BF Goodrich Divests ChemicalsTo Become a Top Gun in Aerospace

BF Goodrich Co. was close to completing a lengthy metamorphosis from a tire manufacturer to predominantly an aerospace equipment and systems producer as 2000 ended. A key move in the corporate overhaul was unveiled in late November when the 120-year old company agreed to sell its chemical operations – more popularly known as performance materials – to a group of LBO headliners led by AEA Investors Inc. and including DLJ Merchant Banking Partners and DB Capital Partners Inc. The $1.4 billion deal was scheduled for completion in the first quarter of 2001 when aerospace will account for about 85% of Goodrich’s business, with industrial products lines including seals, gaskets, bearings, and other products comprising the rest. The divestiture was the latest in a long series of strategically driven actions that featured Goodrich’s exit from the tire business more than a decade ago and a string of acquisitions, spearheaded by major aerospace deals, that refocused operations of the Charlotte, N.C.-based concern. Ultimately, however, Goodrich found it tough to handle two attention-demanding businesses in restructuring industries at the same time. Aerospace came up the clear winner and chemicals were deemed expendable. Goodrich spokesman Kevin Ramundo says that the company’s aerospace operations enjoy a favorable business mix and a strong position in an industry with near-term growth projected at 5% to 7% a year. “We have a very, very broad product line both in the products we manufacture and the aircraft that they go into,” he notes. “We also have a good mix between original equipment and service.” He says the aftermarket and service areas account for about 40% of an estimated $4 billion in aerospace revenues. Key products include landing gear, wheels, pylon systems, evacuation slides, sensors, collision warning systems, seating, and ice protection systems, among others. The growth prospects for components turned out by Goodrich, Ramundo says, hinge on increased deliveries of new aircraft and continued expansion of revenue passenger miles for airlines. “Every 20 years the commercial fleet doubles,” he says, “because more people want to fly.” Although he describes aerospace as “not incredibly capital-intensive,” Ramundo says it requires considerable attention and resources to keep abreast of technology and serve the demands of a shrinking customer base of aircraft manufacturers. “The customers want more systems and more solutions from their suppliers,” he states. “We have more than sufficient resources and people to handle the business.” On the chemical side, by contrast, Goodrich faced challenges being experienced by scores of mid-sized players in an industry buffeted by major restructuring and extensive shakeouts. Staying in requires extensive investment as mass and scale become increasingly critical and technology continues to advance. As a result, many smaller to middle-sized independent firms are selling and diversified companies with chemical sidelines are divesting them to concentrate on more promising operations. Goodrich, according to Ramundo, decided it couldn’t grow all three businesses at the same time and placed its bets on where it had “the best growth opportunities and synergies.” As leveraged players, the buying group probably will exit the chemicals business at some future time and could seek to sell to a firm that is regarded as an industry consolidator. Goodrich’s performance materials segment includes thermoplastic polyurethane, heat-resistant plastics, polymer emulsions, synthetic thickeners, resins, and additives. CEO David L. Burner says that the company will announce later how it plans to deploy the proceeds of the sell-off – composed of $1.2 billion in cash and $200 million in debt securities. Possibilities include debt repayment, share buybacks, and acquisitions. Although the company declined to talk about whether any of the funds would be earmarked for acquisitions, there is a likelihood that external expansion will continue to be part of the game plan. Acquisitions have formed a cornerstone of Goodrich’s surge to the front ranks in the aerospace industry and the equipment side continues to consolidate, suggesting that additional properties will be up for sale. Big-ticket aerospace acquisitions include Rohr Inc. in 1997 and Coltec Industries Inc. in 1999 – the latter deal also generating the bulk of Goodrich’s industrial products operations. Moreover, Goodrich was driving hard in the acquisition lane even as it was backing away from the chemicals business. In November, Goodrich agreed to buy the $152 million electro-optical systems unit of Raytheon Co., a producer of sensors and advanced optical systems, and the $35 million OEA unit of Autoliv Inc., which manufactures pyrotechnic devices for space, missile, and aircraft systems.