Eagle Pacific Industries Inc. announced Dec. 14 it will buy Lamson & Sessions' PVC pipe business for about $58 million.
But some observers say the bigger news is a deal, announced the same day, between Minneapolis-based Eagle Pacific and Condea Vista Co., a Houston-based PVC resin producer. Vista is trading its PVC resin plant in Oklahoma City for a major equity stake in Eagle Pacific.
Vista long has been a supplier of Lamson's neighboring Oklahoma plant. That plant, as well as Lamson's pipe plants in Pennsylvania, Florida and California, now belong to Eagle Pacific.
The merger gives Eagle Pacific the capacity to produce as much as 450 million pounds of PVC resin a year. Eagle Pacific will consume about 330 million pounds of Vista's resin in 1999, with the rest to be sold on the open market, Chief Executive Officer William Spell said in a teleconference Dec. 17.
Spell said the move puts Eagle Pacific in third place nationally behind the other two extruders that have resin-making in their family trees: J-M Manufacturing Co. Inc., a subsidiary of Formosa USA of Livingston, N.J; and North American Pipe Corp., a unit of Houston-based Westlake Group.
Among small and medium-size PVC pipe makers, however, the deal puts Eagle at the top, he said.
Spell projects that Eagle Pacific's combined sales will reach about $235 million in 1999, including about $15 million in anticipated PVC resin sales.
Overall, the purchase is ``a really good fit for us,'' Spell said.
``It sets the stage for us to do a lot of exciting things down the road.''
Vista will own 45 percent of Eagle Pacific's stock and a seat on its board of directors. Vista is a subsidiary of oil and chemical company RWE-DEA AG of Hamburg, Germany.
The company claims an 8 percent share of the U.S. PVC resin market, with plants in Oklahoma City and Aberdeen, Miss., that produce 1.4 billion pounds annually.
The Vista deal ``is the bombshell in the industry,'' said James Rash, president of Pacific Western Pipe Co., an Eagle Pacific competitor.
``It's another vertical integration move,'' he said. ``Now we have another resin maker who is a competitor, and that's a concern.''
But securities analyst Saul Ludwig of Cleveland-based McDonald & Co. is philosophical: The merger, he said, ``seems to be a move to further consolidate the players in the rigid pipe business.''
``One less [competitor] is usually a step in the right direction,'' he said.
Eagle Pacific is paying Lamson $45 million in cash, plus $6 million in Eagle Pacific notes and 785,000 shares of common stock.
In turn, Ludwig said, the sale leaves Lamson & Sessions ``with a business in which they are a more significant factor, and with a lot of cash with which to fortify that business.''
John B. Schulze, Lamson & Sessions CEO, confirmed Ludwig's observation, stating that Lamson intends to put a lot more muscle behind building its electrical and cable management products, marketed under the Carlon brand name.
Schulze said his company has an eye on possible acquisitions.
``There are a lot of small to medium-size companies that we are talking to about acquiring,'' and at least one or more acquisitions will be completed in the coming year, he said. ``We will remain fairly active in terms of where we're looking to grow our business.''
Part of that growth already is under way. Lamson & Sessions also announced Dec. 14 that it is completing construction of a 350,000-square-foot distribution center in Columbia, S.C. Operations there are to begin in February. The company's distribution will be consolidated at the new site and its Woodland, Calif., facility.
The main benefit of getting out of pipe, though, will be stability.
``We will be a $180 million [per year] revenue company, will remain publicly owned and on the New York Stock Exchange, but we will be less subject to change in prices of PVC resin.'' Schulze said.
Conversely, Eagle Pacific remains ``dedicated and committed to the plastic pipe business,'' Spell said.
``We will continue to expand our business and update and expand Lamson's portion of the business. We put a lot of money back into our business and will continue to do that in the future,'' he said.
Spell declined to give specifics about expansion plans, but acknowledged that Eagle Pacific no longer will concentrate solely on Western states. Eagle Pacific operates three pipe plants in Nebraska, Oregon and Utah, and a distribution center in Oregon.
``We're a national player now in the market. We will continue to see where that takes us,'' he said.
Overall, one industry source predicts, the acquisition will make Eagle Pacific the third- or fourth-largest PVC pipe maker in the United States.
According to a Plastics News ranking published in June, Eagle Pacific's 1997 sales were $71.7 million, placing it at No. 32 among the top North American pipe, profile and tubing extruders. Lamson & Sessions ranked No. 12 with estimated pipe and profile sales of about $200 million, and total 1997 sales of $272 million.
Spell said he expects the deals to close by the end of the first quarter of 1999. The transactions are subject to Eagle Pacific shareholder approval and antitrust clearance.