M & A Roundup – Washington Update: Exide/GNB Aims For Scale Economies

The $368 million acquisition of Pacific Dunlop Ltd.’s battery business, GNB Technologies, by Exide Corp. is an example of a basic industrial business reaching for size to achieve economies of scale. “The potential acquisition of GNB makes tremendous strategic sense and is a significant step in our remaking of Exide as the world leader in stored electrical energy,” said Robert Lutz, Exide’s chairman and CEO. A mighty player in industrial batteries Exide is the largest manufacturer of automotive and industrial lead-acid batteries. GNB is the U.S.-based part of Pacific Dunlop’s global battery business. About 20% of the Pacific Dunlop battery operations, also included in the transaction, are outside of the U.S. The parties said that the deal adds GNB’s strong U.S. industrial battery business to Exide’s industrial strength in Europe. Both companies also make consumer batteries for the transportation sector, including car batteries. Exide, based in Reading, Pa., is buying the battery business for about $368 million, which includes $333 million in cash and 4 million Exide shares. GNB, based in Atlanta, has annual sales of about $1 billion compared with Exide’s $2.4 billion. “This deal is good for the industry because it removes a weak producer [GNB], and should take some of the irrationality out of bids for new business,” said John Daviduk, an auto supplies analyst at Goldman, Sachs & Co. He added that there were rumors in the marketplace that GNB was cutting prices to hold customers. The Goldman analyst also noted that the battery business operates in a very competitive marketplace with tight margins so there would likely be few suitors for GNB other than players already in the industry. One industry source, who wished to remain unidentified, said he is concerned about the debt load that Exide will incur by buying GNB. “They are already carrying a lot of debt. I don’t know if it makes sense to load on more.” However, Daviduk said that while that is a legitimate concern, he expects Exide’s banker, Credit Suisse First Boston, to successfully manage the issuance of high-yield bonds to finance the purchase. The deal is part of a reorganization of GNB’s parent, Pacific Dunlop Ltd., based in Melbourne, Australia. The company has announced that it is also selling its electrical distribution business. On the seller’s side in the Exide/ GNB sale, Pacific Dunlop CEO Rod Chadwick said in broadcast remarks: “The deal requires two things: it requires Federal Trade Commission approval in the U.S. and it requires financing approval by Exide’s bank, but I think both issues will be put behind us in due course.”