Engine Make to buy OMC

Engine Maker to Buy OMC

Engine maker to buy OMC

Milwaukee Journal Sentinel
July 10, 1997
By Avrum D. Lank
of the Journal Sentinel staff
Outboard Marine Corp. agreed Wednesday to be sold to the Detroit Diesel Corp. in a stock and cash deal valued at about $500 million.

If successfully completed, the transaction would give auto racing tycoon Roger S. Penske control of the legacy of famed Wisconsin inventor Ole Evinrude.

Penske is chairman of Detroit Diesel, a $2 billion Michigan-based company that made $3.8 million last year building, servicing and distributing diesel engines.

OMC, based in Waukegan, Ill., had sales of $1.1 billion in its latest fiscal year, which ended Sept. 30, but lost $7.3 million. It lost another $21.6 million on sales of $434 million in the six months ended March 31. The company makes and markets boats and outboard engines, including the Evinrude line. Of its 7,700 employees, about 500 are employed in Wisconsin.

Corporate spokeswomen for both OMC and Detroit Diesel said it was premature to discuss what would become of OMC's Wisconsin operations, which include plants in Milwaukee and Delavan, a research facility in Waukesha and a distribution center in Beloit.

"I don't think they will close anything immediately," said Christopher H. Mecray, who follows Detroit Diesel for the Alex Brown brokerage house in Baltimore. He and other analysts took part in a conference call about the deal with Detroit Diesel officials Wednesday.

"They said they are not planning on any immediate divestiture or anything of that sort," he said. "They believe there are things that can be done to fix them up."

In April, OMC announced that it was "exploring strategic alternatives to enhance shareholder value." The Detroit Diesel deal is the result, according to Joseph A. Gomes, who follows OMC for William Smith Special Opportunities Research Corp. in Denver.

"They had an institutional outlook that was more engineering-focused than marketing-focused," Gomes said of OMC. "Some people had described it as a 'Field of Dreams' philosophy -- if we build a better mousetrap, people will buy it, we don't have to market it. They were slowly trying to change the philosophy of the firm to be more marketing-oriented, but they were running out of time. They had been losing money, and hurt by a real tough boat market and excess inventory in both engines and boats."

The deal makes sense for Detroit Diesel because it broadens its product line, said Mecray.

"Our objectives to further expand our worldwide marine capabilities beyond diesel engines," Penske was quoted as saying in a joint news release from the two companies Wednesday.

"We look forward to the prospect of further developing OMC's proprietary FICHT fuel injection technology."

Much of that technology was developed in Waukesha, said Marlena Cannon, OMC's director of public affairs and communications. In addition, parts for the FICHT engines are made in both Milwaukee and Delavan, she added. The engines themselves are assembled at an OMC plant in Calhoun, Ga.

The deal has two parts and would pay OMC stockholders $16 a share. In the first part, Detroit Diesel would buy 67% of OMC's outstanding stock for $16 cash per share. In the second, Detroit Diesel would use 4 million of its shares and cash to buy the remaining OMC stock. With assumption of OMC debt, the deal would be worth $500 million, the companies said.

OMC stock fell $3.625 to $15.875 in trading Wednesday. Detroit Diesel's shares rose $2.125, to $25.875. The deal was announced during the trading day. "I don't know that it is a done deal," said Gomes. "A lot of people are disappointed at the price."

OMC shareholders would have to approve the deal, which the companies said they would like to complete within 90 days.

  Copyright 1997, Milwaukee Journal Sentinel

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