WILTON, Conn. -- The supermarket industry's two strongest electronic shelf-label vendors, Electronic Retailing Systems here and Telepanel Systems, Markham, Ontario, shocked the industry once again when they announced March 17 that their planned merger would not take place.
The merger, originally announced in October 1997, was planned as a "pooling of interests" of the two companies, an accounting treatment that eliminates many of the tax liabilities associated with a traditional merger by acquisition.
However, Telepanel's attempt to secure additional financing before the merger took place brought negative rulings from the U.S. Securities and Exchange Commission, making a successful pooling-of-interests merger unlikely, according to executives at the companies.
ESLs are plastic tags that display product prices via a liquid crystal display. A chip housed inside the tag receives pricing information via wires or radio frequency technology, so shelf pricing can be updated simultaneously with a retailer's point-of-sale system.
The tags can help maintain greater price integrity and have the potential to lower in-store labor costs by automating the pricing process. But ESLs' growth has been slowed by the high cost of installing the systems, which can run from an estimated $80,000 to $110,000 per store.
"The marketplace still continues to struggle for acceptance of the units, and too many players and too few sales are going to be a problem," said David Thompson, executive director of information services for Associated Wholesale Grocers, Kansas City, Kan., an ESL user.
ERS confirmed that the ESL market is changing with the new aggressiveness of vendors such as NCR, Dayton, Ohio; Hobart Corp., Troy, Ohio; and Pricer, Norwalk, Conn.
"This is not a two-person race as new players enter the business," said Bruce Failing, president and chief executive officer at ERS. "We have lost time and energy that was focused on the merger and not our business. Now we need to spend time on our own products, customers and our company."
"Currently, we are a leader in the industry and I believe we will be able to continue our momentum, though the merger would have helped us maintain our leadership," said Chris Skillen, president and CEO of Telepanel. "Instead we rejoin the game to prove ourselves among the new players."
While both vendors agreed the aborted merger will have no effect on their customers, they expressed regret the deal would not be completed.
Telepanel does have until May 31 to receive a favorable ruling from the SEC, but both companies feel this is unlikely. "We are pessimistic that will happen -- four months have been spent trying already," said ERS' Failing.
"We do not see a way to meet the May 31 deadline," said Telepanel's Skillen. "If it can be met, and ERS wishes to recontinue plans, then we would move forward."
The option of merging by having one company acquire the other held no interest for ERS. "The deal should have been complete in early January," Failing explained. "For us to pursue an acquisition, we would have to start from square one and we would not close the deal until the summer. That is a lot less valuable than pooling our interests."
