SPX Makes Offer to Acquire Echlin Valued at $48 Per Share, or $3 Billion
17 February 1998
SPX Makes Offer to Acquire Echlin Valued at $48 Per Share, or $3 Billion
Cash-And-Stock Exchange Offer is 32% Above Echlin's 30-Day Trading Average;
SPX Filing Proxy Materials for Special Shareholder Meeting
To Replace Echlin Board
MUSKEGON, Mich., Feb. 17 -- SPX Corporation
announced today that it has made an offer to acquire Echlin Inc.
for cash and SPX shares valued at $48 per Echlin share based on SPX's closing
price last Friday, or a total of approximately $3.0 billion. The SPX offer,
which consists of $12.00 in cash and 0.4796 SPX share per Echlin share,
represents a 23% current premium and is 32% above Echlin's 30-day average
trading price. SPX owns 1.15 million Echlin shares, or approximately 1.8% of
its total shares outstanding.
SPX is filing a registration statement today with the Securities and
Exchange Commission, and will start an exchange offer for all outstanding
Echlin shares as soon as its registration statement is cleared. SPX received
antitrust clearance for the transaction on February 5, 1998.
Echlin has a poison pill, which purports to prevent the acquisition of
more than 20% of Echlin shares without approval by Echlin's Board.
Accordingly, SPX is filing preliminary materials today with the SEC to solicit
shareholder demands to call a special meeting to replace Echlin's entire Board
with SPX's nominees. The SPX nominees, if elected, will take all action
needed to facilitate consummation of SPX's offer, subject to their fiduciary
duties as Echlin directors.
Echlin is incorporated in Connecticut and, under that state's law, must
give notice of a special meeting within 30 days of receiving demands by
holders of 35% of its outstanding shares, and must hold the meeting within 60
days of giving notice. Because Echlin does not have a staggered board, the
existing Board would be removed if more shareholders vote at the meeting in
favor of removal than vote against removal; new directors would be elected by
a plurality vote.
SPX expects the acquisition to be substantially accretive to earnings per
share in the first full year after closing, with significant opportunity to
improve EVA(R). SPX expects to achieve cost savings of at least $125 million
in the first full year after closing, increasing to $175 million in the second
year and thereafter. SPX plans to restructure or divest Echlin assets
determined to be underperforming, accelerate implementation of EVA-based
compensation programs and pursue share repurchases.
SPX has received a "highly confident" letter from Canadian Imperial Bank
of Commerce and its affiliate, CIBC Oppenheimer Corp., to finance the cash
portion of the offer, refinance existing debt and provide working capital.
SPX conveyed its offer in a letter today (see attached) to the Echlin
Board from John B. Blystone, Chairman, President and CEO of SPX, which
enclosed a draft merger agreement. Should Echlin enter into the merger
agreement, in addition to the 75% stock and 25% cash exchange offer proposal,
Echlin shareholders could elect either all cash or all stock, subject to
proration, in a partially tax-free reorganization. The exchange offer would
be taxable.
The 75/25 stock/cash ratio of the proposed transaction would result in a
capital structure consistent with SPX's financial strategy. In addition, the
proposed transaction would result in Echlin shareholders owning approximately
70% of the combined company.
"We believe the combination of SPX and Echlin can create a world-class
company with the scale and capabilities to excel in the rapidly consolidating
$350 billion vehicle service industry," said Blystone. "In our view, this
combination can create substantial value for the shareholders of both
companies, while providing superb products and services for customers and new
opportunities for the employees and communities of both companies."
Blystone added, "We have been trying for a year to achieve a negotiated
transaction with Echlin. We have initiated three meetings with Larry McCurdy
and other senior Echlin executives, and I have sent several letters to
Mr. McCurdy. However, we have been repeatedly rebuffed in our efforts to
negotiate a transaction -- or even to meet with Echlin's Board so that we
might explain why we believe this strategic combination would greatly benefit
both companies. Given the rapid pace of industry consolidation and the logic
of this transaction, we have decided to take the issue directly to Echlin's
shareholders. We have made what we believe is an attractive offer based on
publicly available information, but if Echlin is able to demonstrate more
value, we are prepared to recognize it in the context of a negotiated
transaction."
While Echlin's stock price was essentially flat in 1996-97 -- and has
never traded as high as $40 per share -- SPX stock has more than quadrupled in
the same two years under its new management.
"We are confident that shareholders of both companies would benefit from
the application of our leadership experience and management techniques to a
larger platform in the vehicle components and service industry," Blystone
continued. "Customers and suppliers would benefit from the combined company's
ability to provide more fully integrated vehicle service, from the manufacture
of components and specialty service tools to complete service solutions.
Employees would benefit from EVA-based compensation incentives and new growth
opportunities within a more dynamic company. Communities in Connecticut and
other areas where Echlin operates would benefit from the potential to achieve
a leadership position in the global vehicle service industry."
The combined company would have annual revenues of approximately
$4.5 billion, a balanced portfolio of businesses, strong cash flow, and
substantial cost-saving opportunities. Before any divestitures, approximately
53% of pro forma combined revenues would be from aftermarket parts, 33% from
original equipment (OE) components and 14% from service solutions.
Blystone added, "We believe that the combined company will be well
positioned to integrate the vehicle service process and stay ahead of the
trends transforming our industry. Integration will be essential to better
serve customers in the future, given the blurring lines between original
equipment and aftermarket, the expansion of mega-dealerships and national
parts retailers, the growing importance of repair shop chains and the
increasing technological complexity of vehicles. Echlin's broad range of
aftermarket and OE components fits well with our warranty repair tool
business, dealer equipment programs, diagnostic and emissions testing
equipment, service and owner's manual development, and vehicle component
manufacturing. The combined components portfolio would be complementary,
bringing together Echlin's market-leading position in brake and engine systems
with SPX's strengths in transmission and steering components."
In addition to Mr. Blystone, SPX's director nominees to replace the Echlin
Board are Alan Schwartz, Sterling Professor at Yale University Law School;
James K. Ashford, a retired senior Tenneco automotive executive and former
Motor magazine "Automotive Aftermarket Man of the Year;" Patrick J. O'Leary,
SPX Vice President - Finance and Chief Financial Officer; and Christopher J.
Kearney, Vice President, Secretary and General Counsel of SPX.
SPX intends to employ an aggressive shareholder-focused agenda at Echlin,
focusing on cost structure, use of capital, productivity enhancements,
selective divestitures, and EVA-based compensation. Blystone said, "We
believe Echlin is now in a very similar situation to SPX when we arrived at
the end of 1995. We intend to utilize our leadership experience and
management techniques to achieve superior growth and profitability for the
combined company."
SPX expects to achieve annual cost savings of $175 million by the second
full year after closing. It plans to eliminate duplicate corporate costs,
realize manufacturing and distribution efficiencies, streamline Echlin's
organizational structure and save on material costs through improved sourcing.
The cost-saving program will include a headcount reduction of some 3,000
positions throughout Echlin's operations, or nearly 10% of its global work
force. Employees whose positions are eliminated will receive severance
packages and outplacement assistance. Employees of the combined company will
have exciting career opportunities in an EVA-driven organization.
SPX will also conduct a strategic review of underperforming Echlin
businesses to determine whether they will be restructured or divested. The
restructuring at Echlin would be patterned after the restructuring implemented
at SPX in the last two years, where sales per employee is up over 50%,
operating margins have nearly doubled and nearly 80% of employees have
compensation tied to improvement in EVA.
SPX intends to integrate Echlin into SPX with sensitivity to the
interests of Connecticut and other communities where Echlin operates.
According to Echlin's filings and public records, Echlin's total U.S. and
overseas work force of approximately 31,300 includes approximately 800
employees in Connecticut. Of these Connecticut employees, approximately 115
are in Echlin's corporate headquarters in Branford. SPX intends to maintain a
significant presence in Connecticut, exploring expansion opportunities in the
State, continuing to operate Echlin's Branford manufacturing facility, and
evaluating alternatives for Echlin's corporate headquarters. SPX is also
prepared to consider issues related to any other constituencies which Echlin
might identify in the context of a negotiated transaction.
The SPX offer is subject, among other things, to approval by SPX and
Echlin shareholders, redemption or inapplicability of Echlin's poison pill,
and completion of financing arrangements.
CIBC Oppenheimer Corp. is financial advisor to SPX and will serve as
dealer-manager for the exchange offer. D.F. King & Co., Inc. is the
information agent for the offer.
SPX Corporation is a global provider of Vehicle Service Solutions to
franchised dealers and independent service locations, Service Support to
Vehicle Manufacturers, and Vehicle Components to the worldwide motor vehicle
industry. SPX's Internet address is http://www.spx.com.
NOTE TO EDITOR: John Blystone's Letter to the Echlin Board of Directors is
Attached:
In addition to SPX Corporation and the SPX nominees, the participants in
the planned solicitation may include the following directors and executive
officers of SPX: J. Kermit Campbell (Director), Sarah R. Coffin (Director),
Frank A. Ehmann (Director), Edward D. Hopkins (Director), Charles E. Johnson
II (Director), Ronald L. Kerber (Director), Peter H. Merlin (Director), David
P. Williams (Director), Drew T. Ladau (Vice President, Business Development),
Stephen A. Lison (Vice President, Human Resources), and Thomas J. Riordan
(President, Service Solutions).
The SPX nominees are James K. Ashford, a retired senior Tenneco automotive
executive; John B. Blystone, Chairman, Chief Executive Officer and President
of SPX; Christopher J. Kearney, Vice President, General Counsel and Secretary
of SPX; Patrick O'Leary, Chief Financial Officer of SPX; and Alan Schwartz,
Sterling Professor at Yale University Law School. Each SPX nominee, other
than Messrs. Blystone, Kearney and O'Leary, the three executive officers of
SPX, will receive a $25,000 fee from SPX for his participation in the
solicitation, and each SPX nominee will be reimbursed his reasonable out-of-
pocket expenses incurred in the performance of his service as a nominee and,
if elected, as a director of the Company. SPX has agreed to indemnify each
SPX nominee from and against any losses, claims, charges, liabilities, costs
or expenses (including reasonable legal fees and expenses) arising out of any
claim, action, suit, or proceeding to which the SPX nominee is or is
threatened to be made a party (i) by reason of his being a nominee and a
"participant in a solicitation" (as defined in the Securities Exchange Act of
1934) or (ii) arising out of or in connection with his service as an Echlin
director. SPX may, but is not obligated to, obtain insurance policies
covering any portion of such indemnification.
SPX owns 1,150,150 shares of common stock of Echlin. None of the SPX
nominees or the above-named directors or executive officers of SPX owns any
shares of Echlin common stock.
CIBC Oppenheimer Corp., an investment banking firm that provides a full
range of financial services for institutional and individual clients, is
acting as financial advisor to SPX in connection with the proposed business
combination, and will act as dealer manager of the exchange offer, for which
services SPX has paid a fee of $500,000 and has agreed to pay additional fees,
up to a maximum of $8.5 million in the aggregate (in addition to any fees
which may be paid to it in connection with arranging or participating in the
financing of the transaction), a substantial portion of which is contingent
upon the consummation of the proposed business combination. SPX has also
agreed to reimburse CIBC Oppenheimer for its reasonable out-of-pocket
expenses, including reasonable legal fees up to a specified maximum, and to
indemnify CIBC Oppenheimer and certain related persons against certain
liabilities and certain expenses in connection with its engagement, including
certain liabilities under the federal securities laws.
In connection with CIBC Oppenheimer's engagement as financial advisor,
officers and employees of CIBC Oppenheimer may communicate in person, by
telephone or otherwise with a limited number of institutions, brokers or other
persons who are shareholders of Echlin for the purpose of assisting in the
solicitation of Demands for the Special Meeting. CIBC Oppenheimer will not
receive any fee for or in connection with such solicitation activities apart
from the fees which it is otherwise entitled to receive as described above.
The following directors or employees of CIBC Oppenheimer may solicit demands:
David M. Garrity (Senior Analyst - Executive Director), Roger C. Kahn
(Managing Director), Jonathan B. Lamont (Analyst), Stuart A. Taylor II
(Managing Director) and J. Michael Whitted (Director). CIBC Oppenheimer does
not admit or deny that any of its directors, officers or employees is a
"participant" as defined in Schedule 14A promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended, or
that such Schedule 14A requires the disclosure of certain information
concerning such persons. In the normal course of its business, CIBC
Oppenheimer regularly buys and sells Echlin's common stock for its own account
and for the accounts of its customers, which transactions may result from time
to time in CIBC Oppenheimer and its associates having a net "long" or net
"short" position in Echlin's common stock or option contracts with other
derivatives in or relating to Echlin's securities. As of February 13, 1998,
CIBC Oppenheimer had no positions in Echlin's securities.
None of the above-named directors or employees of CIBC Oppenheimer owns
any shares of Echlin common stock.
A registration statement relating to the SPX securities referred to in
this news release has been filed with the Securities and Exchange Commission
but has not yet become effective. Such securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This news release shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such state.
Statements in this press release that are not strictly historical are
"forward-looking" statements within the meaning of the Safe Harbor provisions
of the federal securities laws. Investors are cautioned that such statements
are solely predictions and speak only as of the date of this release. Actual
results may differ materially due to risks and uncertainties that are
described in the company's Form 10-K for 1996, the 1996 Annual Report to
shareholders, and Form 10-Q for the first, second and third quarters of 1997.
For certain cautionary statements, investors are referred to the preliminary
prospectus in the Registration Statement on Form S-4 filed with the Securities
and Exchange Commission today which is available, among other sources, from
SPX by contacting SPX's corporate offices at 616-724-5000 and through the
SEC's website at http://www.sec.gov.
SOURCE SPX Corporation