Cincinnati Milacron Inc. will spend $210 million to buy Johnson Controls Inc.'s blow molding and structural foam molding machine business — and Milacron's top plastics executive said extrusion could be the next target.
Milacron announced Aug. 4 that it will buy JCI's Plastics Machinery Division, which generates annual sales of about $190 million. That means Milacron's Plastics Technologies Group in Batavia, Ohio, will approach $1 billion in annual sales.
``Obviously, my focus now is on extrusion,'' said Harold Faig, Milacron vice president of plastics machinery worldwide.
He said Milacron ``is certainly always looking to broaden our position in single-screw [extruders] in the U.S.''
First, however, Milacron will have to digest its recent plastics machinery acquisitions — JCI, and the much smaller Autojectors Inc., an Avilla, Ind., maker of vertical injection molding machines.
Milacron is a major manufacturer of injection molding machines. In blow molding, the company until now has specialized in accumulator-head machines that mold large industrial parts, such as drums and trash containers. JCI's Plastics Machinery Division includes the diverse Uniloy line of blow molding machines to make a range of consumer packaging, from polyethylene detergent bottles and milk jugs to PET bottles.
JCI's plastics machinery business employs 800 people in Michigan; Milan and Florence, Italy; and Berlin.
``We will operate Uniloy as an independent, stand-alone unit, with its own sales force and headquarters to remain in Manchester, Mich.,'' Faig said.
James Abbiati, Milacron's vice president in charge of extrusion and blow molding, said there is very little overlap between the two firms. Accumulator-head machines account for only about 5-10 percent of JCI's machinery sales, and much of that business is in Europe, he said.
``What's really exciting to me is that we're getting into the rigid packaging and container market,'' Abbiati said. ``It gives us a nice balance with our [existing] automotive and construction market.'' He said consumer-product blow molding may be less cyclical than other end markets.
Uniloy equipment includes: intermittent extrusion machines, continuous extrusion shuttle machines, continuous extrusion vertical wheel machines and injection stretch blow molders. The firm claims to be the world's largest maker of extrusion blow molds.
Milacron also gains technology in structural foam machines, sold under the Uniloy-Springfield brand. In recent years, plastic pallets and shipping containers have caused a boom in this small segment of plastics equipment.
Analysts — and Wall Street — applauded the deal. In New York Stock Exchange trading, Milacron's stock rose $1, to close at $23 the day of the announcement, Aug. 4. That same day, the Dow Jones Industrial Average fell nearly 300 points.
Mark Koznarek, an analyst at Cleveland-based Midwest Research, said Milacron was one of the few industrial stocks to post a gain that day. He said the acquisition will add 10 cents a share for earnings in 1999. Most acquisitions initially eat into earnings, he said.
``It looks like [Uniloy] is a very profitable business and it adds quite significantly to Cincinnati's earnings,'' Koznarek said.
Before the JCI pickup, Milacron's accumulator-head blow molding business generated sales of only about $30 million, said another Cleveland analyst, Walter Liptak at McDonald & Co. He called the deal ``another step in the right direction [for Milacron], in the transformation away from the machine tool business and putting a greater focus in plastics machinery.''
Milacron will finance the deal through cash and debt. Both Koznarek and Liptak said Milacron's percent of debt to capitalization — about 55 percent — is fairly high, but not a big problem.
Liptak predicted Milacron will make several small acquisitions, will work to get its debt more under control, and then probably make another major purchase.
For Johnson Controls, an $11 billion Glendale, Wis.-based company, the deal follows the 1997 sale of Plastic Container Division blow molding unit to Schmalbach-Lubeca AG/Continental Can Europe. Schmalbach-Lubeca did not want the machinery business.
JCI now is concentrating on automotive interior systems and building controls businesses. A JCI spokesman said proceeds from the machinery sale will pay down debt from its acquisition of automotive plastics molder Becker Group Inc., which closed July 1.
Faig said Uniloy's customer base is multinational. No single customer accounts for more than 4 percent of sales. Aftermarket products and molds generate about 30 percent of sales.
The sale should close in six to eight weeks.
Executives at other machinery companies said they were not surprised by the announcement.
``I say it was almost a matter of time when it was going to happen. This machinery group — considering the size of JCI — it doesn't fit anymore,'' said Martin Stark, president of blow molding machine builder Bekum America Corp. of Williamston, Mich.
Executives of other blow molding machinery companies declined to comment.
Karl Pieper, president of injection press maker Engel North America, said Milacron will have more success if it keeps Uniloy independent — similar to how Milacron has run its D-M-E mold component subsidiary.
``If they want to control it from headquarters, they might have a problem,'' Pieper said.
Mike Santa, executive vice president of Krauss-Maffei Corp., believes the acquisition trend will continue.
``There's a whole lot of companies trying to go after a rather small market,'' Santa said. ``When you have a situation like that, all the ingredients are ripe for all these consolidations you have going on today.''