Kerr Group Inc. has agreed to acquire Sun Coast Industries Inc. in a deal valued at $44.2 million. Both firms have experienced economic turmoil and management changes in recent years.
Announced jointly Jan. 28, the transaction represents a major thrust for Kerr's new owners, private investment fund Fremont Partners LP of San Francisco. Fremont took control in August with an eye on enlarging Kerr's plastic packaging operations, largely through acquisition. Kerr is based in Lancaster, Pa.
Upon completion, the sale will conclude a strategic realignment — and lead to the eventual winding down — of Dallas-based Sun Coast Industries.
In essence, Kerr is buying Sun Coast's closures division in Sarasota, Fla., with 155,000 square feet of manufacturing and warehousing facilities, and real estate for expansion.
``They have a much better position in the closures business'' than Kerr has now, Richard Hofmann, Kerr president and chief executive officer, said in a telephone interview.
The Sun Coast unit makes linerless, foil or foam-lined and tamper-evident polypropylene and polyethylene closures and lids for food, beverage, chemical and pharmaceutical containers. Sun Coast formed the business in 1977.
A medium-sized player in its niche, the closures division had sales of $28.9 million for the fiscal year ended June 30. Sun Coast had total sales of $66.7 million.
Kerr will acquire all of the outstanding shares of Sun Coast common stock for $10.75 per share in cash under a definitive merger agreement. Sun Coast has 4.1 million shares outstanding. In trading on the New York Stock Exchange, Sun Coast shares closed at $6.875 per share Jan. 27 and jumped to $10.438 on the day of the announcement.
A tender offer, beginning not later than Feb. 3, is subject to Kerr receiving at least a majority of the fully diluted shares of common stock in Sun Coast.
Sun Coast's largest shareholder has agreed ``to tender his shares into Kerr's tender offer,'' Hofmann said. Sun Coast's proxy statement said private investor James M. Hoak of Dallas owned 10.7 percent, Pioneering Management Corp. of Boston owned 9.6 percent and Wellington Management Co. of Boston controlled 5.8 percent as of Oct. 1. Seven directors and executives held a total of 8 percent, including options.
In late 1996, Sun Coast categorized its melamine dinnerware and food-service operations as discontinued businesses. Carlisle Foodservice Products Inc. of Oklahoma City acquired the food-service division for $2.1 million in February 1997. Nova Plast SA de CV, a Sun Coast subsidiary in Mexico City, remains on the market.
Sun Coast agreed in December 1997 to sell its chemicals division, which includes melamine and urea resins and compounds, to the Borden Chemical Inc. subsidiary of Columbus, Ohio-based Borden Inc. The Dallas operations began about 50 years ago. That deal is on track for completion in the first week of February.
``The sum of the parts clearly are greater than the combined entity,'' Eddie Lesok, Sun Coast president and CEO since April 1996, said in a telephone interview. The business units of Sun Coast ``were good companies but were not necessarily synergistic. Selling off to larger businesses creates larger synergies ... that we have not had before.''
Kerr had 1997 sales of $109.5 million, but Hofmann said he envisions Kerr growing to sales of ``$400 million to $500 million during the next few years,'' through acquisitions and internal growth.
In addition to Lancaster, Kerr operates plants in Bowling Green, Ky.; Ahoskie, N.C.; and Jackson, Tenn. Kerr makes tamper-evident and child-resistant closures and plastic vials and bottles for pharmaceutical, drug, food and distilled spirits applications.