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WALL STREET, CALIFORNIA

Sunbeam Plans to Buy 3 Firms for $2.5 Billion

Mergers: Manufacturer has deals to acquire makers of Mr. Coffee, Coleman camping gear and First Alert smoke alarms.

March 03, 1998|THOMAS S. MULLIGAN | TIMES STAFF WRITER

NEW YORK — Sunbeam Corp. Chief Executive Albert J. Dunlap, known more for his deep downsizings that earned him the moniker "Chainsaw Al," on Monday announced separate deals totaling $2.5 billion to buy the makers of Mr. Coffee, Coleman camping gear and First Alert smoke alarms.

Three major acquisitions by one company in one day is unprecedented, but it's even more startling when the acquirer is a firm that many expected to see on the sales block itself.

Instead of selling Delray Beach, Fla.-based Sunbeam, Dunlap is adding companies that instantly will triple its annual sales to $3 billion and double its work force to 18,000.

What's more, Dunlap said he plans to spend up to $5 billion more on acquisitions that will triple sales again to $9 billion over the next three to five years.

"Sunbeam is launching into a bold, new phase as the consolidator in its industries," said Michael Price, whose Franklin Mutual Series Fund is Sunbeam's largest shareholder. "The opportunities for operating synergies and incremental sales growth is substantial."

The deals, and resulting cost savings from eliminating redundant activities, will produce a "double-digit" increase in earnings and a 20% operating profit margin in 1999, Dunlap said.

The deals come from a man who seems to relish his nickname for his history of mass layoffs and plant closings.

"Maybe this is Dunlap's chance to show he's not a one-trick pony," said Washington-based money manager Nell Minow.

To prove he's in earnest about seeing the plan through, the former Army paratrooper also announced that he signed on for a new three-year contract at Sunbeam, where his pay--as is usual for Dunlap--will be strictly linked to the company's stock performance.

"You can't overpay a great CEO," Dunlap said in a conference call with analysts and news reporters.

In a 35-year career, Dunlap's modus operandi has been to find flabby companies with well-known brand names, force them through brutal slim-downs, then sell them and pocket huge profits from the rise in their stock price.

He honed his techniques with Scott Paper Co., Lily-Tulip Co., American Can Co. and others, and he trumpeted them in his self-promoting and very popular 1996 book, "Mean Business."

It looked like the same story at Sunbeam, maker of Mixmaster, Oster and Sunbeam home appliances. The West Point-trained Dunlap took over in July 1996, promptly cut the work force in half, firing 6,000, and shuttered or sold three-quarters of Sunbeam's factories.

The stock price quadrupled along the way, hitting a high last October of $49.81, from $12.50 the day Dunlap was hired.

Dunlap announced last fall that Sunbeam's restructuring was complete and he had hired investment banker Morgan Stanley, Dean Witter, Discover & Co.

Many took that as a sign that Sunbeam was for sale, but Dunlap said he would be equally happy as buyer or seller. His main conviction was that the restructuring of the American manufacturing sector would go forward.

The companies Sunbeam is buying are:

* Coleman Co., the Wichita, Kan., maker of Coleman stoves and other outdoor recreation equipment, for $2 billion in Sunbeam stock, cash and assumed debt. Coleman shareholders will receive 0.5677 shares of Sunbeam stock, plus $6.44 in cash, for each of their shares, for a total of $32.34 per share as of Monday's market close.

Coleman, controlled by financier Ronald O. Perelman, has lost money for the last two years and has a heavy debt load. The deal makes Perelman Sunbeam's second largest shareholder.

* Signature Brands USA Inc., of Glenwillow, Ohio, which makes Mr. Coffee machines and Health o meter consumer health products, for $250 million in cash and assumed debt, for a cash price of $8.25 per share.

* First Alert Inc., of Aurora, Ill., which makes First Alert residential smoke and carbon monoxide detectors, for $175 million in cash and assumed debt, or $5.25 cash per share.

Leveraged buyout specialist Thomas H. Lee is the largest shareholder of both Signature and First Alert.

Investors love Dunlap and proved it again Monday.

Coleman's stock leaped $10.06, or 48%, to $30.94, on the New York Stock Exchange. In Nasdaq trading, Signature was up $2.78, or 53%, to $8.03, and First Alert rose $2.06, or 66%, to $5.16.

Although stock in an acquiring company doesn't typically jump on takeover news, investors thought enough of the deal to bid Sunbeam shares up $3.88, or 9%, to $45.63 in NYSE trading. It was the biggest one-day gain for Sunbeam since July 19, 1996, the day Dunlap's hiring was announced.

Dunlap has by no means abandoned his cost-cutting ways. He said he would achieve $150 million of pretax savings through a consolidation of "redundant staff and overhead," which would result in an unspecified charge against earnings this year.

He did not estimate the number of layoffs expected.

* MERGERS CONTINUE: Bids by U.S. companies are extending the boom in corporate purchases. D3

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