In a case of a big fish swallowing a vulnerable competitor, automotive interior giant Johnson Controls Inc. plans to buy Becker Group Inc. for between $550 million and $600 million.
The deal, announced April 27, shocked industry experts, who did not expect reclusive Becker Group to give up its 44-year-old family business. With roots as a toolmaker, the Sterling Heights, Mich.-based company has been reshaped into a globally powerful, $1.3 billion plastic interior parts supplier.
But the asking price, coupled with recent management defections and some lost automotive contracts at Becker Group, might have nudged the deal forward. Former Becker executives and sources close to the company said that Chief Executive Officer Charles Becker's aggressive, top-down management style was both a catalyst for growth and a burden once the firm became a major automotive injection molder.
Experts also say that JCI, while a good match to lead closely held Becker Group to new heights, could have some difficulty integrating the injection molder's management culture with its other assets.
The sale, which includes an unspecified level of debt, is scheduled to close this summer, according to officials with JCI's Plymouth, Mich.-based automotive systems group. Several analysts pinned that debt figure at about $325 million.
JCI, which had wanted to cement its European standing, now says it will be the leading interior supplier on that continent. Becker Group's large European presence — about 70 percent of its sales come from Europe — and its $75 million Megatech Engineering Inc. operation in Warren, Mich., cemented the purchase, said Chairman James Keyes of Glendale, Wis.-based JCI.
JCI also will buy Becker's two tooling companies, Perfect Mold Co. and J.B. Rath Co., both based in Sterling Heights. Leonard Becker started Perfect Mold in 1954.
The acquisition includes 51 Becker Group plants in North America and Europe and 8,400 employees. In North America, the company operates 177 injection presses at 14 facilities. Products include instrument panels, door panels, center consoles and headliners.
``We've seen very explosive growth in the automotive sector in the last 10 years,'' Keyes said at an April 28 news conference. ``To be complete as an [interior] supplier, a couple of things were missing strategically. Engineering in North America and an additional manufacturing and engineering footprint in Europe were obviously high priorities for us.''
While JCI officials said future plans must be decided, insiders believe the Becker name will disappear and its operations be folded into JCI's interior-parts landscape.
JCI plans to make Becker Group's European operation, based in Wuppertal, Germany, its flagship for interior parts production in Europe, said JCI spokesman Jeff Steiner.
That operation joined Becker Group in January 1996 when the supplier bought Wuppertal-based Gebr. Happich GmbH. The German auto interior parts molder had 1995 sales of $850 million, nearly twice that of Becker.
On the North American continent, JCI's Prince Corp. operation in Holland, Mich., will continue in the lead role as that company's interiors-focused engineering center, Steiner said.
The status of Charles Becker is up in the air. He said during the news briefing that he wants to stay with JCI in some capacity.
The decision to sell the company had evolved from a discussion about a possible joint venture last September, said John Barth, JCI executive vice president for the automotive group. By January, both companies decided that they would be served better by an acquisition, he said.
Becker said he cast aside family sentiment in favor of a business decision that would help the supplier grow on the world stage.
``It was a decision of being a larger fish in a small pond or growing bigger and better,'' Becker said. ``The industry places such demands on suppliers to grow globally, and we needed to link up with a bigger and better player.''
However, outside analysts and former executives said the decision also might have been linked to slow growth and recent management strife at Becker Group.
Last year several top managers left Becker Group, including Chief Operating Officer Bob Albert, a former Dow Automotive executive, and Patrick Kirby, Becker executive vice president and head of Megatech. At least five other executives at the director level and above had exited since August, when Kirby resigned.
Several sources said Becker's aggressive, hands-on approach could have contributed.
``They had fairly significant management turnover, and that's indicative of internal problems,'' said Dennis Virag, principal of Automotive Consulting Group Inc. in Ann Arbor, Mich. ``[Charles Becker] is very opinionated and has difficulty trusting in the decision-making abilities of employees. The basic problem was that the organization outgrew the individual.''
In the wake of, and possibly due to, employee turnover, the company also lost several programs with automakers, said analyst Craig Cather of CSM Corp. in Okemos, Mich.
Cather did not divulge details, but the lost business included a contract to make interior trim parts for Chrysler Corp.'s redesigned minivan due out in the year 2001, industry sources said. Textron Automotive Co. of Troy, Mich., became the sole supplier to Chrysler for that program.
The firm also lost a contract to make parts for Volkswagen AG in Europe, said another source.
Several sources said Becker was having trouble assimilating the European operation and faced some quality and performance issues in Europe. However, by all accounts, the renamed Becker Europe continued to be a force there.
``I expect that some challenges with customers and management turmoil probably accelerated the sale of the Becker family business,'' said Craig Fitzgerald, a partner with consulting group Plante & Moran LLP in Southfield, Mich. ``It most likely weighed very heavily on them and became discouraging.''
Becker Group's sales had hovered near the $1.3 billion mark since the Happich acquisition in 1996. Meanwhile, Becker's North American injection molding sales had dipped from $411 million in 1996 to $380 million last year, placing it eighth in Plastics News' recent ranking.
The sale would position JCI as a leader in Europe. The firm expects to record $3.4 billion in European sales in 1998 with the acquisition, Barth said.
Southfield, Mich.-based Lear Corp., a major JCI competitor, recorded about $1.9 billion in European sales last year, said Lear spokesman Tony De Lorenzo. Since then, however, the company has bought interior suppliers in Italy and England, with annual sales of about $190 million, and Lear plans to buy the global seating business of Troy, Mich.-based Delphi Automotive Systems, the parts-making unit of General Motors Corp.
Wall Street analysts generally regard the Becker acquisition as favorable to JCI, which recorded $11.1 billion in 1997 sales. JCI's automotive group accounted for $8.02 billion of that total.
``Most automotive parts companies need to become global to develop projects'' with original equipment manufacturers, said equity analyst Richard Hilgert of Detroit-based First of Michigan Corp. ``And engineering expertise is tough to come by in Detroit. It should be a heck of a race between Lear and JCI.''
JCI's stock price rose 87 cents, closing at $57.50 per share, on April 28, the day after the acquisition was announced. The announcement was made after the market closed April 27. JCI's stock had slipped $1.63 on April 27, closing at $56.63 per share.
Reporter David Sedgwick of Automotive News, a sister publication of Plastics News, contributed to this report.