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The following is a full transcript from the conference call held by Danaher
Corporation on August 1, 2001.
DANAHER CONFERENCE CALL
AUGUST 1, 2001
PATRICK W. ALLENDER, Executive Vice President and Chief Financial Officer,
Danaher Corporation.
Good Morning everyone, and thanks for joining us today. With me today is Larry
Culp, our President and CEO. I would like to point out that the press release we
issued this morning has been posted on our website, www.danaher.com. In
addition, this call will be replayed for the next seven days. The replay number
is 706-645-9291, confirmation code 1511675. I'll repeat that at the end of the
call for late joiners.
I'd like to point out that in order to help you understand the company's
direction, we will be making some forward-looking statements during this call.
It's possible that the actual results might differ from those predicted that we
make today as a result of certain factors. In addition, additional information
regarding these factors are available in our SEC filings including our 8-K
filing of this call which will be posted later today.
Before turning the call over to Larry, let me quickly walk through the
details of the merger we have proposed to Cooper's board of directors. The
merger would be a stock and cash transaction valued at approximately $54 to $58
per Cooper share or a total value of $6.5 to $7 billion, including
assumed debt based on recent Danaher share prices. Consideration offered to
Cooper shareholders would be 75 percent stock, 25 percent cash. At $54,
the lower end of the range, that would be $13.50 cash and 0.7123 Danaher shares.
At $58, the upper end of the range, it would be $14.50 in cash, and 0.765
Danaher shares. Our offer represents a 30 to 39 percent premium over Cooper's
closing prices yesterday and a 38 to 48 percent premium over the average Cooper
closing price over the last three months. With that, I'll turn the call over to
Larry.
H. LAWRENCE CULP, JR., President and Chief Executive Officer, Danaher
Corporation.
Thanks Pat, and good morning everyone. Before taking your questions, I will
provide some background on the merger proposal, and will then discuss why we
believe this merger offers a compelling transaction for Danaher shareholders as
well as a better alternative for Cooper's shareholders than the company's
current plan to redomicile in Bermuda.
Two years ago, my predecessor, George Sherman, sent a letter to John Riley
proposing a combination of our companies at a significant premium to Cooper
shareholders. This proposal was rejected by Cooper management, and we chose to
respect their desire to pursue their strategy and execute their business plan.
Since the proposal was rejected, Danaher's stock has outperformed Cooper's
stock by approximately 25 percentage points and the S&P 500 by approximately 7
percentage points. Recently, we completed an extensive and thorough strategic
review of ways to expand Danaher's business platforms and continue our track
record of stable growth. This review identified a number of attractive value
enhancing growth opportunities for Danaher. It also confirmed our belief that
a combination with Cooper is a compelling transaction for our shareholders. As
you know, Cooper recently announced an accelerated timetable to obtain
shareholder approval for its plan to redomicile in Bermuda. This prompted us
to formally repropose a merger several weeks ago. Essentially, we hoped to
provide Cooper's shareholders a more attractive alternative than they could
evaluate within their limited decision window.
Today's public disclosure of our merger proposal was made for two reasons.
First, with the special shareholder meeting only a month away, we want to
ensure that all Cooper shareholders are aware of Danaher's proposal before
they vote on redomiciling the company. Second, based on comments from Mr. Riley
that Cooper did not perceive our 1999 proposal as "firm" we want to
demonstrate to both the Cooper board and management our firm commitment to
quickly achieve a mutually beneficial negotiated transaction. In short,
Cooper's shareholders must soon make a decision that will have a significant
impact on the future of their company.
We are very excited about the potential offered by a Danaher-Cooper
combination and hope to give Cooper shareholders the opportunity of considering
this better alternative. For Danaher shareholders, and hopefully soon to be
shareholders, we believe this is a compelling transaction that makes a good
company better. First, it brings a balanced portfolio of leading product
franchises to Danaher. Cooper holds a leadership position in virtually all of
its major markets with exceptionally strong brands such as Bussmann in circuit
protection, Crouse-Hinds in hazardous environment electrical products, B-Line in
cable trade, and Halo in lighting fixtures. In many cases these brands are
synonymous with the product categories they address. And as many of you know, we
at Danaher are strong believers in the power of top tier industrial brands.
Brands like Fluke in the electrical industry, Hach in water and Craftsman in
hand tools. It takes years to build that kind of equity, but the leverage
potential is enormous. Although a combination with Cooper would be a large
undertaking, we see this important theme as quite consistent with our past
successes--our ability to generate substantial value by enhancing the
performance of leading but under-leveraged brands.
Second, Cooper is an excellent fit with Danaher's current portfolio. For
example, Cooper's power systems business is the leader in power distribution
grid products. In combination with our existing power quality and reliability
businesses, it establishes Danaher as the top tier player in the emerging
market for distributed power solutions. With over $1 billion in combined
revenue, power quality and reliability moves from its status as a platform in
waiting, if you will, to Danaher's fifth strategic platform. Additionally,
Cooper's $2.5 billion electrical products portfolio contains
a broad offering that forms the backbone of many distributors', commercial and
industrial, electrical product lines. This significantly enhances the product
set we provide to our electronics, electrical and industrial distributors and
their end customers. And, within its tool business, Cooper is the leader in
electronic and soldering tools with its Xelite and Weller brands which are
highly complementary to our Fluke products. Every electronics technician worth
his salt has a Warrick soldering iron, a Fluke meter, and Xelite tool set on his
bench.
Third, the numbers just flat out work. While giving an attractive premium
to Cooper shareholders, the transaction will also deliver at least 10 percent
cash EPS accretion to Danaher shareholders in 2002 with only modest synergies.
In addition, the combined company will generate over $2.5 billion in free
cash flow through 2004. And of course, we would expect to retain our strong
investment grade credit rating following the merger.
Finally, the merger positions the combined company for continued success and
reinforces the growth strategy and long term vision I have previously
articulated. As always, we will begin by applying the Danaher business system
immediately to drive revenue growth as well as bottom line improvement. Let me
give you an example of the potential DBS opportunity here. As you know, the
revenues of the two companies are pretty comparable, though Cooper is slightly
larger. However, the total floor space of all our facilities is less than ten
million square feet, while Cooper's is over twenty million square feet. In
every significant acquisition we've done, we have substantially increased
revenues per square foot and we would expect to do the same in this
combination. Cost savings here will help fund innovation and growth
initiatives. We also see our strong combined balance sheet and free cash flow
significantly expanding our acquisition scope and capability, which is
particularly timely and important as valuations of many attractive companies
return to realistic levels.
For Cooper shareholders, we firmly believe that our proposal represents a
better alternative than the company's current plan to redomicile in Bermuda.
First, Cooper's planned redomiciling will subject shareholders to a tax
penalty: capital gains tax on unrealized gains with no cash proceeds to pay it.
In contrast, our proposal provides a substantial immediate cash premium to
Cooper shareholders, and is also non-taxable on the majority of the
consideration. Second, Cooper's planned redomiciling offers shareholders
future tax savings at a corporate level, which may or may not be reflected in
stock price growth. Given the lapse of appreciation in Cooper's share price
since the proxy was approved by the SEC, it is evident that shareholders place
little present value on these tax savings. In contrast, our proposal provides
Cooper shareholders an immediate gain of $13.50 to $14.50 in cash, plus the
equivalent of their current share price in stock of a stronger enterprise. And
third, Cooper's planned redomiciling essentially maintains the status quo,
albeit with a lower tax rate. In contrast, our proposal would create a
significant global enterprise with over $8 billion in revenue, over $1.2
billion in operating profits and an exceptionally strong balance sheet and
free cash flow to be put to work for additional growth. In short, our proposal
offers Cooper shareholders the opportunity to realize immediate gains as well
as to participate in the growth of a successful operation with a proven track
record. Whether you look at the past three, five or ten years, Danaher
shareholders have outperformed both the S&P 500 and Cooper by a wide margin.
In summary, we believe the industrial and financial logic of this combination
is irrefutable. It is an extremely compelling transaction for Danaher
shareholders that provides immediate accretion as well as additional platforms
for growth. It is a better and more financially attractive alternative for
Cooper shareholders than the plan to redomicile in Bermuda. We believe the
transaction has no material regulatory issues and could be completed quickly.
Let me emphasize that we are disciplined business people. Based on our
thorough analysis of publicly available information, we firmly believe that
our proposal is fair and creates substantial value for both Cooper and Danaher
shareholders. However, we are not prepared to act against the will of Cooper
shareholders. While we strongly believe our proposal offers a better
alternative, if the redomiciling plan is approved, we will withdraw our
proposal. But we are optimistic the Cooper board will acknowledge the
superiority of our proposal in their meeting next week and agree to work with
us to quickly achieve a mutually beneficial negotiated transaction. This
concludes our formal comments and we will be happy to take any questions
you may have at this point.
OPERATOR
At this time I would like to remind everyone if you would like to ask a question
during this time, simply press the number one on your telephone keypad. If you
are not asking a question, we encourage you to place your phone on mute in
order to ensure that any background noise from your location is not placed in
your aligning queue. All participants will be able to ask one question and one
follow-up question.
Your first question comes from Michael Regan, Credit Suisse First [Boston].
MICHAEL REGAN
Larry, the accretion seems to be just, you know, the issue between a high
multiple stock and a low multiple stock. I was surprised you didn't give any
details on sort of a range of expected cost synergy. Can you walk through a
little bit for us?
H. LAWRENCE CULP, JR.
Good morning, Michael, we certainly can. I think when we talk about our
expectation that this is on a cash EPS basis double-digit accretive, we're
assuming modest synergies. I think we're obviously optimistic that once we get
in the company, we're going to be able to identify a number of opportunities but
at this point, given what we know from publicly available information, we've
made the assumptions that we have disclosed this morning.
MICHAEL REGAN
So you're not ready at this point to give us any sort of minimum set of expected
synergies?
H. LAWRENCE CULP, JR.
I think the floor that we're setting this morning, Michael, is implied in the
ten percent cash EPS accretion.
MICHAEL REGAN
Okay. And then as a follow-up, historically, the sort of core growth rates
across the majority of Cooper's businesses have been declining. There have been
pockets of strength in Bussmann and the recently acquired B-Line product line.
So you're going after a portfolio of businesses with sort of, you know, low
single digit volume growth, no real price and, you know, pretty high margins to
start with. Can you just talk about how you think about owning this portfolio of
products in that scenario?
H. LAWRENCE CULP, JR.
I sure can, Michael, and that's a fair question because I think that's a
stereotype that frankly we're quite familiar with, having had the dialogue that
we've had with Cooper over time. I think that the strategic review that we
recently completed that I referred to in my remarks gave us a very exciting
perspective on the business. I think when you look at the electrical products
segment of Cooper, back over say the last five years, what we see is organic
growth in excess of four and a half percent. We, as you mentioned, see some of
the outstanding growth opportunities around the Bussmann business, for example.
But if we look at the portfolio, I think that the opportunity to create this
billion dollar power quality business, to have two and a half billion dollars of
electrical products, that I think are attractive. Lighting, for example: Cooper
has a very strong leadership position in a market that I think has seen one down
year in twenty-five. So you can go on through the electrical segment and I think
look at a number of good businesses. The energy and the vision that we've
brought to a number of our businesses, whether it's the hand drill businesses or
more recently the Fluke business, I think demonstrates our ability to outgrow
our served markets. And if we're in a position where we're outgrowing a market
that has been growing in the four to five percent range, we're clearly within
the five to seven percent organic growth range and target that we've set for
ourselves. So I think that we are very optimistic and very enthused about our
potential to continue to be an industrial growth company. I also think that this
transaction positions us exceedingly well consistent with the vision that we
have talked about because we'll be well positioned, not only with critical mass
in our served markets, but at the corporate level, we'll be very capable of
continuing to build out our existing platforms that aren't impacted directly by
this transaction as well as others that will be attractive and available over
time.
MICHAEL REGAN
Okay, thanks Larry.
OPERATOR
Your next question comes from Jeffrey Sprague from Salomon Smith Barney.
JEFFREY SPRAGUE
Good morning, everyone. Larry and Pat, could you just provide a little bit of
color on how you would view an integration of a company this size relative to
what you've done in the past and given, you know, although you haven't been
inside Cooper for due diligence obviously you've been looking for quite some
time so any color on what you see kind of beneath the surface there would be
helpful also?
H. LAWRENCE CULP, JR.
Good morning Jeff. I think I could share with you the experience that we've had
at Fluke, at Hach, at Lange, a number of other transactions where when we have
gotten in, we have found outstanding people at the operating level who take to
the Danaher business system and the opportunity to be part of our company very,
very well. And while I don't personally know many of the Cooper operating
executives, obviously we would go in with the assumption that there are strong
people who will thrive in our environment. By the same token, I should mention
to you, Jeff, that we recently completed, within Danaher, a corporate-wide
talent review, and that gave us, I think, a very current view of where all of
our key people are and where we are regarding internal succession. So, if we
need to put Danaher people into any part of the Cooper portfolio, we understand
what our options are there and we could do that, I believe, without impacting
our existing operations.
JEFFREY SPRAGUE
Thank you.
H. LAWRENCE CULP, JR.
Thank you, Jeff.
OPERATOR
Your next question comes from David Pizzimenti from Equinox Capital Management.
DAVID PIZZIMENTI
Good morning, guys. Larry, I have a quick question on your free cash flow
comment. You spoke about I guess an incremental billion dollars from Cooper,
which is about forty percent less than what you do with Danaher, and I was just
wondering, is that just a wrap-up that you need to get to or is there something
inherent that you see in the businesses at Cooper which means that they would be
less productive on the free cash flow side?
H. LAWRENCE CULP, JR.
Good morning, David. The free cash flow assumptions that we've made and have
communicated don't assume a radical increase in say the free cash flow to net
income performance in the Cooper businesses much as you see in our own. I think
if we looked at the quality of Cooper's earnings, they've actually been good
over time, and I believe the upside that we would have both through an
accelerated top line growth rate as well as the implementation of DBS on the
factory floor will clearly give us a very strong free cash position over time.
We think we'll be, on an annual rate, at approximately one billion dollars of
free cash, again, without radical working capital improvement at Cooper within
a two year time period.
PATRICK W. ALLENDER
David, there's also at the margin, there is incremental debt that gets incurred
here as well, so you know, it's not a matter of adding the two cash flows
together because there is an incremental interest expense, if you will, that
comes into play here with the cash portion of the acquisition.
DAVID PIZZIMENTI
Okay, and as a follow up, in terms of this being a large acquisition, being able
to roll out DBS throughout Cooper's organization, what type of time frame would
you think about and what type of incremental resources would you need?
H. LAWRENCE CULP, JR.
David, as we've done with every transaction that I've been involved in, DBS
would be part of the orientation and integration from the moment we had the
opportunity to talk about that. I think that with the seven major businesses
that Cooper has, we will get tremendous leverage on a per hour, on a per person,
basis from our DBS resources. I think we've talked in the past about how small
transactions can consume a lot of management time and don't give us the leverage
that larger situations do. I think our Fluke experience, where we have improved
productivity over thirty percent within the three years following the
transaction, is proof positive that we do get tremendous leverage from our DBS
investments when we're dealing with larger companies. And I would assume that
the Cooper opportunity would be no different in that regard.
DAVID PIZZIMENTI
Okay, thanks, guys.
H. LAWRENCE CULP, JR.
Thank you, David.
OPERATOR
Your next question comes from Brian Langenberg from First Union.
BRIAN LANGENBERG
Thank you. Just one question here that's left; well two. First of all, on the
billion dollars of incremental free cash flow, I'm assuming that's over a
three-year period of time, and the other question is when we look at Cooper's
margin structure clearly on the output side there's a big opportunity, but it
does appear that this is a little different from, say a Fluke where you had SG&A
that was very high as a percentage of sales, here it's more like 17, 18 percent.
How do you think about what the total potential upside is just in terms of
margin? And I realize you haven't been able to get into all the plants yet and
things like that.
H. LAWRENCE CULP, JR.
Good morning, Brian. The way I think about the opportunity is that clearly,
through the combination, and just a fresh perspective, I'm sure things will come
to the floor, but again, this is not about margin enhancement solely.
BRIAN LANGENBERG
Right.
H. LAWRENCE CULP, JR.
We wouldn't be on this call, frankly, if that were the only angle here. I think
that if you look at the floor space difference that we highlighted earlier, also
look at the fact that we spend about twice the amount that Cooper does in R&D,
on a percent of sales basis, if we can go in and fundamentally swap the cost
involved in that excess floor space for more money, for innovation and growth
initiatives, we think that we have a very good equation at work. And if there's
margin expansion as part of that process, great, but I think between the
combination of moving the top line more aggressively and dealing with the costs
in a broader fashion, we'd put together a company that will be very strong and
the numbers work.
BRIAN LANGENBERG
Okay.
PATRICK W. ALLENDER
On your first question, that billion is over three years, and essentially in
year two, that would roughly equate to about a billion annualized combined for
the two businesses.
BRIAN LANGENBERG
Thank you, Pat.
H. LAWRENCE CULP, JR.
Thanks, Brian.
OPERATOR
Your next question comes from Deane Dray from Goldman Sachs.
DEANE DRAY
Pat, could you give us a sense of what sort of financing options you're looking
at in order to complete the transaction?
PATRICK W. ALLENDER
The structure of the transaction leaving with the 75 percent, 25 percent really
leaves what we believe to be our existing credit rating in place, but that has
to of course be confirmed with the agencies. But we think that essentially it
leaves all options available to us. We would expect to have both a short term
and a longer term portion of financing going forward, I think, which is kind of
more customary to our normal position. We have a significant cash balance at
present time, which of course will be eliminated as far as this transaction, but
I think you can look to see a fairly standard high assessment grade kind of debt
mix coming out of this.
DEANE DRAY
And did you just increase your revolver?
PATRICK W. ALLENDER
We did. We increased it to five hundred million, but that was not associated
with this particular situation. That may change as we kind of look at our total
package here.
DEANE DRAY
Okay, and just as a follow up, with the ten percent accretion estimate, are you
assuming the mid-range of the terms of the offering? How does that work?
PATRICK W. ALLENDER
That's about right.
DEANE DRAY
Okay, thank you very much.
OPERATOR
Your next question comes from Cliff Ransom from State Street Research.
CLIFF RANSOM
Congratulations guys, Lord knows we've been talking about this kind of a deal
for a long time; the fits are good. Can I just understand, in the past you have
avoided hostile? You've done some things that I might call sort-of quasi bear
hug, but not hostile. What you're saying here is you hope to get a look at the
company before the shareholder transaction is voted on? Is that what your letter
says?
H. LAWRENCE CULP, JR.
Cliff, yes, the board is meeting next week. We're hopeful and we certainly
expect that it will be reviewing our proposal at that point and we're also
hopeful that they will respond favorably and we can negotiate a customary merger
agreement.
CLIFF RANSOM
And, as is always the case, presumably once you get in, you have more data to
refine you bid?
H. LAWRENCE CULP, JR.
Yes, that would be a customary part of the process.
CLIFF RANSOM
Okay. And then the last question is have you said specifically that if they say
no, we won't let you in, and no, we're going ahead with the vote, and the
shareholders vote to move the domicile to Bermuda, that you will go away?
H. LAWRENCE CULP, JR.
Cliff, we have indicated --
CLIFF RANSOM
I'm not trying to paint you in a corner here. I'm just trying to understand what
your letter says.
H. LAWRENCE CULP, JR.
What we've communicated is that we view our proposal as an alternative to
redomiciling in Bermuda and that the board and the shareholders ought to view
it as such. If on the 30th of August the shareholders vote to move to Bermuda
and our proposal isn't engaged, then we would plan to withdraw the proposal at
that time.
CLIFF RANSOM
Congratulations, good luck, fire up.
H. LAWRENCE CULP, JR.
Thank you Cliff.
OPERATOR
Your next question comes from John Baliotti from UBS Warburg.
JOHN BALIOTTI
Larry, given the disparity of square footage you mentioned earlier - twenty
million versus ten million - and the slowdown in the markets, I would think that
you'd have more manpower to get that more balanced. What do you think a proper
balance at this time, given how much time you've been able to spend with them,
or the limited time, what do you think a proper balance would be between the
combined company and at what pace do you think you could get there?
H. LAWRENCE CULP, JR.
Good morning, John. John, when you speak of the balance, I'm not entirely
clear as to what you're referring to.
JOHN BALIOTTI
You said that you have a little over ten million in square feet--
H. LAWRENCE CULP, JR.
Oh sure.
JOHN BALIOTTI
They have twenty million. When you put the two together, where do you think
that--It sounds like there are inefficiencies over there with that much, given
their revenue base.
H. LAWRENCE CULP, JR.
Right. Well, it would be perhaps a little premature, John, for me to speculate.
I haven't walked a single foot of the twenty plus million of square footage that
they have. I think that what would happen over time would clearly be dependent
on how the businesses were integrated and where further opportunities might lie.
I think we use that vote to highlight the opportunities we see, based on the
publicly available information, for us to go in, introduce DBS and create the
sort of value we have in all of our other transactions. And again, there are
cost opportunities, whether you're talking about manufacturing floor space,
sales per associate productivity, working capital as a percent of sales, pick
your metric, but I don't think that this is solely a cost play. I think we
really are quite encouraged about the opportunity to go in, use our policy
deployment tools, to find a real break-through opportunities, which we believe
exist in the portfolio, then to fund them, at an above-average rate, not only
with finances, but with talent, to move that growth number. We've done that
everywhere else we've been over time. We're very optimistic about our ability to
do that with the Cooper team in that business.
JOHN BALIOTTI
Okay. Thank you.
OPERATOR
Your next question comes from Jim Lucas from Janney Montgomery.
JIM LUCAS
Thanks a lot. Good morning guys. Could you kind of walk us through how you
arrived at the premium that you're offering, and how does that compare to the
conversations that were had back in `99?
H. LAWRENCE CULP, JR.
Jim, this is Larry. We barely heard your question. Could you repeat that?
JIM LUCAS
Yeah let me--is this better?
PATRICK W. ALLENDER
Very much.
JIM LUCAS
Okay. Looking at the premium, could you walk through how you arrived at that,
and how does that compare to the offer in the conversation you were having
back in '99?
PATRICK W. ALLENDER
Jim, essentially the premium proposal in the prior deal was essentially the
same. The only real difference was that that proposal was all stock. This is a
combination of stock and cash.
JIM LUCAS
Okay. And what is perceived as a big premium, can you kind of just walk
through briefly, how you arrived at--how you came to this number?
PATRICK W. ALLENDER
Well I think, you know, we're obviously trying to make an offer that we feel is
both compelling to the Cooper shareholders and also attractive as an ongoing,
from a Danaher-Cooper combined standpoint, and we felt that this was an
appropriate premium. It was reviewed with our board and with our advisors, and
we're quite comfortable that this is an attractive balance between those two.
JIM LUCAS
Okay. Thanks.
OPERATOR
Your next question comes from John McDougall from JP Morgan
DON McDOUGALL
That's actually Don McDougall. Larry, I was wondering if you could maybe walk
through your, and the board's, thinking on a transaction like this, which is
big, it's diverse, a number of different segments, and maybe a little less
growthy than some of the acquisitions you've done in recent years, kind of walk
us through the trade-offs of something like this, and what it does for you, you
know, versus maybe something like a Fluke, where maybe there was more of a
secular growth story, or a Hach.
H. LAWRENCE CULP, JR.
Sure. Good morning, Don. The analysis that we went through really led us to
conclude that the business here fits very well, frankly, with the criteria that
we've talked about many times in terms of our desire to establish leading
positions in global, multi-billion dollar markets where we see good to
above-average growth opportunities. And as we got into the electrical product
segment, in particular, at Cooper, where we have approximately eighty percent of
the revenue base, we thought again, in power, we immediately went to platform
status, perhaps in not the most glamorous way, but I think a way that is going
to be a strong performer for us, and we're obviously going to get in at a point
in time where we avoid perhaps some of the pitfalls of getting in last year, in
the space when valuations were exorbitant. I think that if we look at electrical
products, again, lighting, a very strong market, not as volatile as we had, I
think, viewed previously. And with the experience we have at Fluke now for three
years in that electrical distribution channel, we see opportunities to put that
funnel together and to invest in some of the one off secular growth
opportunities that do exist, whether that's say in B-Line, around
communications, whether that's with Bussmann, in a similar way, or perhaps just
in and around some of the power quality and energy efficiency issues that
obviously exist in and around that space. So I think that if we look, Don, at
the opportunities available to us, this option is an option. It's not the only
option available to us, but as we looked at the mix of businesses, their market
position, the markets in which they compete and our ability to add value, it was
an easy decision at the end of the day to make the inquiry that we did to Mr.
Riley regarding a combination.
DON McDOUGALL
So, I'm hearing, and I guess you mentioned this earlier, to the critical mass
comment, and I guess what's implicit in what you're saying here, from a return
on capital standpoint, this is probably more attractive than some of the really
growthy companies out there, but you do get to critical mass, you strengthen
yourself and maybe enhance your ability to take some of those bets down the
road.
H. LAWRENCE CULP, JR.
Don, I think that's a fair point. I would agree with that. I don't think that
we're in any way limited if this transaction does not occur. I still have a
strong bias toward the types of businesses like Water, like Fluke, the
businesses that I grew up in in this company. And I think we will be well
advantaged to, not only to compete in the market that Danaher and Cooper
competes in today, but also to expand the definition of those markets and enter
others, smartly, as an eight billion dollar company with that tremendous cash
flow.
DON McDOUGALL
Thank you. One final question, Pat. What does the balance sheet look like on
these terms when this deal closes?
PATRICK W. ALLENDER
When the dust settles on the transaction as we see it, our debt to total capital
should be in the mid-thirties.
DON McDOUGALL
Thank you.
OPERATOR
Your next question comes from Quintin Neufer from Lazard Freres.
QUINTIN NEUFER
I wanted to drill in on this growth rate issue a little more. I think one of
your explanations is that you're not completely unhappy with the core growth
rate at Cooper, historically, pointing to four and a half percent organic
growth in electrical products, but you're also putting forth that the growth
rate would be higher within Danaher. Now how much of that higher growth rate
do you expect to come from, let's call it, cross-selling their products in your
distribution, and vice versa, and how much of it comes from, I guess, better
management of those product lines via lower cost, better positioning, more
growth funding, those types of things, and then, with that said, where can the
four and a half organic growth rate go?
PATRICK W. ALLENDER
Good morning, Quintin. I think the optimism that we have about moving that four
and a half percent organic rate to a higher level within our five to seven
percent stated growth target zone, is really born as much from our experience in
similar situations as it is based on our analysis of the company. You follow the
company, you know--
QUINTIN NEUFER
Right.
PATRICK W. ALLENDER
That when we bought Fluke, Fluke was not growing, and we've been able to, I
think, focus the new product development agenda at Fluke, we've been able to
invest at a more aggressive rate in sales and marketing activities, and just
energize the team around a growth vision, and they've done exceptionally well
with that. I think we would have similar expectations with the Cooper
businesses. And while we haven't necessarily gotten into a great deal of detail,
not having been into the company yet, we have talked to distributors, we have
talked to customers, and I think the feedback that we've gotten, which at this
point I don't want to disclose, gives us tremendous confidence that there are
opportunities to move more aggressively in the marketplace. And it doesn't take
much, obviously, to move from 4.5 to 5.
QUINTIN NEUFER
No, I agree, and I'm not questioning your ability to get the revenue growth rate
up. I'm just trying to figure out over the medium to long-term how much higher
it can go.
PATRICK W. ALLENDER
Well, I wouldn't suggest--Quintin, I'm not suggesting to anybody that this is a
ten to twelve percent grower over time. I think that we'll be in our zone over
the long-term.
QUINTIN NEUFER
Okay.
PATRICK W. ALLENDER
The balance, obviously, that we'll need to strike is driving the financial
performance and funding the growth opportunity that exists across the Cooper
businesses.
QUINTIN NEUFER
Okay.
PATRICK W. ALLENDER
But I think the areas that you talked about, both in terms of leveraging
distribution, being a better supplier from a quality and delivery perspective,
as well as funding savvy marketing programs and technology innovation will all
be part of the equation.
QUINTIN NEUFER
Okay. Thank you.
OPERATOR
Your next question comes from Nicole Parent from Banc of America Securities.
NICOLE PARENT
Hi, Larry. I was just wondering, I guess, I'd argue that Cooper does provide you
with a broader portfolio on which to grow, but I think one of the big things
that hasn't been talked about, and although I don't think it was a key driver of
the deal in terms of strategics, the tools business, there's a huge opportunity
there in terms of margin and revenue just given, I think, what you guys have
been able to do and also where Cooper's margins are relative to yours. Could you
comment a little bit on that?
H. LAWRENCE CULP, JR.
Sure Nicole. You make a good point. There are tremendous synergies that over
time, I think, we'll access within the tools business. That's where we have
perhaps the easiest fit. I don't think we talk about that front and center
because this deal is not about the tools business. I think as we looked at
opportunities of this scale, clearly no situation is a perfect glove fit with
our current portfolio, but it just happens that twenty percent of Cooper's
businesses fit very well both, as you suggest, with our hand tool group, where
we'll put together a very nice collection of leading brands, serving that
marketplace, but also, and I think more importantly, we have a very strong fit
with our Fluke business, which is really the heart and soul of our electronic
test and measurement platform. By being able to put those products together, the
Cooper products and the Fluke products, in electronic and electrical
distribution, we think we just put together a better package that will help all
of the brands in those channels, and ultimately with those end users.
NICOLE PARENT
Great. And could you also comment, I mean, one of the big pushes that Cooper
has been active in over the past year is an internal restructuring program to
move to lower cost manufacturing regions. Could you just talk a little bit about
the opportunities that you see there? I mean, obviously you haven't been in
their facilities yet, but, you know, geographically speaking they're moving
more, you know, to Eastern Europe and Mexico, which should, you know, if they
did it right, benefit you.
H. LAWRENCE CULP, JR.
Nicole, that's a great question. We have not, obviously, gotten into any detail
in that regard, but we've heard the comments that they've made publicly about
their transitions, both to Mexico and China, to a lesser degree, Eastern Europe,
and as you know, we have a significant position in China from a manufacturing
perspective, and we are moving some of our motion products to Mexico. To the
extent that they're further down that curve, obviously that foundation, that
critical mass, in those countries for these types of products will be very
beneficial to us. We're obviously keen to understand that opportunity better.
NICOLE PARENT
Great. And, I guess, one last follow-up. In terms of the businesses that their
business makes versus yours, I don't think internationally it gives you, you
know, it changes the deltas very much, but I guess in terms of what you're
seeing globally with respect to your business, could you just comment on that?
H. LAWRENCE CULP, JR.
Nicole, I think you're right. We really don't get a major or more material
weighting in the international arena with the Cooper businesses. I think our
view is that their strongest international position is in Latin America, where
we aren't as strong. Our ex-US activities have been focused principally in
Europe and in Asia. I think their Latin American position will clearly be
additive to our overall geographic balance. It should help us in that
particular territory.
NICOLE PARENT
Thank you.
H. LAWRENCE CULP, JR.
Thank you, Nicole.
OPERATOR
Your next question comes from Martin Sankey from Goldman Sachs.
MARTIN SANKEY
Good morning, this is Martin Sankey of Goldman Sachs. I know this is not the
easiest question to answer, but you mentioned and commented that you see that
there is very little anti-trust conflict between the two companies, but in this
day where deals that apparently have little conflict get rejected anyway, how
much due diligence have you conducted on this subject to see where potential
conflicts might be and if so, what are they?
PATRICK W. ALLENDER
Martin, it's Pat. It's hard to get any two companies of this size together
without having some crossover in some areas and that does exist, but it is
primarily complementary versus directly competitive. There is a little bit in
our Joslyn businesses with their businesses but it's within the U.S. and it's a
relatively small piece of both businesses. So it's hard to say never and none in
a situation like this but we're confident that there's not a big disclosure
here.
MARTIN SANKEY
Okay, thanks.
OPERATOR
Your next question comes from Bob Cornell from Lehman Brothers.
BOB CORNELL
Thanks. Most of my question has been answered but, you know, I just was
wondering had there been any response to today's announcement from Cooper one
way or another or anything in that regard?
H. LAWRENCE CULP, JR.
Bob, I think the short answer is no, not to our knowledge at this moment.
BOB CORNELL
Okay thank you.
H. LAWRENCE CULP, JR.
Thank you, Bob.
OPERATOR
Your next question comes from Donna Takeda from Merrill Lynch.
DONNA TAKEDA
Thanks, good morning gentlemen. Could we follow up on Martin's question a little
bit? When you talk about the possibility of creating the larger platform, let's
say in power products, you're talking - and let's see if I've got this right -
you're talking less about products that are actually competing against each
other, but more complementary in terms of who the end users of the distribution
channels or manufacturing disciplines are?
H. LAWRENCE CULP, JR.
Donna, I think when we look at power, we're really not referring to competition,
I think what we're excited about is the critical mass we have within the
distribution grid and the fact that a number of our businesses, what we have
called traditionally our indoor power businesses, are near neighbor businesses
to the distribution products. And as the nature of electricity distribution
changes and as the utilities themselves change, we think there's going to be
white space in and around both existing positions that with a billion dollars of
revenue, and that sort of critical mass -- both with customers and from our own
perspective -- we'll be well positioned to access.
DONNA TAKEDA
I think you mentioned a couple of other things but are there similar overlaps in
other parts of your portfolio?
H. LAWRENCE CULP, JR.
No, again, as Pat indicated, the portfolios are very complementary to each other
in a number of areas.
DONNA TAKEDA
I'm sorry, I meant the adjacencies, not any direct overlaps. Any sort of
potential adjacencies that you're talking about in power.
H. LAWRENCE CULP, JR.
I think so. I mean, if you look, if you go back over time, it's important to
remember that Joslyn acquired Cyberex because of that view right before we
acquired Joslyn. So I think the adjacencies do exist in power, both with the
Cooper businesses and in our own, we're obviously anxious to put the right
people in a room and talk about how we would maximize the returns on a billion
dollars of well-positioned revenue.
DONNA TAKEDA
Sounds good. Just to follow up one thing. I think you said that a lot of these
didn't sound exactly glamorous, but you know there's some glamour to the
central businesses.
H. LAWRENCE CULP, JR.
Well I think the real glamour at the end of the day is value creation, Donna,
and I'm sure some people would like us to buy, as I think Don McDougall
indicated, or suggested, more glamorous businesses, but I think these are
businesses that have been stereotyped perhaps unfairly. We think they represent
real opportunity in combination with our businesses and as part of the Danaher
business system.
DONNA TAKEDA
Sounds good. Thanks a lot.
H. LAWRENCE CULP, JR.
Thanks, Donna.
OPERATOR
At this time, Mr. Allender, please proceed with any closing remarks.
PATRICK W. ALLENDER
Thank you. Thanks everyone. For those of you who didn't get a chance to hear
the entire call, I want to remind you of the replay number: 706-645-9291
confirmation code 1511675. The replay will also be available on our website:
www.danaher.com later on today. Thank you.
FORWARD-LOOKING STATEMENTS
This presentation contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act. In some cases, you can identify these so-called "forward-looking
statements" by words such as "may," "will," "expects," "plans," "believes,"
"estimates," "predicts," "potential," or words of similar tenor. These
forward-looking statements are based on management's good faith expectations and
beliefs concerning future developments, but you are cautioned that actual events
or results may differ materially from the expectations expressed in such
forward-looking statements as a result of various factors, including risks and
uncertainties, many of which are beyond the control of Danaher Corporation
("Danaher"). Factors that could cause actual results to differ materially
include, but are not limited to: (1) the businesses of Danaher and Cooper
Industries, Inc. ("Cooper") may not be integrated successfully or such
integration may be more difficult, time-consuming or costly than expected; (2)
expected combination benefits from the transaction may not be fully realized or
realized within the expected time frame; (3) Cooper may not be able to meet
Danaher's expectations and revenues following the transaction may be lower than
expected; (4) operating costs and business disruption, including difficulties in
maintaining relationships with employees, customers or suppliers, may be greater
than expected following the transaction; (5) the regulatory approvals required
for the transaction may not be obtained on the proposed terms or on the
anticipated schedule; (6) the effects of legislative and regulatory changes
(particularly environmental regulations) which could affect demand for products
in the Process/Environmental Controls segment; (7) unanticipated developments
that could occur with respect to contingencies such as environmental matters and
litigation; (8) technological changes; (9) changes in labor or capital costs;
(10) Danaher's ability to attract and retain qualified employees; (11) future
acquisitions, strategic partnerships and divestitures; (12) general business and
economic conditions; and (13) other risks described from time to time in
Danaher's periodic reports filed with the Securities and Exchange Commission
(the "SEC"). Danaher disclaims any duty to update any forward-looking
statements, all of which are expressly qualified by the foregoing.
ADDITIONAL INFORMATION
DEPENDING ON FUTURE DEVELOPMENTS, DANAHER MAY FILE WITH THE SEC (1) A PROXY
STATEMENT FOR SOLICITATION OF PROXIES FROM THE SHAREHOLDERS OF COOPER IN
CONNECTION WITH COOPER'S SPECIAL MEETING WHICH IS SCHEDULED TO TAKE PLACE ON
AUGUST 30, 2001, AND/OR (2) A PROXY STATEMENT/PROSPECTUS AND OTHER DOCUMENTS
CONCERNING A TRANSACTION AT A DATE OR DATES SUBSEQUENT HERETO. INVESTORS AND
SECURITY HOLDERS ARE URGED TO READ ANY SUCH DOCUMENTS IF AND WHEN THEY BECOME
AVAILABLE. ANY SUCH DOCUMENTS WOULD CONTAIN IMPORTANT INFORMATION. INVESTORS AND
SECURITY HOLDERS WOULD BE ABLE TO OBTAIN A FREE COPY OF SUCH DOCUMENTS, IF AND
WHEN THEY BECOME AVAILABLE, AT THE SEC'S INTERNET SITE (http://www.sec.gov) OR
DIRECTLY FROM DANAHER BY MAKING A REQUEST TO: DANAHER CORPORATION, 2099
PENNSYLVANIA AVENUE, NW, 12TH FLOOR, WASHINGTON, D.C. 20006-1813, ATTENTION:
CORPORATE SECRETARY.
DANAHER AND CERTAIN OTHER PERSONS REFERRED TO BELOW MAY BE DEEMED TO BE
PARTICIPANTS IN THE SOLICITATION OF PROXIES. THE PARTICIPANTS IN ANY SUCH
SOLICITATION MAY INCLUDE CERTAIN DIRECTORS AND EXECUTIVE OFFICERS OF DANAHER.
A DETAILED LIST OF THE NAMES OF DANAHER'S DIRECTORS AND OFFICERS IS CONTAINED
IN DANAHER'S PROXY STATEMENT FOR ITS 2001 ANNUAL MEETING, FILED WITH THE SEC ON
APRIL 3, 2001, WHICH MAY BE OBTAINED WITHOUT CHARGE AT THE SEC'S INTERNET SITE
(http://www.sec.gov) OR BY DIRECTING A REQUEST TO DANAHER AT THE ADDRESS
PROVIDED ABOVE. AS OF THE DATE OF THIS COMMUNICATION, DANAHER DOES NOT OWN ANY
SHARES OF COOPER COMMON STOCK, AND, TO DANAHER'S KNOWLEDGE, NONE OF THE
OFFICERS OR DIRECTORS OF DANAHER WHO WOULD BE EXPECTED TO PARTICIPATE IN ANY
SUCH SOLICITATION OF PROXIES OWNS ANY SHARES OF COOPER COMMON STOCK. EXCEPT AS
DISCLOSED ABOVE AND IN DANAHER'S PROXY STATEMENT FOR ITS 2001 ANNUAL MEETING,
TO THE KNOWLEDGE OF DANAHER, NONE OF THE DIRECTORS OR EXECUTIVE OFFICERS OF
DANAHER WHO WOULD BE EXPECTED TO PARTICIPATE IN ANY SUCH SOLICITATION OF PROXIES
HAS ANY MATERIAL INTEREST, DIRECT OR INDIRECT, BY SECURITY HOLDINGS OR
OTHERWISE, IN DANAHER OR COOPER.