Hercules working out its BetzDearborn buy
Philadelphia Business Journal - by Peg Brickley Staff Writer
WILMINGTON -- Hercules Inc. is cooking up a $3 billion debt offering with "equity-like" angles to pay for its purchase of Trevose-based BetzDearborn Inc.
The chemical company is trying to keep corporate bond rating agencies happy about the buy, for which it agreed to pay $2.1 billion in cash and pick up $700 million in BetzDearborn's debt.
That will take Hercules from a 43 percent debt level to a position that is 85 percent leveraged.
Raters signaled immediately that they will not be happy with an all-debt finance scheme for the acquisition.
Some, but not all, analysts agree.
"I like the deal," said Leslie C. Ravitz, a Morgan Stanley Dean Witter analyst who follows Hercules.
"Hercules' balance sheet had been underleveraged. They were unable to find good acquisitions to put their capital to work. Now they have," he said.
Christopher Crooks, a Janney Montgomery Scott Inc. analyst who follows both companies, has some reserverations.
"I like the deal," he said, "[but] I don't like the price they're paying in this market, where other chemical companies are going at a discount. They need to get $100 million in cost savings to make the merger profitable. Whether that's an easy bogey to make, I don't know."
The company expected to result from the merger is being billed as the premier chemical company for the paper industry, and a top provider of chemicals and processes for a number of other industries.
BetzDearborn's businesses fill in gaps in Hercules' offerings, analysts say, but most of the businesses will be folded into existing lines administered from the Wilmington base.
No details are being released on where the $100 million in cuts will fall -- except that both companies' sales forces are relatively safe -- until after the Oct. 15 closing date set for the deal.
Many of the company's 1,100 Philadelphia-area employees are in the headquarters and administrative ranks, duplicates to Hercules' forces just across the state line in Wilmington.
BetzDearborn is going into the deal with Hercules only a few years after the 1995 merger between Betz Laboratories Inc. and the Dearborn business unit of W.R. Grace & Co.
"There was certainly a lot of attrition at the time of the merger that created BetzDearborn, and there will be more now," Crooks predicted.
His firm has put BetzDearborn stock in the "sell" category now, in case an unexpected catastrophe dumps the deal. That, Crooks added, is unlikely to happen: "Hercules does not want to lose this property."
Hercules also does not want to lose its high bond ratings to pay for BetzDearborn.
Standard & Poors Inc. put Hercules on a special negative watch list soon after the deal was announced. Its current S&P ratings are holding, at A-/A-2 for corporate credit ratings; A- for senior unsecured debt and A-2 for commercial paper.
A tribute to Hercules' past conservative financial management, the ratings would have to come down quite a bit to lose investment grade ranking.
In order to avoid that, Hercules is scrambling now to come up with a security to sell the public that will pay the tab, without worrying the raters.
Latest News |
