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Fluorocarbon's Latest Acquisition Fans Hopes

June 23, 1987|WARREN VIETH | Times Staff Writer

On the credenza in Peter Churm's office is a ruled writing pad with a cryptic inscription, "250 in 5," at the top of each page.

It is the last of the dozens of pads that Churm, the affable 61-year-old chairman and chief executive officer of Fluorocarbon Co. in Laguna Niguel, ordered four years ago in an effort to inspire his executive team.

At that time, Fluorocarbon was a mid-size rubber and plastics manufacturer with annual revenues of $74 million. Churm's objective was to expand to $250 million in sales within five years.

With a year to go, Fluorocarbon's sales are far from the goal Churm set back in 1983. During the fiscal year that ended Jan. 31, the company booked revenue of $94 million, down 9% from the preceding year's record $104 million.

Sales have been restrained by the 1985 decision to sell off the company's lackluster semiconductor operation and by the sudden collapse in 1986 of the energy industry--one of Fluorocarbon's key markets.

So much for Churm's goal of $250 million in annual sales.

Or so it seemed.

"I got so discouraged about two years ago that we didn't reprint the pads," said Churm, who began with Fluorocarbon 29 years ago and became its top executive in 1980. "I had given up hope."

Now, that hope has been restored.

Giant Eaton Corp. recently accepted Fluorocarbon's $70-million bid to purchase Eaton's $100-million-a-year polymer products group. The deal was closed in late May.

After several years of pursuing growth through a haphazard series of relatively small acquisitions, Churm has landed a big one. In his words, it was "a superman leap" for Fluorocarbon.

Whether it was a sensible leap will depend on Fluorocarbon's future performance. While two of the few analysts who regularly track Fluorocarbon are recommending purchase of its shares because of the acquisition, one of them questions whether the Eaton division was worth $70 million.

The market's response to the acquisition has been negligible. Fluorocarbon's stock, which was selling at $12 per share in early January, gradually rose to about $14 by the time the acquisition was announced in April. The stock closed Monday at $14.75 per share in light over-the-counter trading, up 38 cents for the day.

But there is no question in analysts' minds about the impact of the purchase from Eaton. Fluorocarbon expects sales to at least double next year, and Churm's goal of $250 million is not out of the question.

The acquisition added 700 employees and seven manufacturing facilities to Fluorocarbon's lineup, increasing the company total to 2,150 workers in 28 locations across the country.

Fluorocarbon employs about 280 people in Orange County, with two plants in Anaheim, one in Los Alamitos and executive offices in Laguna Niguel. The company's only other California operations are two rubber-products plants in Sunnyvale, employing 90 people.

The acquisition adds a new but related line of products to Fluorocarbon's existing assortment of highly specialized rubber and plastic products and fluid-sealing devices.

The Eaton division, based in Aurora, Ohio, produces a variety of wire, cable, tubing and hose. It also makes industrial transmission gear shifters and other push-pull cable devices.

Scott Baily, an analyst for Smith Barney in New York, described the purchase as a "long-term positive" for Fluorocarbon and is urging clients to accumulate the stock.

Analyst Ed Lewis of First Kansas City Securities also issued a buy signal based on the acquisition, noting that the Eaton division's products tend to be purchased by the same companies that already buy Fluorocarbon's existing products.

"What they've essentially done is add a new line of products for existing customers," Lewis said. "The hope is that they'll realize some efficiencies there."

But Lewis also said that Fluorocarbon has a reputation for sometimes buying high and selling low and that the company may have paid top dollar for the Eaton operation.

Fluorocarbon's rapid expansion belies its humble origins in Fullerton, where the company was churning out about $500,000 in annual sales when Churm signed on as a general manager in 1958, three years after it was founded.

At the time, Fluorocarbon was one of the few firms in the nation producing products from a new plastic material invented by Du Pont. It would be several years before someone sprayed the stuff on a frying pan and made Teflon a household word.

Churm, a former production manager for Kimberly Clark, was invited to join Fluorocarbon by its founder, George Angle. The two were introduced by their wives, who attended high school together in Illinois. Churm and Angle became close friends as well as business partners.

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