U.S. Industries is increasing its presence in the plumbing and bath products industry as it adds to its stable of plastics processors.
The Iselin, N.J.-based conglomerate and Zurn Industries Inc. of Dallas on Feb. 17 announced they planned to merge. The agreement calls for U.S. Industries to acquire 80 percent of Zurn's stock for about $765 million. Both companies are publicly traded and listed on the New York Stock Exchange.
If the deal goes through as planned in April, the combined company would generate more than $3 billion in annual sales. According to U.S. Industries, that would make the new united firm the second-largest bath and plumbing supplier in North America.
The deal also would unite some big names in the plastics industry. U.S. Industries brings whirlpool bath and spa maker Jacuzzi Inc. to the table. Other members of the U.S. Industries family include toy maker Ertl Co., custom injection molder Leon Plastics Inc. and lawn and garden toolmaker Ames Co., which owns custom injection molder Southeastern Plastics.
Zurn owns U.S. Brass Corp. of Plano, Texas, which claims to be the largest producer of plastic pipe for the potable water market. Other Zurn subsidiaries produce a range of tubs, sinks and other plumbing supplies.
The match seems to be a good one, according to Jim Samuels, an analyst with Solomon Smith Barney in New York who has covered U.S. Industries.
``The only place where the companies overlap is on the plastic side of the plumbing fixtures business,'' Samuels said. ``The rest seems to be product extension or product expansions.''
The merger also would fit in with an ongoing strategy U.S. Industries has had since its birth in 1995.
``They have always said they wanted to sell down noncore businesses to pay down debt and for their program of acquisitions,'' Samuels said, adding that the company had looked at Eljer Industries Inc., the immediate parent of U.S. Brass, before Zurn bought Eljer in 1996.
One of the reasons U.S. Industries may have a stronger appetite for U.S. Brass now than before is a recent announcement indicating the pipe maker's legal woes may be subsiding.
U.S. Brass is recovering from a series of lawsuits linked to claims that its polybutylene plumbing system leaked. Zurn on Jan. 30 said U.S. Brass, which now produces cross-linked polyethylene pipe, has reached a reorganization plan approved by the U.S. Bankruptcy Court in Plano, Texas.
U.S. Brass had filed for protection under Chapter 11 of the U.S. Bankruptcy Code in May 1994. The court had rejected three previous reorganization plans.
The plan establishes a ``Brass Trust'' to pay claims related to the PB plumbing suits. The trust will be funded with at least $73.4 million in cash and debt, along with any money U.S. Brass can recover from its insurance carriers. All PB plumbing claims against U.S. Brass or Zurn will be channeled to the trust, according to a news release.
``What that did was put a cap on [U.S. Brass' liability] instead of it being open-ended,'' Samuels said. ``It would be foolhardy to assume an open-ended liability.''
U.S. Industries has made a number of transactions in the plastics industry since being spun off from Hanson plc of London in 1995. The company bought Sunbeam Corp.'s outdoor furniture business in the spring of 1997, but almost immediately sold the resin side of the unit to U.S. Leisure.
U.S. Industries also sold its QPF unit, formerly Quantum Performance Films, to Hood Cos. in 1996.
One result of the sales has been to reduce the $1.4 billion in debt U.S. Industries' assumed as part of its birth. Asset sales have totaled about $933 million since U.S. Industries separated from Hanson in 1995, according to a news release from Duff & Phelps Credit Rating Co. of New York.
Another result of the sales has been to raise cash for other possible acquisitions. U.S. Industries has stated in securities filings it ``seeks to enhance the company's core operations through `bolt-on' acquisitions of complementary businesses.''