News of the Week
FIRESTONE, BORG-WARNER PLAN TO MERGE Firestone Tire & Rubber and BorgWarner have "agreed to consider" merging the two companies, according to Richard A. Riley, chairman and chief executive officer of Firestone, and James F. Bere, chairman and chief executive officer of Borg-Warner. The merger plan calls for formation of a holding company, headquartered in Chicago, with Riley as chairman and Bere as president and chief executive officer. Borg-Warner and Firestone would continue to operate as independent companies. Chicago-based Borg-Warner is a diversified company with major interests in automotive components, air conditioning equipment, and chemicals. It's the largest U.S. producer of acrylonitrile-butadiene-styrene resins. In 1977 Borg-Warner earned $104.2 million on sales of $2.03 billion. For the first nine months of 1978, sales increased 15% and earnings 32% from the like 1977 period. Chemical sales in 1977 came to $421.8 million (21% of the total). Chemical earnings, before taxes and overhead, were $24.1 million. Akron-based Firestone is the second-largest U.S. tire producer. Tires account for the bulk of its business; it's less diversified than other major U.S. tire companies. Nevertheless, it does have substantial operations in synthetic elastomers, plastics, and fibers. It will be a major producer of polyvinyl chloride resin when a new plant starts up next year. For the fiscal year ended Oct. 31, 1977, Firestone earned $110.2 million on sales of $4.4 billion. Merchant sales of "rubbers, textiles, and plastics" amounted to $376.2 million, about 9% of the total. Pretax earnings in that category were $16.3 million. The combined 1977 chemical sales
of the two firms totaled $798 million. Thus, if the two firms had been one in 1977, it would have ranked 29th on C&EN's 1977 list of the 50 largest U.S. chemical producers. Recently, neither company's chemical operations have been particularly profitable. Although the figures for fiscal 1978 aren't out yet, Firestone will post a loss for the year. The loss results mostly from setting up a reserve for the phaseout of obsolete plants, but also from the government-mandated recall of millions of the company's "500" radial tires. The effects of that action will be felt more strongly during the current fiscal year. Under the merger plan, one share of holding company common stock, with an expected initial dividend of $2.00 per share, would be exchanged for each of the 21.5 million outstanding shares of Borg-Warner common, which currently also pays $2.00 per share. Firestone shareholders would receive one share of holding company convertible preferred stock for each share of Firestone common. Each preferred share would pay a cumulative annual dividend of $1.30 (Firestone's current common dividend is $1.10) and would be initially convertible into 0.30 share of holding company common stock. The conversion ratio would be adjusted upward at intervals, depending on the performance of the holding company common stock. However, Firestone shareholders would have the option of exchanging a minimum 30% and maximum 40% of their shares for 25-year debentures with a principal amount of $16 and paying 10% interest. Firestone has 57.6 million common shares outstanding. Thus, although the proposed
Merger would result in a marriage of polymers Chemicals and plastics, 1977 Sales Earnings 9 ($ millions) Major products
Borg-Warner
$421.8
$24.1
Firestone
376.2
16.3
TOTAL
$798.0
$40.4
a Pretax.
4
C&EN Dec. 4, I978
Acrylonitrlle-butadiene-styrene, impact modifiers for plastics, other plastics additives, intermediates Styrene-butadiene rubber, other elastomers; polyvinyl chloride; polyurethane; fibers
transaction is technically a merger, in effect, smaller Borg-Warner is acquiring larger Firestone. And it's getting a bargain—if it can turn the ailing tire company around. Although Firestone has assets of more than $3 billion, its market value at current depressed stock prices is less than a fourth of that amount. Borg-Warner's Bere believes that Firestone's current difficulties are only "temporary." Some, however, apparently believe that Firestone's troubles run deeper, as evidenced by the two companies' stock prices on the day following the news of the proposed merger. BorgWarner stock closed at 28%, down 7/s from the previous day's closing; and Firestone stock rose 75 cents to close at 13V4. •
Du Port's big recovery augurs good future In the space of barely a year, the largest U.S. chemical company, Du Pont, has converted a growing following of supporters among industry analysts—analysts who previously had been negative on the company's management initiative and prospects. Last week, in a broad review for security analysts at its headquarters in Wilmington, the company revealed how unexpectedly large its financial recovery has been in 1978. Du Pont also gave hints of how bright its future might be. Despite some concern over a slowdown in U.S. economic growth in 1979, Du Pont already has reached an important stage that the U.S. chemical industry as a whole has not. Du Pont's earnings gains are greatly outstripping its sales increases. In the process, the company's profit margin on sales now exceeds 7%, above the industry average of about 6%. For 1978 as a whole, Du Pont chairman Irving S. Shapiro estimates company earnings at about $15.50 a share. This is up 40% from $11.06 a share in 1977. Du Pont's sales are rising 11% in 1978 to a little less than $10.5 billion from $9.44 billion in 1977. Through three quarters, about 6% of this is coming from increased unit volume and 5% from higher prices. Behind the big earnings jump,
