Detroit Diesel to Buy Outboard
The Wall Street Journal Interactive Edition July 10, 1997Detroit Diesel Corp. agreed to acquire Outboard Marine Corp., a leading maker of boats and boat engines, for about $320 million in cash and stock.
The agreement, which also calls for the assumption of $180 million of debt, ended a search by financially strapped Outboard Marine for what it called a "strategic alternative" that would keep it afloat.
Shares of Outboard Marine plunged $3.625, or 18.6%, to $15.875 in composite trading on the New York Stock Exchange as speculators bailed out after running Outboard's stock price up in recent weeks. Detroit Diesel's shares rose $2.125, or nearly 9%, to $25.875 in Big Board composite trading.
Detroit Diesel, a once-faltering maker of heavy-duty diesel engines that has had a strong turnaround under Chairman Roger Penske, said it would make a $16-a-share cash tender offer for about 67% of Outboard Marine's shares. It would purchase the remainder for a combination of cash and four million shares of Detroit Diesel common stock.
Mr. Penske said in a statement that the acquisition of the maker of gasoline-powered boat engines would allow Detroit Diesel to expand its "world-wide marine capabilities beyond diesel engines."
Outboard Marine, whose founder Ole Evinrude invented his first motor in 1907, makes two of the leading brands of outboard engines: Evinrude and Johnson. The company also is a leading manufacturer of aluminum, fishing and pleasure boats. Among its brands are Chris-Craft, Javelin, Stratos and Four Winns.
Because boat manufacturing is a competitive and cyclical industry, there has been speculation that whoever acquired Outboard would spin off the boat segment. Indeed, boats have been a drag on Outboard Marine's earnings and a distraction for top management in recent years. In fiscal 1996, boats accounted for about 43% of Outboard Marine's $1.12 billion in sales.
Ludvik Koci, Detroit Diesel's president and chief operating officer, said in an interview that it was premature to say whether his company would sell the boat side of Outboard Marine's business. But he also said that boats and engines are "completely separate businesses" and that "obviously, we have a greater kinship with the engine side of the business."
Harry W. Bowman, Outboard's chairman and chief executive officer, said in an interview that sales of both boats and engines are "soft." He also said his own future was unclear.
Outboard Marine, based in Waukegan, Ill., reported a loss of $21.6 million, or $1.07 a share, in its fiscal first half ended March 31. In the year-earlier period, it had a loss of $11.3 million, or 56 cents a share. In April, the company suspended its dividend and announced it was searching for "strategic alternatives."
Mr. Bowman and Mr. Penske each spoke highly of Outboard's Ficht fuel-injection technology, which it acquired from a German concern and for which it now is seeking users in various industries. Designed to meet forthcoming federal emission standards for two-cycle engines, Ficht engines are said to run more efficiently and use less fuel than current models. Outboard Marine is featuring the technology in new Johnson and Evinrude models, and is calling on makers of everything from snowmobiles to lawn mowers as potential users as well.
Copyright © 1997 Dow Jones & Company, Inc.