

Yeats had never thought seriously about a possible sellout before last November, when he
had his 62nd birthday. I began to wonder what would happen to the company after I retired or
died, he reminded Kate Porter. Ive got a good top-management team here, but they are all
specialists. I dont think any one of them could step in and run the show alone. Its a tough business
to learn, and I dont think I could find a successor very easilynor train him quickly. Theres
stability in the TSE International combination thats worth something personally to me.

In your eagerness to sell, just dont leave too much value on the table, Kate Porter said.
YVCs prospects are brighter than ever. You have technology to die for. With our intellectual
property and new products coming along, there is a lot of hidden value in this company thats not
reflected on the balance sheet. Be a realist about the value.

Bill Yeats agreed. There are lots of reasons for me to want to see the acquisition take place.
However, I want to make sure its also going to be good for our shareholders. Theyve put a lot of
faith in me at very critical times in the companys history, and I wouldnt want to let them down.

This case was written as a basis for class discussion rather than to illustrate effective or ineffective handling of an
administrative situation. Copyright 2001 by the University of Virginia Darden School Foundation, Charlottesville, VA.
All rights reserved. To order copies, send an e-mail to sales@dardenpublishing.com. No part of this publication may be
reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any meanselectronic,
mechanical, photocopying, recording, or otherwisewithout the permission of the Darden School Foundation. Rev.
10/05.
 -2- UVA-F-1365

Yeats Valves and Controls Inc.

Yeats Valves and Controls Inc., headquartered in Innisfree, California, was principally
engaged in the manufacture of specialty valves and heat exchangers. The firm had many standard
items, but nearly 40% of its volume and more than 50% of its profits derived from special
applications for the defense and aerospace industries. Such products required extensive engineering
work of the kind only a few firms were capable of matching. Yeats had a reputation for engineering
excellence in the most complex phases of the business and, as a result, often did prime contract work
on highly technical devices for the government.

Yeats was an outgrowth of a small company organized in 1980 for engineering and
developmental work on an experimental heat exchanger product. In 1987, as soon as the product was
brought to the commercial stage, the company was organized to acquire the patents and properties,
both owned and leased, of the engineering corporation. Bill Yeats, who founded the engineering
firm, founded Yeats Valves and continued as its CEO.

The raw materials used by the company were obtainable in ample supply from a number of
competitive suppliers. Marketing arrangements presented no problems; sales to machinery
manufacturers were made directly by a staff of skilled sales engineers. Auden Company, a large
concern in a related field, was an important foreign channel of distribution under a nonexclusive
distributor arrangement. About 15% of Yeats Valves sales came from Auden. Foreign sales through
Auden and direct through Yeats Valves own staff accounted for 30% of sales. Half of the foreign
sales originated in emerging economies, mainly Brazil, Korea, and Mexico. The other half originated
in the United Kingdom, Italy, and Germany.

Although the foreign-currency crises in the mid-1990s had temporarily interrupted sales
growth for the company, better economic conditions in the markets of developed countries, together
with its recent introduction of new products for the aerospace and defense industries offered the
company excellent prospects for improved performance. As such, sales in the first quarter of 2000
grew 20%25% over the corresponding period in 1999, whereas many of Yeats Valves competitors
experiencing limited growth. Exhibits 1 and 2 show the most recent balance sheet for Yeats Valves
and Controls Inc. and income statements from 1995 forward. Exhibit 3 presents five years of
projected sales, earnings, and other data for Yeats Valves.

The Yeats Valves plants, all of modern construction, were organized for efficient handling of
small production orders. The main plant was served by switch tracks in a 15-car dock area of a
leading railroad, and additionally served by a truck area for the companys own fleet of trucks. From
1997 to 1999, net additions to property totaled $7.6 million. Bill Yeats, outstanding in research in his
own right, had always stressed the research and development of improved products, with patent
protection, although the companys leadership was believed to be based on its head start in the field
and its practical experience.
 -3- UVA-F-1365

The success of Yeats Valves and Controls Inc. had brought numerous overtures from
companies looking for diversification, plant capacity, management efficiency, financial resources, or
an offset to cyclical business. For instance, when Yeats Valves went public in 1986, Auden
Company, which later held 20% of Yeats Valves common stock, advanced a merger proposal. Word
of the proposal reached the financial commentators, who reported possible action by the U.S.
Department of Justice in antitrust proceedings. Although lawyers for Yeats Valves were confident
that they had a ready defense in an antitrust suit, the practical question was one of whether such a
legal victory on principle would offset perhaps two or more years of litigation, possibly to the U.S.
Supreme Court. Lawsuits did not build a business, as Yeats noted at the time, and they used up time
and energy that management should devote to the companys operating problems. Hence, the idea
was not further developed.

As Bill Yeats neared retirement, however, the idea of selling the company to a bigger firm
seemed almost necessary. Compelling reasons existed in addition to his impending retirement1 and
the problem of management succession. First, the company needed a deep-pocketed partner to
expand, and to bankroll more research and development (R&D) projects. Conducting research to
continue developing leading-edge products for aerospace and defense required sizeable investments.
Second, Yeats believed that the company would benefit from gaining access to a large marketing and
distribution network. Yeats Valves was highly successful in its own niche, but Yeats concluded that
more segments could be tapped if Yeats Valves products were more aggressively marketed and more
widely available. Third, as the company continued to grow, it would need to gain production know-
how for high-volume manufacturing. Yeats Valves did not have this kind of expertise. Finally, there
had been an increasing trend of consolidation in Yeats Valves industry over the last year. Yeats
feared that without a well-financed partner, the company would be swamped by competition. Thus,
when the merger opportunity with TSE International Corporation came along in 1999, Yeats
determined to make it work as best as he could.

Bill Yeats believed that YVC had alternatives to this deal. Rockheed-Marlin Corporation, a
large defense contractor (or any of a number of others), might be induced to make an offer for Yeats
Valves, though Yeats preferred TSE International Corporation as a merger partner. YVC and TSE
might establish a joint venture of some sort, though Bill Yeats suspected that joint ventures faced the
same kinds of integration problems as did acquisitions; as a result, he thought joint ventures were an
inferior alternative. YVC could move forward alone, but that would require raising large sums of
new debt and equity to finance the rapid expansion of the firms widening gyre program. Yeats
was concerned that he might lose voting control of the firm regardless. It seemed to him that doing a
deal with a known and friendly partner today would prepare the way for an orderly transition for
himself and the firm.

Bill Yeats and Tom Eliot had known each other for four years, having been introduced at an
industry conference where they were both speakers. As founders and significant stockholders of their
firms, they liked and respected each other. Talks of a possible combination seemed to gain
momentum following the announcement by Yeats Valves of a U.S. government contract to develop

1
For Yeats estate-planning purposes, selling his shares in Yeats Valves would also work to his advantage.
 -4- UVA-F-1365

an advanced hydraulic-controls system code named Widening Gyre for use in a wide array of
commercial and military applications in aerospace, automotive, and transportation industries. The
Widening Gyre program had already generated valuable patents, numerous options for ongoing
R&D. Bill Yeats and his team were most interested in the R&D aspects of the program, and hoped
that TSE or some other partner would assume the work on commercialization, and numerous
possible product extensions. Yeats insisted that the financial forecasts for his firm were conservative,
and included only the most predictable benefits of the Widening Gyre. He told Kate Porter, I hope
TSE will recognize the intellectual capital we have built up for the Widening Gyre program. Were
all very excited about it; it could be really big. We have one high-profile government contract. But
right now the forecasts dont show its promise. And the stock price doesnt reflect our growth
prospects. How should we build it into our negotiations?

TSE International Corporation

TSE International Corporation was incorporated in 1970. By 2000, the company
manufactured products ranging from advanced industrial components to chains, cables, nuts and
bolts, castings and forgings, and other similar products, and they sold them, for the most part
indirectly, to various industrial users. One division produced parts for aerospace propulsion and
control systems with a broad line of intermediate products. A second division produced a wide range
of nautical navigation assemblies and allied products. The third division manufactured a line of
components for missile and fire-control systems. Those products were all well regarded by TSEs
customers, and each was a significant factor in its natural market. Financial statements for TSE
International are provided in Exhibits 4 and 5the firms debt was currently rated Baa. Porter had
obtained an analysts consensus forecast of TSEs earnings, dividends, and cash flow items as shown
in Exhibit 6.

The companys raw material supply, in the form of sheets, plates, and coilsof various
metalscame from various producers. The TSE International plants were modern, ample, equipped
with substantially new machinery, and adequately served by railroad sidings. The firm was
considered a low-cost producer, made possible by unusual production knowledge. TSE International
was also known as a tough competitor.

The Current Situation

During the early part of 2000, a series of group meetings had taken place between Yeats and
Eliot and their respective companys counsel. From the very start of the negotiations for combining
the two companies, the merits of alternative methods had been considered by counsel for both
parties. A straight common-for-common exchange was expected to be the most likely outcome,
although Yeats was willing to consider an assets-for-stock exchange. Both methods would be
structured to provide a deferment of the tax liability. Whatever terms were finally worked out, the
agreement would be subject to the approval of the stockholders of both companies.
 -5- UVA-F-1365

YVC had 560 stockholders. Roughly 70% of the stock was held within the board of directors
and their families, including 20% owned by Auden Company and 40% owned by Bill Yeats. Yeats
had kept the board of directors fully informed throughout the discussions with TSE International.
The proposed merger was discussed with the president of Auden Company, whose approval was
necessary because of his companys 20% interest. Although the Auden executives were not
convinced that the proposal had strict business merit, they decided not to object but, instead, gave
notice that they would sell their companys holdings of Yeats Valves stock. Auden Company was
about to undertake a new expansion of its own, and its executives were not disposed to keep
minority interests in a company like TSE International Corporation. However, they saw no reason
for not maintaining their satisfactory relationships with the Yeats Valves enterprise when it should
become a TSE International division.

Social terms of the merger needed to be confirmed. YVCs management team and employees
would remain intact; no layoffs were contemplated. Bill Yeats sought a grant of five-year options to
purchase 80,000 shares of TSE International stock at 90% of its market price at the close of the
acquisition, and an incentive bonus between $50,000 and $200,000 per year. Yeats current salary at
YVC was $300,000 per year.

Kate Porter, as a director of Yeats Valves, had been kept fully informed regarding the merger
discussions. She was intrigued with the possibility that Yeats Valves might be more fully valued if it
were part of a larger, more diversified enterprise. Yeats Valves had recently traded at a price-earnings
ratio of 10.3 times, perhaps reflecting the risks associated with a small, concentrated enterprise,
possibly vulnerable to competition from larger firms. The American Stock Exchange listing of TSE
International would be attractive to some shareholders, although Porters firm had earned significant
commissions specializing in handling Yeats Valves NASDAQ trading. Exhibit 7 shows recent
market prices of Yeats Valves and TSE International shares.2 Exhibit 8 provides valuation
information on exchange-listed possible peer firms of Yeats Valves and TSE International. Exhibit 9
presents information on recent acquisitions within Yeats Valves industry. Exhibit 10 presents money
market and stock return data for recent years. Porter believed that a 40% marginal tax rate was
warranted for both TSE and Yeats.

Kate, what do you think of the merger? Yeats asked his friend as they sat down to analyze
the deal. It looks good to me, yet maybe Ive gotten too close to the situation to uncover all the
things I should be seeing. I also worry that our people, who have gotten used to an independent,
entrepreneurial culture here at Yeats Valves, would have trouble adjusting at a big firm like TSE
International. Do you think that the merger will benefit Yeats Valves? And, if so, what is the
minimum price we should ask to ensure that our stockholders profit from this merger?

April, 2000 was pretty cruel to those dot-com companies, Bill Yeats said. Our firm is
different. Weve got a great growth outlook, but our valuation is still low. Is this merger a move that

2
TSE Internationals stock had a beta of 0.85; the beta for Yeats Valves and Controls was 1.50, based on the most
recent years trading prices.
 -6- UVA-F-1365

will help fetch a better multiple? Or, should we wait to see if our efforts are better rewarded? With
that comment, Yeats passed the following clipping to Kate Porter:

Modest ValuationsIn light of currently modest share prices, we believe that the number of
acquisitions will increase in the future. Some valuations are so low, in fact, managers are
considering leveraged buyouts of their individual companies. We advise most investors to
delay additional commitments until the stock market settles.3

3
Value Line Investment Survey, 5 May 2000, 1301.
 -7- UVA-F-1365

Exhibit 1
YEATS VALVES AND CONTROLS INC.
Yeats Valves and Controls Inc.
Consolidated Balance Sheet as of December 31, 1999
(dollar figures in thousands)

Assets
Cash $ 1,884
U.S. Treasury tax notes and other Treasury obligations 9,328
Due from U.S. Government 868
Accounts receivable net* 2,316
Inventories, at lower of cost or market** 6,888
Other current assets 116
Total current assets $21,400
Investments 1,768
Plant, property, and equipment, at cost
Land*** 92
Buildings 6,240
Equipment*** 18,904
Less: allowance for depreciation 7,056
$18,180
Construction in process 88
Total plant, property, and equipment, net $18,268
Patents 156
Cash value of life insurance 376
Deferred assets 156
Total assets $42,124
Liabilities and Stockholders Equity
Accounts payable $ 2,016
Wages and salaries accrued 504
Employees pension cost accrued 208
Tax accrued 72
Dividends payable 560
Provision for federal income tax 1,200
Total current liabilities $ 4,560
Deferred federal income tax 800
Common stock, par $0.50, authorized and outstanding 1,440,000 shares 720
Capital surplus 7,680
Earned surplus 28,364
Total equity $36,764
Total liabilities and stockholders equity $42,124
Current ratio 4.69
Quick ratio 3.16

* Allowance for doubtful accounts: $190,392 (probably conservative).

** Obsolete inventories were written off semi-annually.
*** Equivalent land in the area had a market value of $320,000, and the building had an estimated market worth of
$16.8 million. Equipment had a replacement cost of approximately $24 million, but a market value of about $16 million
in an orderly liquidation.
 -8- UVA-F-1365

Exhibit 2
YEATS VALVES AND CONTROLS INC.
Yeats Valves and Controls Inc.
Summary of Earnings and Dividends, Years Ended December 31, 19951999
(dollar figures in thousands, except per-share figures)

(Unaudited)
Three months ended 3/30
1995 1996 1997 1998 1999 1999 2000
Sales $36,312 $34,984 $35,252 $45,116 $49,364 $11,728 $14,162
Cost of goods sold 25,924 24,200 24,300 31,580 37,044 8,730 10,190
Gross profit 10,388 10,784 10,952 13,536 12,320 2,998 3,972
administrative 2,020 2,100 2,252 2,628 2,936 668 896
Other income, net 92 572 108 72 228 14 198
Income before taxes 8,460 9,256 8,808 10,980 9,612 2,344 3,274
Taxes 3,276 3,981 3,620 4,721 4,037 1,009 1,391
Net income $5,184 $5,275 $5,188 $6,259 $5,575 $1,335 $1,883

Depreciation $784 $924 $1,088 $1,280 $1,508 $364 $394

Cash dividends $1,680 $2,008 $2,016 $2,304 $2,304 $576 $753

Earnings per common share* $3.74 $3.61 $3.60 $4.35 $3.87 $0.93 $1.31

Cash dividends declared:

Per preferred share $5.00 $1.25
Per common share $1.00 $1.40 $1.40 $1.60 $1.60 $0.40 $0.52

Capital expenditures $1,826 $2,011 $2,213 $2,433 $2,675 $2,675

Working capital needs $3,492 $3,867 $4,289 $4,757 $5,273 $5,273

Percent payout to common stock 27.8% 38.2% 38.9% 36.8% 41.3% 43.1% 40.0%

Ratio analysis
Sales 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of goods sold 71.4 69.2 68.9 70.0 75.0 74.4 72.0
Gross profit 28.6 30.8 31.1 30.0 25.0 25.6 28.0
administrative 5.6 6.0 6.4 5.8 5.9 5.7 6.3
Other income, net 0.3 1.6 0.3 0.2 0.5 0.1 1.4
Income before fed. taxes 23.3 26.5 25.0 24.3 19.5 20.0 23.1
Net income 14.3 15.1 14.7 13.9 11.3 11.4 13.3
 -9- UVA-F-1365

Exhibit 3
YEATS VALVES AND CONTROLS INC.
Yeats Valves and Controls Inc.
Forecast of Sales, Earnings, and Other Items for
Years Ending December 31, 20002004
(dollar figures in thousands except per-share figures)

Actual Projected
1999 2000 2001 2002 2003 2004
Sales $49,364 $59,600 $66,000 $73,200 $81,200 $90,000
Cost of goods sold 37,044 42,316 47,850 52,704 58,058 63,900
Gross profit 12,320 17,284 18,150 20,496 23,142 26,100
administrative 2,936 3,612 4,024 4,464 4,952 5,492
Other income, net 228 240 264 288 320 352
Income before taxes 9,612 13,912 14,390 16,320 18,510 20,960
Taxes 4,037 5,565 5,756 6,528 7,404 8,384
Net income $5,575 $8,347 $8,634 $9,792 $11,106 $12,576

Depreciation $1,508 $1,660 $1,828 $2,012 $2,212 $2,432

Cash dividends $2,304 $2,304 $2,880 $3,456 $4,320 $5,184

Earnings per share $3.87 $5.80 $6.00 $6.80 $7.71 $8.73
Dividends per share $1.60 $1.60 $2.00 $2.40 $3.00 $3.60

Capital expenditures $1,826 $2,011 $2,213 $2,433 $2,675

Working capital needs $3,492 $3,867 $4,289 $4,757 $5,273

Ratio analysis
Sales 100.0 100.0 100.0 100.0 100.0 100.0
Cost of goods sold 75.0 71.0 72.5 72.0 71.5 71.0
Gross profit 25.0 29.0 27.5 28.0 28.5 29.0
administrative 5.9 6.1 6.1 6.1 6.1 6.1
Other income, net 0.5 0.4 0.4 0.4 0.4 0.4
Income before fed. taxes 19.5 23.3 21.8 22.3 22.8 23.3
Net income 11.3 14.0 13.1 13.4 13.7 14.0
 -10- UVA-F-1365

Exhibit 4
YEATS VALVES AND CONTROLS INC.

TSE International Corporation

Consolidated Balance Sheet as of December 31, 1999
(dollar figures in thousands)

Assets
Cash $46,480
U.S. government securities, at cost 117,260
Trade accounts receivable 241,761
Inventories, at lower of cost or market 179,601
Prepaid taxes and insurance 2,120
Total current assets 587,222

Investment in wholly-owned Canadian subsidiary 158,081

Investment in supplier corporation 104,000
Cash value of life insurance 3,920
Miscellaneous assets 2,160
Property, plant, and equipment, at cost:
Buildings, machinery, equipment 671,402
Less: allowances for depreciation and amortization 260,001
Property, plant, and equipment, net 411,402
Land 22,080
Property, plant, equipment, and land, net 389,321
Patents, at cost, less amortization 1,120
Total assets $1,245,825

Liabilities and Stockholders Equity

Notes payable to bank $5,795
Accounts payable and accrued expenses 90,512
Payrolls and other compensation 38,399
Taxes other than taxes on income 3,052
Provision for federal taxes on income refund, estimated 32,662
Current maturities of long-term debt 30,900
Total current liabilities 201,320
Note payable to bank1 119,100
Deferred federal income taxes 29,668
2 % cumulative convertible preferred stock, $20 par, 27,783
1,389,160 shares outstanding2
Common stock, $2 par; 96,000,000 shares authorized; 125,389
62,694,361 shares issued
Capital surplus3 21,904
Retained earnings 720,661
Total equity 895,737
Total liabilities and stockholders equity $1,245,825

1
$150,000,000 note, payable semi-annually beginning June 30, 2000; $30,900,000 due within one year, shown in
current liabilities. One covenant required company not to pay cash dividends, except on preferred stock, or to make other
distribution on its shares or acquire any stock, after December 31, 1999, in excess of net earnings after that date.
2
Issued in January 1999; convertible at rate of 1.24 common share to one preferred share; redeemable beginning in
2004; sinking fund beginning in 2004.
3
Resulting principally from the excess of par value of 827,800 shares of preferred stock over the pay value of
common share issues in conversion in 1999.
 -11- UVA-F-1365

Exhibit 5
YEATS VALVES AND CONTROLS INC.
TSE International Corporation
Summary of Consolidated Earnings and Dividends
for Years Ended December 31, 1995-1999
(dollars in thousands except per-share figures)

1995 1996 1997 1998 1999

Net sales $1,623,963 $1,477,402 $1,498,645 $1,980,801 $2,187,208
Cost of products sold 1,271,563 1,180,444 1,140,469 1,642,084 1,793,511
Gross profit 352,400 296,958 358,176 338,717 393,697
Selling, general, and administrative 58,463 69,438 74,932 87,155 120,296
Earnings before federal income taxes 293,937 227,520 283,244 251,562 273,401
Tax expense 126,393 95,558 116,130 101,882 109,360
Net earnings $167,544 $131,962 $167,114 $149,679 $164,041

Depreciation $19,160 $20,000 $21,480 $24,200 $26,800

Cash dividends declared $85,754 $77,052 $53,116 $77,340 $92,238

Net earnings per common share $2.55 $1.86 $2.01 $1.92 $2.23
Cash dividends declared
Per common share $1.39 $1.25 $0.86 $1.25 $1.49
Per preferred share $0.00 $0.00 $0.00 $0.00 $0.40
Cash payout 51.2% 58.4% 31.8% 51.7% 56.2%

Ratio analysis
Sales 100.0 100.0 100.0 100.0 100.0
Cost of goods sold 78.3 79.9 76.1 82.9 82.0
Gross profit 21.7 20.1 23.9 17.1 18.0
Selling, general, and administrative 3.6 4.7 5.0 4.4 5.5
Income before federal taxes 18.1 15.4 18.9 12.7 12.5
Net income 10.3 8.9 11.2 7.6 7.5
 -12- UVA-F-1365

Exhibit 6
YEATS VALVES AND CONTROLS INC.
TSE International Corporation
Forecast of Sales, Earnings, and Other Items
for Years Ending December 31, 20002004
(dollar figures in thousands, except per-share figures)

Actual Projected
1999 2000 2001 2002 2003 2004
Sales $2,187,208 $2,329,373 $2,480,785 $2,642,037 $2,813,769 $2,996,658
Cost of goods sold 1,793,511 1,910,086 2,034,244 2,166,470 2,307,291 2,457,260
Gross profit 393,697 419,287 446,541 475,567 506,478 539,398
Selling, general, and admin. 120,296 125,786 131,482 140,028 146,316 155,826
Income before tax 273,401 293,501 315,060 335,539 360,162 383,572
Tax expense 109,360 117,400 126,024 134,215 144,065 153,429
Net income $164,041 $176,101 $189,036 $201,323 $216,097 $230,143

Depreciation $26,800 $27,950 $29,770 $31,700 $33,170 $35,960

Cash dividends $92,238 $102,083 $108,715 $115,780 $125,185 $133,314

Earnings per share1 $2.23 $2.39 $2.54 $2.71 $2.93 $3.12

Divs. per shr. common stock1 $1.49 $1.58 $1.69 $1.80 $1.94 $2.07
2
Div. per shr. preferred stock $0.40

Ratio analysis
Sales 100.0 100.0 100.0 100.0 100.0 100.0
Cost of goods sold 82.0 82.0 82.0 82.0 82.0 82.0
Gross profit 18.0 18.0 18.0 18.0 18.0 18.0
Selling, general, and admin. 5.5 5.4 5.3 5.3 5.2 5.2
Income before tax 12.5 12.6 12.7 12.7 12.8 12.8
Net income 5.0 5.0 5.1 5.1 5.1 5.1
1
62,694,361 common shares in 1999. Thereafter, 64,416,919 shares reflecting conversion of the preferred stock.
2
1,389,160 preferred shares in 1999. Conversion into 1,722,558 shares of common stock assumed in 2000.
 -13- UVA-F-1365

Exhibit 7
YEATS VALVES AND CONTROLS INC.
Market Prices of Yeats Valves and Controls Inc. and TSE International Corporation
Common Stock, 1995YTD (year to date) 2000
(in dollars per share)

Yeats Valves and Controls TSE International Corporation

Common Stock Common Stock Preferred Stock
High Low Close High Low Close High Low
1995 $16.25 $8.75 $15.00 $12.31 $10.06 $11.88
1996 24.75 14.00 22.63 14.37 11.77 13.16
1997 25.00 20.00 22.25 12.82 9.28 11.13

1998 Quarter Ended:

March 31 24.38 20.75 21.50 14.13 12.83 13.96
June 30 22.75 20.38 21.00 13.70 12.05 11.79
September 30 22.75 20.38 21.50 12.83 10.49 11.27
December 31 24.38 20.13 21.00 12.40 11.27 11.88

1999 Quarter Ended:

March 31 23.50 20.00 21.75 11.60 10.21 10.67 13.61 12.22
June 30 23.63 19.88 22.00 11.60 10.90 10.90 13.15 12.05
September 30 22.75 20.00 22.50 13.61 11.14 13.61 14.23 12.37
December 31 30.00 22.25 28.50 17.01 13.30 16.78 17.32 13.77

2000 Quarter Ended:

March 31 32.13 26.00 31.50 20.73 15.08 20.69 17.32 13.99

May 1, 2000 $39.75 $38.90 $39.75 $22.58 $18.31 $21.98 $17.63 $15.36
 -14- UVA-F-1365

Exhibit 8
YEATS VALVES AND CONTROLS INC.
Information on Peer Firms in the Industrial Machinery Sector

Expected
Price/ Rate of
Earnings Dividend Growth
Ratio Beta Yield to 2005 Debt/Capital
CASCADE CORP.
Designs, manufactures, and markets hydraulically
actuated products. 8.2 0.85 4.0% 12.5% 49%
CURTISS-WRIGHT CORPORATION
Manufactures precision components in
motion (42%); flow (36%) control; &
metal treatment (36% of sales). 10.3 0.65 1.4% 10.0% 8%
FLOWSERVE CORP.
Makes, designs, and markets fluid handling
equipment (pumps, valves, and mechanical seals). 11.0 0.80 Nil 6.5% 39%
IDEX CORP.
Designs, manufactures, and markets industrial pumps,
compressors, and a wide range of industrial products. 14.6 1.10 1.9% 9.0% 42%
ROPER INDUSTRIES
Operates in three segments: industrial controls,
fluid handling, and analytical instrumentation. 16.3 0.75 0.9% 15.5% 39%
TECUMSEH PRODUCTS
Manufactures compressors, condensers, and pumps
for commercial, industrial, and agricultural applications.
Foreign sales and exports totaled 43% of 1999 sales. 7.0 0.65 3.0% 8.5% 1%
THOMAS INDUSTRIES
Leading manufacturer of compressors and
vacuum pumps. 10.7 0.85 1.6% 9.5% 16%
WATTS INDUSTRIES
Designs, manufactures, and sells an extensive
line of valves for the plumbing & heating and
water-quality markets. 10.4 nmf 2.9 14.0 36

nmf = not meaningful figure.

Source of data: Value Line Investment Survey, 5 May 2000.
 -15- UVA-F-1365

Exhibit 9
YEATS VALVES AND CONTROLS INC.
Information on Selected Recent Merger & Acquisition Transactions
in the Industrial Machinery and Aerospace Sectors

Effective Date Acquirer Business Target Business

10/20/2000 General Electric Co. Electrical, construction Honeywell Int'l. Inc. Aerospace, automotive
6/11/1999 United Technologies Corp. Aircraft engines, defense Sundstrand Corp. Aerospace, industrial equip.
12/15/1999 AlliedSignal Inc. Aircraft engines, radar Tristar Aerospace Co. Aerospace hardware
7/10/2000 Meritor Automotive Inc. Car, truck equipment Arvin Industries Inc. Auto parts, accessories
10/12/2000 DaimlerChrysler AG Automobiles and trucks Detroit Diesel Diesel, alternative engines
8/19/1999 Goldman Industrial Group Metal-working machinery Bridgeport Machines Metal-cutting tools
2/24/2000 Siemens Energy & Automation Electronic parts Moore Products Corp. Control instruments
6/17/1999 TI Group PLC Metal products Walbro Corp. Fuel system components
6/19/2000 Ingersoll-Rand Co. Industrial machinery Hussmann Int'l. Inc. Refrigeration systems

Equity Equity Enterprise Premium

Target Net Value/ Value/ Enterprise Value/ Enterprise (Discount) 4 Weeks
Sales Last 12 Target Target Value/ Target Value/ Enterprise Prior to
Transaction Months Net Book Target Net Operating Target Cash Value/ Net Announcement
Acquirer Target Size ($mm) ($mm) Income Value Sales Income Flow Income Date
General Electric Co. Honeywell Int'l. Inc. 45,204.7 31,052.0 24.70 4.8 1.61 16.85 11.98 27.36 54.63
United Technologies Corp. Sundstrand Corp. 4,408.3 2,024.0 16.70 6.8 2.13 11.40 9.37 18.66 54.08
AlliedSignal Inc. Tristar Aerospace Co. 269.8 205.1 10.00 2.7 1.37 7.92 7.49 15.52 65.22
Meritor Automotive Inc. Arvin Industries Inc. 1,138.4 3,010.3 7.50 1.1 0.38 8.99 4.84 14.37 22.20
DaimlerChrysler AG Detroit Diesel 581.2 2,256.2 12.20 1.3 0.29 8.48 5.22 14.78 77.78
Goldman Industrial Group Bridgeport Machines 57.0 197.0 29.00 0.8 0.37 11.40 9.37 18.66 53.85
Siemens Energy & Automation Moore Products Corp. 168.6 168.9 63.00 2.5 0.96 26.76 15.53 62.08 79.38
TI Group PLC Walbro Corp. 630.3 697.4 19.80 4.0 0.79 13.44 7.14 44.87 na
Ingersoll-Rand Co. Hussmann Int'l. Inc. 1,837.2 1,306.8 27.30 7.2 1.45 15.24 12.48 33.01 109.95

na = not available.
Source of data: Thomson Financials SDC Platinum.
 -16- UVA-F-1365

Exhibit 10
YEATS VALVES AND CONTROLS INC.
Capital Market Interest Rates and Stock Price Indexes
(averages percentage per annum except for
May 1, 2000, which offers closing prices)

1997 1998 1999 May 1, 2000

U.S. Treasury Yields
3-month bills 5.06% 4.78% 4.64% 6.60%
30-year bonds 6.61% 5.58% 5.87% 5.98%

Corporate Bond Yields by Rating

Aaa 7.27% 6.53% 7.05% 8.67%
Aa 7.48% 6.80% 7.36% 9.15%
A 7.54% 6.93% 7.53% 9.35%
Baa 7.87% 7.22% 7.88% 9.60%

Stock Market
S&P 500 Index 873 1,085 1,327 1,481
Price/earnings ratio 15.9 17.4 19.4 18.8

Industrial Machinery Stocks

Price/earnings ratio 12.9 13.9 14.9 15.0
Dividend yield 1.8% 1.5% 1.6% 1.6%

N.B.: The geometric average equity market-risk premium for the period 19261999 was about 5.5%.
The arithmetic average equity market-risk premium for that period was about 7.2%.

Sources of data: Value Line Investment Survey, 5 May 2000; Federal Reserve Bulletin, April 2000; Wall Street Journal, 2
May 2000.