GKN plc to Acquire The Interlake Corporation of the U.S.
8 December 1998
GKN plc to Acquire The Interlake Corporation of the U.S.
LONDON, Dec. 7 -- GKN plc announces that it has today entered
into a merger agreement to acquire The Interlake Corporation in a move that
strengthens the group's powdered metals and aerospace businesses.
Under the agreement GKN will acquire The Interlake Corporation for $553
million (335 million pounds) including the assumption of approximately $292
million (177 million pounds) of debt. GKN will shortly commence a tender
offer for all of the outstanding common shares at $7.25 per share and for the
Series A preferred stock at a price equivalent to $7.25 per underlying common
share. The consideration for the tender offer will be satisfied in cash from
GKN's existing resources.
First Chicago Equity Corporation, the holder of 31,500 shares of preferred
stock of Interlake, convertible into approximately 25% of the fully diluted
equity of Interlake, has consented to the transaction and has advised GKN that
it intends to tender all of its shares in the offer. The transaction is
subject to the expiration or waiver of applicable regulatory waiting periods
and other customary conditions and the tender offer is expected to close in
January 1999.
The Interlake Corporation comprises three businesses, all leaders in their
respective markets.
* The Hoeganaes Corporation in which Hoganas AB of Sweden has a 20%
minority interest, is the leading supplier of ferrous powdered metals in North
America, the main material used by GKN Sinter Metals.
* Chem-tronics Inc. is the leading US producer of advanced, lightweight
structural components for aerospace engines in the civil, military and space
markets and has a strong position in the aftermarket for engine fan blade
repair.
* Interlake Material Handling is the leader in pallet and container
racking, dynamic storage and conveyor system markets in the U.S. and produces
a range of storage systems for use in distribution centers, warehouses, and
retail facilities.
Interlake's audited financial statement for the year ended December 28,
1997, as adjusted for businesses sold during 1997, showed sales of $483.5
million (293 million pounds) and operating profit of $44.4 million
(26.9 million pounds). Interlake reported total pre-tax profits of $37.3
million (22.6 million pounds) reflecting a gain on disposal of $35.6 million
(21.6 million pounds) partially offsetting the interest cost of its high
coupon debt. Sales and operating profit for the nine months to September 27,
1998 were $396.2 million (240.1 million pounds) and $42.5 million
(25.8 million pounds) respectively, 11% and 12% higher than the continuing
operations reported for the same period last year.
CK Chow, GKN's Chief Executive commenting on the Interlake acquisition
said: "The acquisition of Interlake presents a unique opportunity to build
upon two of our growth platforms in a single acquisition. We believe that the
addition of Hoeganaes will allow us to build on its technology to drive rapid
growth in the powder metal markets. At the same time Chem-tronics builds
further upon our recent aerospace acquisitions in the U.S. and brings with it
a number of exciting future civil and military programs. Interlake Material
Handling will be managed in our Industrial Services portfolio selling to
similar customers and markets as Chep.
"This is a strategically important acquisition for GKN and another
important step forward in our well established and successful growth strategy.
It is expected to be earnings enhancing before goodwill amortization in the
first year."
Powder Metal - The Hoeganaes Corporation
Projected 1998 Sales $200m
The Hoeganaes Corporation is the leading supplier of ferrous powdered
metals in North America. It is a major supplier to GKN Sinter Metals. It is
a low cost producer utilizing both the atomizing and sponge production process
and is also a technology leader with a number of patented products and
processes. It has four operations in the USA; New Jersey, Pennsylvania
(2 sites) and Tennessee and employs 520 people.
About 60% of Hoeganaes' customers are auto parts manufacturers for
structural applications such as transmissions, engines and suspension systems.
The combination of Hoeganaes' material technologies and GKN Sinter Metals'
product expertise and manufacturing skills, will lead to even more powder
metal components replacing cast and forged structural parts.
There is also a significant market for metal powders in welding,
chemicals, friction applications such as brake pads and linings, photocopiers
and by pharmaceutical companies in blood thinning agents and iron supplements.
Hoeganaes is 80% owned by Interlake and 20% by Hoganas AB of Sweden with
which it has an on-going technology agreement. This is expected to continue
after the acquisition. It is intended that under GKN ownership Hoeganaes will
be managed as a separate entity and will continue to supply other powder metal
component companies in the U.S.
Aerospace - Chem-tronics Inc
Projected 1998 Sales $135m
Chem-tronics is a leading producer of lightweight, fabricated structural
products for aerospace engines in the commercial, military, aerospace and
space markets and provides jet engine fan blade repair services.
Chem-tronics' products include rings, cases and modules for large commercial
aircraft jet engines, titanium ducts for military jet engines and space launch
vehicles, and other complex fabrications for a variety of aerospace
applications. It is based in California and Oklahoma and employs some 900
people.
Chem-tronics is a key supplier to a number of high growth commercial and
military programs. Major customers, with whom Chem-tronics has significant
multi-year agreements, include Rolls-Royce, Allison, Pratt & Whitney and GE.
In addition to its fabrication business, Chem-tronics provides
comprehensive repair services for jet engine fan and compressor blades, discs,
combustion liners and fan cases. Repair customers include major US and
international airlines, all jet engine manufacturers, and overhaul centers.
Industrial Services - Interlake Material Handling
Projected 1998 Sales $200m
Interlake Material Handling designs, manufactures and sells racking for
pallets and containers, conveyors and related equipment for use in warehouses,
distribution centers, retail stores and other applications in North America.
It is the market leader in the U.S. with around 20% market share and a
wide range of products. In 1997 the business suffered from a number of one-
off events including implementation of a new computer system which depressed
the operating performance. 1998 has been a year of significant recovery.
Interlake Material Handling currently has four facilities in the USA and
employs 1,100 people. After the acquisition the business will be managed
within the GKN Industrial Services portfolio.
Balance Sheet
Due to the highly leveraged nature of the balance sheet, Interlake had net
liabilities (excluding preferred stock and after adjusting for outstanding
stock options) of $146 million (88 million pounds) as at 27 September, 1998
which included net debt of $292 million (170 million pounds).