Jacuzzi to sell Eljer to investment firm

SPECIAL TO CONTRACTOR WEST PALM BEACH, FLA. Jacuzzi Brands announced in late May that it has entered into an agreement to sell its Eljer Plumbingware business to an affiliate of Sun Capital Partners. The transaction is expected to close by the end of Jacuzzi Brands' fiscal 2005 third quarter ending July 2. Terms of the sale were not disclosed. Jacuzzi has tried unsuccessfullyto return Eljer to profitability.

SPECIAL TO CONTRACTOR

WEST PALM BEACH, FLA. — Jacuzzi Brands announced in late May that it has entered into an agreement to sell its Eljer Plumbingware business to an affiliate of Sun Capital Partners. The transaction is expected to close by the end of Jacuzzi Brands' fiscal 2005 third quarter ending July 2. Terms of the sale were not disclosed.

Jacuzzi has tried unsuccessfullyto return Eljer to profitability.

In a 2004 presentation to investors, Jacuzzi unveiled plans to improve its product mix, "rationalize" unprofitable Eljer product lines, focus product development on highvalue segments and exit high-cost operations. As a result, Jacuzzi closed its 90-yearold Salem, Ohio, cast-iron plant in May 2004 and began outsourcing enameled castironproducts from an overseas supplier.

The company's Ford City, Pa., sanitary-ware plant was to be downsized this year, and it had planned to close the Tupelo, Miss., sanitary-ware plant. Jacuzzi has turned to low-cost sourcing, increased its share of low-cost country content, and in April opened the Zhuhai, China, Engineering and Sourcing Center.

In October 2004, the company appointed Carl Nicolia, formerly a business unit manager in Jacuzzi's Zurn subsidiary, to be chief operating officer of Eljer with the mandate to complete the restructuring and improve profitability. The efforts, however, were not successful. For the fiscal year ended Oct. 2, 2004, Eljer recorded an operating loss of $30.7 million on sales of $150.5 million. For the first six months of fiscal 2005 ended April 2, Eljer recorded an operating loss of $2.9 million on sales of $69.2 million. Operating results for the year ended Oct. 2, 2004, and the six months ended April 2 included restructuring charges of $19.4 million and $1.9 million, respectively.

An affiliate of Sun Capital Partners will assume substantially all current assets and liabilities of Eljer, the longterm retiree medical liability and certain other liabilities, and also take the Ford City and Tupelo operations. Jacuzzi will retain the shuttered manufacturing facility property in Salem.

The Tupelo operation employs about 250 people, many represented by the United Steelworkers Union.

Richard Hurwitz, vice president/communications and investor relations for Sun Capital Partners, said his firm obviously sees something in Eljer that Jacuzzi does not, but that he could not comment any further until the merger is finalized.

According to Sun Capital's Website, it is a private investment firm with plenty of cash and relationships with some of the nation's biggest banks. It has invested in more than 80 companies since 1995. The firm says it can easily raise $2.5 billion for any transaction.

Sun Capital's Website notes that it likes to acquire under-performers, turnarounds and "special situations," with revenues of $50 million to $2 billion, strong market position or franchise value, and with or without existing management, although preferably with.

Jacuzzi has begun offering full bathroom suites and Eljer had supplied some of that china, said Diana Burton, vice president/investor relations. The firm is now outsourcing much of its sanitary ware from Turkey, India and China, she said.

Sun Capital already owns Crane Plumbing. Crane Plumbing manufactures and distributes plumbing fixtures and specialty plumbing products in the U.S. and Canada under the Crane Plumbing, Fiat, Showerite, Universal-Rundle and Sanymetal brand names. Crane products are manufactured at 20 locations in the U.S. and Canada and are sold to more than 3,000 plumbing wholesalers and 4,000 retail stores.

Sun Capital, headquartered in Boca Raton, Fla., also owns a wide variety of firms in industries from beef processing to department stores to employee benefits administration.

Bud Terry, managing director of Sun Capital, said: "We are excited about the investment in Eljer as it has significant brand recognition, franchise value, dedicated employees, and a very strong and loyal customer base. We continue to invest in branded consumer products companies that have a strong market presence. We intend to operate Eljer as a stand-alone portfolio company and maintain the corporate presence in Dallas."

Jacuzzi anticipates that it will incur pre-tax charges in the second half of fiscal 2005 of $65 million in connection with the sale. The charges are primarily related to non-cash asset write-offs, transition services and termination expenses to be incurred.