SPECIAL TO CONTRACTOR
WEST PALM BEACH, FLA. — Private equity firm Apollo Management L.P. announced in mid-October that it is buying Jacuzzi Brands for $1.25 billion. Jacuzzi's bath and spa business will become an operating unit of Apollo, while Zurn Industries will be sold to another Apollo company.
RBS Global, the parent company of Rexnord Corp., said it would pay Apollo Management $950 million for Zurn, then roll Zurn into Rexnord, a manufacturer of engineered power transmission, aerospace and other motion technology products. Apollo owns RBS Global.
Under the terms of the merger agreement, Jacuzzi Brands' shareholders will receive $12.50 per share in cash. The transaction will be financed through a combination of equity contributed by Apollo and debt financing. Jacuzzi's board of directors has approved the merger agreement and has recommended to Jacuzzi Brands' shareholders that they vote in favor of the transaction. In connection with the proposed transaction, Jacuzzi Brands will make a cash tender offer for all its outstanding 9.625% senior secured notes due 2010.
The transaction received mixed reviews.
Stock analysts said immediately after the announcement that $12.50 per share was a fair price for the company whose stock was trading for $10.35 a share at the time. A number of stockholders, however, thought that wasn't enough and filed two stockholder class-action lawsuits Oct. 13 in the Chancery Court of Delaware. The lawsuits allege that the company and its directors have breached their fiduciary duties in agreeing to the company's proposed merger. The complaints seek injunctive relief as well as damages.
The company said it believes that the lawsuits are without merit and it intends to vigorously defend itself against the claims.
Also, Standard & Poors' Rating Services announced that it put Jacuzzi's B+ credit rating on CreditWatch negative. Standard & Poors said such purchases usually lead to increased debt at the acquired company. It also didn't like the idea of splitting Jacuzzi and Zurn because it would reduce Jacuzzi's business diversity and increase its risk.
Zurn has lower sales but it's more profitable. Through the first three quarters of this year, it reported sales of nearly $316 million and profits of $65.5 million. Jacuzzi reported bath and spa business revenues of $573 million and $28.7 million in profit.
Alex Marini, president and chief executive officer of Jacuzzi Brands, would remain with the company.
"We are excited to be partnering with George M. Sherman, non-executive chairman of Rexnord Corp. and former president and CEO of Danaher Corp., in the acquisition of Jacuzzi Brands and look forward to supporting Al Marini and his management team in continuing the success of the company," said Larry Berg, a senior partner at Apollo. "Upon completion of the merger, George will assume the role of non-executive chairman of Jacuzzi Brands and will be a co-investor with Apollo in this transaction."
"This is an exciting time for the employees, customers, and suppliers of Zurn and the Jacuzzi Bath and Spa businesses," Marini said. "With the resources of Apollo and the experience brought by George Sherman, we will be well positioned to develop and implement cutting-edge strategies to build upon our already strong leadership positions. I want to stress to our customers and suppliers that they can expect to continue to receive the same high levels of service, product quality and innovation they have enjoyed for many years."
Bob Hitt, Rexnord's president and CEO, said: " Zurn's water management business complements our already successful power transmission business. Zurn has a strong market position, leading brands, innovative new product development capabilities, excellent customer service, dedicated employees and a solid management team."
Hitt noted that there would be minimal integration work for Rexnord because Zurn would operate as a separate platform of the company, with facilities located in six states. Marini and his team would continue to run the water management platform, providing leadership continuity, the company said.
The acquisition is subject to certain closing conditions, including the approval of Jacuzzi Brands' shareholders, regulatory approval and the receipt by Apollo of all necessary debt financing, and it is expected to close in the first quarter of 2007.
Apollo, founded in 1990, engages in private equity, debt and capital markets investing. Since its inception, Apollo has invested more than $16 billion in companies representing a wide variety of industries, both in the United States and internationally. Apollo is investing its sixth private equity fund, Apollo Investment Fund VI, which along with related co-investment entities, represents $12 billion of new capital.