From Dow Jones.....
U.S. Filter Chairman Heckman told Dow Jones that U.S. Filter and Culligan's businesses don't overlap much, which should ease integration.
The official noted that Culligan is big in the residential business, while U.S. Filter isn't. U.S. Filter is the largest company on the industrial side of the water business, where Culligan does only about $8 million. "We are essentially attaching them," he said.
It's in Europe, however, where the companies' businesses overlap and where the synergies are more obvious. U.S. Filter sees $10 million in potential savings in Europe, according to Heckman. By comparison, the company expects about $4 million of synergies in the ndustrial-commercial business.
In downgrading her rating, Debra Coy of HSBC said it may be a stretch to assume the deal will be accretive over the first 12 months, given, for example, the still-unanswered questions about Culligan's growth outlook.
Assuming that the $30 million in synergies indeed offer 9% operating margins on a pro forma $5 billion in revenue for the combined company, Coy estimated only 1 cent to 2 cents in accretion for fiscal 1999. "However, even this is somewhat dependent on the ultimate share exchange price, as well as on details of interest expense and tax rates for the combined company, which are not yet clear," said Coy in her notes.
The analyst added that Monday's conference call was short on details of how the integration between the companies would offer accretion to earnings.
In his interview, Heckman said, "There's no argument that the $30 million (in synergies) makes the deal accretive." He pointed out that $30 million is a fraction of $4.5 billion in revenue of the combined company and less than 5% of sales, general and administrativeexpenses.
He added that the estimate of accretion is based solely on the conservative $30 million cost synergies estimate and doesn't include estimates of increased revenue or other factors.
During the conference call, Douglas A. Pertz, Culligan's chief executive, echoed Heckman. "We view the synergies to be very real," he said, adding that there's upside potential.
Heckman said the combined U.S. Filter will be a "very high margin company with lots of growth opportunities."
U.S. Filter will take a write off for the pooling-of-interest acquisition, which Heckman said should be "significantly less than 10%" of the $1.5 billion purchase price. |
