Outboard Marine Finds a Buyer

OUTBOARD MARINE FINDS A BUYER
DETROIT DIESEL MAY HAVE FOUND BARGAIN

Chicago Tribune
07/10/97
Page 1
by Sallie L. Gaines, Tribune Staff Writer

Detroit Diesel, a leading manufacturer of engines for heavy-duty vehicles, said it will buy Waukegan-based OMC in a two-phase deal valued at $500 million--a price sure to leave many investors in the red. After cash-strapped OMC announced in April it had hired Salomon Brothers Inc. to find a source of cash, even if it meant a merger or sale, its stock price began to climb, rising as high as a close of $19.50 on Tuesday.

But in the deal announced Wednesday, Detroit Diesel first will buy 67 percent of OMC stock for $16 a share in cash.

The remainder of the stock will be purchased for a combination of cash and Detroit Diesel stock. The $500 million price tag also reflects $180 million in OMC debt that Detroit Diesel will assume.

Analysts speculated that OMC, desperate for cash, priced itself too low. But Harry W. Bowman, OMC's chairman and chief executive, noted that the company lost $7.3 million in fiscal 1996 and was $21.6 million in the red for the first six months of fiscal 1997.

"I think you can draw some conclusions about the fairness of the value of the offer," Bowman said.

OMC's stock closed Wednesday at $15.87, down $3.62. Stock of Detroit Diesel, a subsidiary of closely held Penske Corp., rose $2.12, to $25.87.

Its chairman is auto racing figure Roger Penske.

OMC will be merged into Detroit Diesel, said Detroit Diesel President Lud Koci.

The two companies' engine manufacturing operations have a clear fit, Koci said. "We would like to be an engine supplier of any size in any type, and this puts us into the gasoline market for the first time. It will put us into engines from as small as a half-horsepower up to 3,750 horsepower."

Less clear is whether OMC's boat-manufacturing operations will find a home at Detroit Diesel, or whether they'll be sold.

Koci was as lukewarm about OMC's boat operations as he was enthusiastic about the engines. He said only that it was "probably premature" to discuss whether Detroit Diesel will sell the boat units.

But other Detroit Diesel executives said the company may retain the boat operations, or seek partners for them, at least until they're profitable.

And Bowman, while admitting he is not privy to Detroit Diesel's plans--he said he doesn't yet know his own fate--said he doesn't expect the company to be broken up.

"They did a great deal of due diligence around (the boat operations) and came to the conclusion that they wanted to buy the entire OMC business," Bowman said. "I have to conclude from that they are committed to the entire business."

OMC's boat brands include Chris-Craft, Four Winns, Suncruiser, Stratos, Grumman, Seaswirl and Sunbird.

Its engines are the highly respected Johnson and Evinrude brands. Their reputation and market share were a major attraction of OMC, Koci said.

OMC has a cleaner, more-efficient engine technology, called Ficht.

But the company didn't have the capital to get the new versions of engines to market.

The technology was another attraction of OMC, Koci said. Detroit Diesel has been using a similar technology in larger engines for a decade, Koci said, and the merged company, which had combined sales of $3.2 billion in 1996, can benefit from shared technical and engineering expertise.

Koci said it was too early to say whether production of Evinrude and Johnson engines will be shifted, and whether any OMC employees will lose their jobs. But he indicated Detroit Diesel doesn't plan immediate wholesale changes.

"They have a strategic plan that they have started pursuing to make their manufacturing as effective as possible. We will certainly be pursing that plan and looking to see if we can make it better in any way."

Bowman launched that strategic plan when he came on board as CEO early in 1995. He consolidated the seven boat brands into a single unit, replaced more than half of the company's top managers and tried to bring a marketing orientation to the company. But depressed sales kept earnings down, leading to the decision to sell.

That decision, quite simply, means OMC will survive in fact, if not in name, Bowman said.

"OMC has been a leader in this industry," he said. "By having Detroit Diesel as an acquirer of the company, we now have a group that shares the business, understands and has bought into the strategic direction we were going and has the financial resources to help us achieve these goals. What is going to emerge from this is a company that will be a much stronger, aggressive, reliable competitor long-term."

Copyright 1997 The Tribune Company

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