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January 23, 1995 01:00 AM

WHO WILL BUY PVC PIPE GIANT PW PIPE?

Bill Bregar
Senior Staff Reporter
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    The dominant West Coast PVC pipe extruder, PW Pipe, was put on the selling block Jan. 12 in a move that could rock the industry nationwide. Formally known as Pacific Western Extruded Plastics Co., PW Pipe has six plants in California, Washington and Oregon. According to Plastics News data, the company is North America's fourth-largest PVC pipe extruder, with an estimated $170 million in 1993 sales. PW Pipe's capacity is believed to be about 350 million pounds, or about 8 percent of the U.S. total for PVC pipe.

    The firm's parent, Simpson Investment Co., said it is selling PW Pipe to focus on its core wood, pulp and paper products.

    The hot question last week: Who wants to buy? Officials at several pipe companies expressed surprise at how the announcement was handled. Apparently, Simpson did not seek potential buyers for the firm first, instead opting to tell everybody at once.

    PW Pipe President James Rash said the company was profitable in 1994: ``That's why it's a good time to sell.''

    The firm operates pipe plants in Eugene, Ore.; Cameron Park, Perris and Visalia, Calif.; and Sunnyside and Tacoma, Wash. It makes PVC pipe from one-half inch through 24 inches in diameter, for drinking water, drainage, sewer, irrigation and electrical conduit.

    PW Pipe wants to find one buyer for all six pipe plants, Rash said in a telephone interview from the firm's headquarters in Eugene. That would make it the largest plastic pipe deal in recent years. The news release said PW Pipe ``will have a brighter future under ownership that will more aggressively invest and grow its business than would Simpson.''

    The Los Angeles investment firm BA Se-curities Inc., a subsidiary of BankAmerica Corp., will help with the sale.

    Rash would not identify likely buyers. He declined to say whether PW Pipe had negotiated with anybody before announcing the news.

    The real question could be: Who is large enough to digest all of the company? Only three PVC pipe companies are bigger, and last week none of them -JM Manufacturing Co., Ipex Inc. and Lamson & Sessions - were tipping their hands.

    Apache Plastics L.P. of Stockton, Calif., confirmed it plans to bid for PW Pipe. President Lawrence Beasley said Apache will bid to strengthen its position in California, where it runs three plants.

    Last week, speculation centered on two companies owned by Taiwanese resin producers: JM Manufacturing, the PVC pipe industry's largest player, and North American Pipe Corp., in recent years its most acquisition-minded. Formosa Plastics Corp. owns JM. North American Pipe is owned by Westlake Group.

    ``The money is in the hands of the Taiwanese,'' said Elliott Weinberg of TIE/Cross Gates Consultants of East Brunswick, N.J.

    Rom Rhome, a Houston consultant who specializes in the financial side of PVC pipe, said: ``I wouldn't be surprised if either one of the Taiwanese-controlled companies, Formosa or Westlake, would not take a very hard look at the PW opportunity.''

    PW Pipe's Rash identified JM and Lamson & Sessions as his company's biggest competitors.

    But Rhome also said a newcomer to U.S. pipe manufacturing could emerge, a company perhaps with roots in Europe or Korea. He does not, however, expect a buyer from the ranks of midsized, independent pipe extruders.

    ``I can't see how they could come up with the capital or how they could finance it, or justify the return on investment,'' he said.

    The industry has changed dramatically since Simpson bought PW Pipe in 1967. Back then, PVC pipe was a new, engineered product in a fresh, fast-growing industry displacing steel, copper and concrete pipe. PW Pipe became a powerhouse, rarely venturing beyond its Western base, according to pipe analyst Gil Eggleston, president of Eggleston and Van Vonno Inc. of Vero Beach, Fla.

    ``It's a very strong and a very good company. There have been rumors for some time that Simpson wanted to get out of pipe,'' Eggleston said.

    Today, although plastics still gain from material substitution, PVC pipe has become a commodity tied to overall construction, some years up, some years down. Profit is tied to demand, resin price, competition and how efficiently a company is run.

    Formal statistics have not been released, but PVC pipe, which consumes 4 billion pounds of resin a year, enjoyed a poundage increase of about 10 percent in 1994, industry officials said. But resin prices soared by 15 cents a pound in 1994, and pipe makers complain they had to eat some of the hikes.

    ``With the increases every month, it's very difficult to pass on the increases, especially when you're quoting jobs that will take place approximately two to three months down the road,'' said Eric Mingo, marketing group manager of Rehau Inc. Rehau of Leesburg, Va., will not bid for PW Pipe, he said.

    Charlotte Pipe & Foundry Co. of Monroe, N.C., also probably will not bid, said Charles Cobb, plastics division vice president there. Rehau and Charlotte do not sell on the West Coast.

    Privately, some pipe executives say prices of finished PVC pipe are influenced strongly by JM Manufacturing of Livingston, N.J. Its parent, Formosa Plastics, which also makes PVC resin, has built JM into a vertically integrated pipe behemoth with 13 plants. Formosa also sells resin to other pipe companies.

    Last week, it was unclear whether JM, which has three large pipe plants in California, intends to bid for PW Pipe. JM did not return telephone calls. But Apache President Beasley and Mingo, of Rehau, used the word ``monopoly'' to describe JM if it were to absorb PW Pipe.

    ``It would clearly be a mon-opolistic situation on the West Coast if JM purchased PW's pipe capacity,'' Beasley said. ``Companies like Apache would then exist at the whim of JM, which would be a very uncomfortable situation.''

    Mingo said the sale of PW Pipe ``wouldn't impact Rehau because we concentrate our efforts on the Midwest and Northeast. ... But JM would be quite a monopoly if they purchased PW. Our biggest concern is what JM has done to the market by using pipe to move their resin, and that's really kept pricing down.''

    Officials of North American Pipe, based in Booneville, Miss., and Houston-based Westlake also did not return calls. Speculation that Westlake one day might buy Pacific Western began in 1991, when Westlake acquired PW Pipe's two resin plants. That gave Westlake capacity to make 500 million pounds of PVC a year. Beginning in 1992, Westlake and North American Pipe began to pick up pipe plants.

    If North American Pipe ends up buying PW Pipe, it could surpass JM in sales and become the largest PVC pipe extruder.

    Ipex of Don Mills, Ontario, and Cresline Plastic Pipe Co. Inc. of Evansville, Ind., declined to say if they will bid. Officials at six other pipe firms could not be reached for comment.

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