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Armstrong to Buy Triangle Pacific

Merger: The $1.15- billion cash and debt deal will bring hardwood- flooring company into fold. Pact follows takeover agreement with European firm.

June 15, 1998|From Reuters

Armstrong World Industries Inc., a major flooring-products company, is pressing ahead with its aggressive growth plans with the purchase of Triangle Pacific Corp. for $55.50 a share or $1.15 billion in cash and assumed debt.

The definitive agreement announced this weekend came less than two weeks after Armstrong said it planned to buy DLW, a leading European vinyl-flooring provider, for an estimated $340 million in cash and debt.

Armstrong Chairman George Lorch said in an interview Sunday that his company is in talks with other possible acquisition targets. However, Armstrong will move cautiously on future deals given that these two transactions will raise Armstrong's annual revenue by about 65% to $3.5 billion, he added.

"We're not going to make another announcement next weekend . . . but if there are other possible situations, we'll look at them," Lorch said. "We'll be very prudent about acting on any other discussions."

Armstrong said it will pay about $890 million in cash for outstanding Triangle stock, on a diluted basis, and assume about $260 million of the company's net debt.

On Friday, Armstrong's stock closed down $1 at $81 on the New York Stock Exchange and Triangle edged down 25 cents to $43.75 on Nasdaq.

Dallas-based Triangle accounts for about 46% of the U.S. hardwood-flooring market and also makes kitchen and bathroom cabinets. It reported $653 million in revenue in 1997.

Armstrong, based in Lancaster, Pa., makes interior finishing products, mainly for floors and ceilings.

The boards of both companies have unanimously approved the deal and Armstrong has already received bank commitments, Armstrong said in a statement. Triangle shareholders who own a combined stake of about 35% in the company have already agreed to the transaction, it added.

"This acquisition will mark a major addition to Armstrong's core flooring business," Lorch said in Saturday's statement.

Triangle Chairman Floyd Sherman will become president of Armstrong's wood, flooring, and cabinet operations.

Armstrong said the acquisition will lead to "significant cost savings" in its operations and marketing.

Triangle will help make Armstrong the world's leading supplier of hard-surface flooring, Lorch said.

Future Armstrong acquisitions must fit three criteria, he said. The company would need to fit with Armstrong's core flooring business and be able to earn at least its cost of capital, Lorch said.

The acquisition would not jeopardize Armstrong's single-A investment-grade credit rating, Lorch said.

Triangle will represent Armstrong's entire presence in the U.S. hardwood-flooring market, which is now about 7% of the entire flooring market, Lorch said. Armstrong already accounts for slightly less than half the vinyl-flooring market in the United States, Lorch noted.

Customer preference is making hardwood the fastest-growing segment of residential flooring in the United States, Lorch said. He predicted it will grow to about 14% of the market in five years.

Armstrong won the right to purchase Triangle through a bidding process, Lorch said. Lorch said Armstrong is paying a full price for Triangle but also a fair price.

"This is not a turnaround acquisition," Lorch said. "Triangle has done a great job. Armstrong has no plans to close any Triangle facilities or change its brands."

Triangle has grown substantially in recent years, primarily through acquisitions, Lorch noted. "Triangle puts our company on a very profitable growth track."

Armstrong will not issue any new shares of stock as a result of either acquisition, but it may issue debt securities to stretch out the repayment, he said.

Armstrong said the acquisitions will slightly reduce earnings this year and increase profits in 1999.

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