Observers applauded last week's announcement of a plan for Hexcel Corp. and Ciba-Geigy Ltd. to consolidate their structural material businesses into an entity that would have more than $600 million in annual sales. The deal ``looks like a positive for both companies,'' with Hexcel having a stronger presence in the U.S. market and Ciba playing a comparable role in Europe, said David Molowa, an analyst with Bear, Stearns & Co. in New York.
Steve Tighe, a pharmaceutical analyst with J.P. Morgan Securities in New York, said the Ciba Composites unit has ``been a weak performer'' and the deal means ``Ciba is trying to build up its pillars'' in health care, agrochemicals and industrial chemicals. Ciba-Geigy Ltd., based in Basel, Switzerland, reported 1994 sales of $16.2 billion.
Jeffrey Wiegand, analyst with Robotti & Eng in New York, termed Hexcel's willingness to double its outstanding shares ``a mild negative,'' but said the deal ``clearly makes Hexcel a world-class player,'' with Ciba-Geigy managers ``willing to merge their operations.''
Composites industry consult-ant Benjamin Rasmussen of Watchung, N.J., wondered why Hexcel ``was compelled to give up [almost] half of its stock own-ership and $80 million to get this business,'' and whether Hexcel plans other consolidations. ICI Fiberite, Cytec Industries Inc. and Hercules Inc. also supply prepreg and composites for aerospace and golf-shaft uses.
After negotiations during eight weeks, Hexcel and Ciba-Geigy executives signed a letter of intent to combine advanced composite, honeycomb, reinforcement fabric and structural component businesses. They informed customers and suppliers in a flurry of conference calls after the stock market closed July 11.
Hexcel would enlarge its critical mass, and Ciba-Geigy would improve prospects for a composites business that represents 1.8 percent of sales. The new stand-alone company would continue the Hexcel name.
Ciba-Geigy would receive 49.9 percent of Hexcel's common stock in exchange for Ciba Composites. Hexcel would issue new stock, about doubling its current 18.1 million shares. Also, Hexcel would pay about $80 million in cash and securities to reflect its debt and certain liabilities in excess of amounts carried by Ciba Composites. The firms face due diligence and multiple approvals, seek a definitive agreement by Sept. 30, and target the end of the year for a closing.
Standstill provisions limit Ciba's near-term ownership of additional Hexcel shares. After three years, Ciba could acquire as much as 57.5 percent of Hexcel shares, and, after five years, 100 percent.
John J. Lee, 58, chief executive officer of Hexcel, would become chairman and chief executive officer of the new company, and Jurgen Habermeier, 54, president of Ciba Composites, would be president and chief operating officer. Hexcel terminated a CEO search so managerial continuity would be maintained during consolidation.
Hexcel had 1994 sales of $313.8 million and employs 2,150 including 1,425 at Pleasanton, Calif., headquarters and six U.S. plants and 725 at facilities in Belgium, England and France. Hexcel filed Dec. 6, 1993, for protection under Chapter 11 of the U.S. Bankruptcy Code in Oakland, Calif., and emerged from that status Feb. 9.
Ciba Composites had 1994 sales of $293 million and employs 2,371 including 243 in the Anaheim, Calif., division headquarters and plant, 970 at material operations in England, France and Austria, and 1,158 in structure and interior operations in Washington state and Italy.
For now, Ciba Composites has dropped plans for an Anaheim honeycomb plant to replace the capacity of a Miami facility that Ciba sold last year to a joint venture of Engelhard Corp. and ICC Technologies.
Hexcel's former operations in Chandler, Ariz., which were related to the B-2 bomber, might have raised a U.S. defense technology objection to a deal involving a foreign firm. Hexcel sold the business to Northrop Grumman Corp. in January.