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Walter Industries to make $1.9-billion buy
The Tampa company, known for home building, will acquire an Illinois fire hydrants maker, despite calls for simplicity.
By SCOTT BARANCIK, Times Staff Writer
Published June 20, 2005
Despite pressure from investors to simplify its portfolio, Walter Industries announced plans Sunday to make its biggest acquisition in 60 years.
The Tampa company, best known as a builder of inexpensive homes, has agreed to buy Mueller Water Products Inc. for $1.9-billion in cash and debt.
Walter said the Decatur, Ill., maker of fire hydrants and valves is a strategic fit for its U.S. Pipe division, which manufactures iron pipe used in municipal water systems.
Walter's various business lines, home building, mortgages, coal mining, iron pipe and others, generated sales of $1.5-billion in 2004. Privately held Mueller had revenues of $1.1-billion. Together they will become the Tampa Bay area's fifth-largest public company, behind Tech Data, Jabil Circuit, Outback Steakhouse and Teco Energy Inc.
"We have been interested in Mueller for some time," chairman and chief executive Don DeFosset said Sunday. "We're willing to invest in those markets that we believe are long-term in the best interests of our shareholders."
It's a move Wall Street will likely find both bold and surprising.
Walter executives have sought for years to simplify the company's image by unloading some of its accumulated businesses.
Last month, two hedge funds that recently acquired a 21 percent stake in the company publicly urged its top executives to hurry up the process, arguing that Walter's underperforming home building unit and overall complexity were dragging down its stock price. One fund, Pirate Capital LLC, threatened to seek the executives' ouster if they didn't move quickly enough.
Meanwhile, Walter, which has 5,100 employees, is losing its chief executive. DeFosset announced his retirement in February, pending the hiring of a successor.
But DeFosset said Sunday that the Mueller purchase was not inconsistent with the hedge funds' goals of simplicity and increased shareholder value, Wall Street lingo for boosting one's stock price.
He said Mueller will contribute positive earnings of 20 to 24 cents per share in the first year after closing, which is expected to take place within several months. He also forecast cost savings from the Mueller-U.S. Pipe combination further in the future.
Although the new "water" division, composed of Mueller and U.S. Pipe, will be reflected in Walter's financial results, it will remain a separate legal entity. That way, DeFosset said, "if we ever made a decision to separate the water business, it would be transactionally easy to do."
Walter is making sure Wall Street takes notice of the deal. It hired a New York public relations firm, Kekst and Co., to help spread the word. Its longtime advisers, Banc of America Securities and Morgan Stanley, are widely known in financial circles.
Walter may not be done making strategic changes to its business lines, including its coal and home building units. DeFosset and senior vice president Joe Troy said the company is continuing to work with its outside advisers to explore other deals that might benefit shareholders.
Under the Mueller deal, Walter will pay $860-million in cash and assume about $1.05-billion of Mueller's debt. Troy said Walter's new, separate water division will be responsible for all of the $1.05-billion and roughly half of the new debt incurred to finance the cash. The other half will be borne by Walter's nonwater division.
Mueller's current owner, DLJ Merchant Banking, acquired the business from Tyco International Inc. in 1999. DeFosset said Walter was interested in Mueller at that time as well as three years ago, when DLJ unsuccessfully put the division up for sale.
Walter learned in April that Mueller was up for sale again. It submitted the winning bid among roughly half a dozen competitors.
Troy said Walter would have made the bid whether or not two of its top investors were pressuring for change.
"Frankly, we heard about the deal long before these guys started pressuring us," he said. "Mueller and U.S. Pipe are perfect business partners."
Walter's stock was the Tampa Bay area's best performer in 2004, rising more than 250 percent. It closed Friday at $45.11, less than $2 off its all-time high.
[Last modified June 20, 2005, 01:36:07]
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