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April 22, 1996 02:00 AM

HEXCEL BUYING HERCULES' COMPOSITE UNIT

Roger Renstrom
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    Hexcel Corp.'s move last week to add carbon graphite fiber as a core business enhanced the reputation of John J. Lee, chairman and chief executive officer, as a top-level, highly effective deal maker. In a surprising turn of events, Hexcel said April 16 it has executed a definitive agreement to acquire the business of Hercules Inc.'s composite products division for about $135 million. Closing is expected by June 30, subject to antitrust and regulatory clearances.

    On Dec. 21, Hercules said Fiberite Inc. had agreed to acquire the division, also for about $135 million, under a letter of intent.

    An exclusivity feature of that letter expired in February, opening the door for other interested parties.

    In response to a question at a Feb. 21 meeting of Hexcel shareholders, Lee indicated an interest ``in the terms and conditions'' of any Fiberite-Hercules deal. Apparently, he pushed toward negotiations with Hercules and, with his financing expertise, compressed what usually takes months into a few weeks.

    The shareholders had ap-proved Hexcel's acquisition of Ciba-Geigy Ltd.'s composites division, setting in motion two to three years of restructuring.

    Ciba, based in Basel, Switzerland, owns 49.9 percent of the new Hexcel.

    The Hercules agreement is ``a strategic move that will benefit Hexcel long term, even though it puts them in further debt,'' said industry consultant Benjamin Rasmussen of Watchung, N.J. ``The carbon fiber segment fits in with Hexcel's weaving capability and prepregging position.''

    Juergen Habermeier, Hexcel president and chief operating officer, noted, ``Structural weaving, prepregging and especially new process technologies require understanding of, and access to, carbon fiber.''

    Security analyst Jeffrey Wiegand of Robotti & Co. in New York likes the agreement and sees a bigger Hexcel becoming a better company ``within limits.'' He added, ``I think they will have the interest covered.''

    Hexcel received a commitment from Credit Suisse, a subsidiary of CS Holding in Zurich, Switzerland, for a new, fully underwritten $300 million bank credit facility to fund the acquisition, refinance existing indebtedness and meet corporate obligations.

    Hercules' composite products division employs 450, recorded 1995 sales of about $100 million and has preimpregnated material and graphite fiber operations in Magna, Utah; a prepreg unit in Parla, Spain; a polyacrylonitrile precursor plant in Decatur, Ala.; and a research and corporate facility in Wilmington, Del. Hercules uses the precursor from Decatur in making graphite fiber in Magna.

    Hercules supplies prepregs to commercial and military aerospace markets in a pattern that Hexcel believes will complement and extend its existing prepreg product lines.

    ``The acquisition is consistent with our long-term strategy to add complementary product lines to Hexcel's core business,'' Lee said.

    Harry Tucci continues as vice president and general manager of the Hercules division until the deal is completed, but he is not expected to continue with the business under Hexcel ownership, said Amy Binder, Hercules spokeswoman.

    Wilmington, Del.-based Her-cules operates 45 chemical manufacturing plants around the world and has been shedding noncore assets.

    Hexcel, based in Pleasanton, Calif., reported profit of $2.7 million on 1995 sales of $350.2 million, reflecting structural material operations at facilities in the United States, Belgium, England and France.

    Hexcel had anticipated 1996 sales figures of about $700 million, including those from former Ciba operations, but could reach $800 million with the Hercules volume.

    Officials of Tempe, Ariz.-based Fiberite and its owners, Equitable Cos.' DLJ Merchant Banking unit, New York, and Carlisle Enterprises LP of La Jolla, Calif., were unavailable for comment.

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