SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report: October 9, 1998
(Date of earliest event reported)
Michigan
(State or other jurisdiction of incorporation)
1-1511 38-0533580
(Commission File Number) (IRS Employer Identification Number)
26555 Northwestern Highway, Southfield, Michigan 48034
(Address of principal executive offices) (Zip Code)
(248) 354-7700
(Registrant's telephone number including area code)
The total number of pages is 6
Item 2. Acquisition or Disposition of Assets
On October 9, 1998 Federal-Mogul Corporation (the Company or "Federal-Mogul)
acquired the automotive division of Cooper Industries, Inc. ("Cooper
Automotive") for a total purchase price of $1.9 billion (the "Cooper
Acquisition"). The Company also incurred approximately $25 million of fees and
expenses (consisting of $19.5 million of debt financing costs and $5.5 million
of direct transaction costs) in connection with the Cooper Acquisition. The
amount paid for the assets was determined based on arms-length negotiations
between the parties. Prior to the acquisition descibed above, there was no
material relationship between the directors or officers of any of the companies
within Cooper Automotive and the Company or any of its affiliates, any director
or officer of the Company or any associate of any such director or officer.
BUSINESS
Cooper Automotive, comprised of the Cooper Automotive division (the Champion
spark plug group of companies) and Moog Automotive division of Cooper
Industries, Inc., is a premier provider of leading brand name automotive
products to the aftermarket and OE market. Cooper Automotive manufactures and
distributes brake and friction products, chassis, ignition products, lighting
and wiper products under well-known brand names including Champion, Moog, Abex,
Wagner and Zanxx. Among Cooper Automotive's largest customers are AutoValue,
Carquest, Chrysler, Ford, Fiat, General Motors and NAPA (in alphabetical order).
Cooper Automotive had 1997 revenues of $1.9 billion and operating earnings of
$177 million before nonrecurring charges. The following charts set forth Cooper
Automotive's sales by market segment, geographic region and manufacturing
division as a percentage of total sales for the year ended December 31, 1997.
Cooper Automotive Cooper Automotive Cooper Automotive
1997 Revenues by 1997 Revenues by 1997 Revenues by
Market Segment Geographic Region Manufacturing Division
Aftermarket 74% North America 77% Brake & Friction 29%
O.E. 26% Europe 15% Ignition 26%
Rest of World 8% Lighting 16%
Chassis 14%
Wiper 10%
Wire 5%
Friction and Brake Hard Parts
Cooper Automotive manufactures and distributes Abex(R) friction material and
Wagner(R) brake components including master and wheel cylinders, calipers,
brake lines and hoses, drums, rotors and miscellaneous hardware and cables.
Abex(R) is the friction manufacturing unit that directly supplies the OE market
and the Wagner(R) unit with friction needs. As a result, the Wagner(R) unit is
a full line friction and brake hard part supplier to the aftermarket.
The Cooper Automotive friction material business complements Federal-Mogul's
existing Ferodo friction business. Ferodo is a leader in the European friction
market and Abex(R) is a leader in the U.S. friction market. The Wagner(R) brake
hard parts business provides Federal-Mogul with a manufacturing base for
expanding sales of entire brake system packages to customers in both the
Original Equipment (OE) market and aftermarket.
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The Abex, Wagner and Ferodo businesses generated sales in excess of $1
billion in 1997. Federal-Mogul anticipates establishing a separate friction and
brake operating unit as a result of the Cooper Acquisition.
Lighting
Cooper Automotive manufactures and distributes a variety of lighting
products. Under the Wagner(R) brand "bumper-to-bumper" lighting is provided to
both the OE market and aftermarket. This includes sealed beams, halogen
capsules, lighting modules for front and rear trim, and interior lighting. The
Blazer(R) brand is focused on fog-type lights. The Wagner(R)/Blazer(R) unit is a
leader in the North American automotive lighting aftermarket. Zanxx(R) is a
leader in the OEM market for connectors, sockets and switches for automotive
lighting.
Federal-Mogul supplies the heavy duty truck and trailer market with DOT-
regulated lighting under its Signal-Stat brand. The combination of the
Federal-Mogul and Cooper Automotive lighting businesses will provide the
Company with the capability to offer total vehicular industry lighting system
packages to both the OE market and aftermarket.
Chassis Parts
Cooper Automotive manufactures and distributes Moog(R) steering and
suspension products and Precision(R) universal joints. Federal-Mogul currently
distributes purchased aftermarket chassis parts. The Cooper Acquisition will
establish Federal-Mogul as a basic manufacturer of chassis parts. Moog(R) and
Precision(R) maintain a leadership position in the North American aftermarket
with their "problem solver" applications for the installer.
Cooper Automotive's chassis parts business enhances Federal-Mogul's growth
opportunities in the retail automotive parts market while allowing it to
maintain its strong position with wholesaler distributors. The growth of the
sport utility vehicle ("SUV") has also increased demand for replacement
chassis parts due to heavier vehicle weight, a greater number of traditional
chassis parts per vehicle and increased wear out rates.
The expansion of Federal-Mogul's chassis product offering, coupled with
Federal-Mogul's wheel-end offering (anti-friction bearings and seals) and the
complete brake system offering will enable Federal-Mogul to provide a one-stop
shopping source for undercar parts to customers in the aftermarket.
Ignition
Cooper Automotive manufacturers and distributes spark plugs, diesel glow
plugs, ignition coils and wire and cable sets. Most of these products are sold
by Cooper Automotive under the widely-recognized Champion(R) brand name, with
some aftermarket wire and cable sold under the Belden(R) and PowerPath(R)
brand names. In addition to maintaining a significant presence in the
automotive ignition parts market, Cooper Automotive generates significant
revenues from sales of ignition-type products for aviation-related
applications.
The Cooper Automotive ignition product line will complement Federal-Mogul's
powertrain capabilities, thereby enhancing the Company's ability to capitalize
on opportunities presented by engine management and environmental regulations
that place a premium on ignitability, heat and gas control. Federal-Mogul's
focus on ignition and powertrain components and systems provides it with
opportunities to benefit from the increased demand for cleaner and more
efficient engines.
Wiper Blades
Cooper Automotive manufactures and distributes wiper arms and blades in the
North American and European aftermarket under the Anco(R) brand name. Federal-
Mogul believes that demand for wiper arms and blades has been favorably
impacted in recent years from the need for a third arm/blade on SUV's and new
arm/blades that can conform to changes in car slope design. Federal-Mogul
believes that the addition of a wiper arms/blade product line with strong
retail brand name recognition can facilitate its ability to expand retail
sales of its other products, such as gaskets, friction and certain suspension
components. The Anco(R) brand also enjoys a significant position among OE
manufacturers, which may enhance the Company's ability to market complete
wiper systems.
STRATEGIC RATIONALE AND SYNERGIES
The Cooper Acquisition is expected to further the Company's strategic
objective of expanding manufactured product lines to engineered systems and
modules and accelerating the Company's worldwide growth. Cooper Automotive
brings additional leading brand names, new strategically compatible product
lines, additional customers and enhanced distribution channel penetration. The
Cooper Acquisition also broadens the Company's
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brake and friction and lighting product lines as well as adds ignition
products and wiper blades to its range. Also, the combination of Federal-
Mogul's wheel end bearing and seal business with chassis and brake system
products offers customers the potential of a single consolidated vendor base
for undervehicle parts.
Management believes that significant benefits result from the ability to
penetrate its existing customer base for distribution of Cooper Automotive
products. In particular, the Company's relationships with OE manufacturers,
heavy duty equipment and international customers represent opportunities for
expansion of the market for Cooper Automotive products.
Management also believes that integration of the Company's operations with
those of Cooper Automotive will provide significant opportunities for
synergies and cost savings. The Company currently anticipates pre-tax synergy
and cost benefits of approximately $94 million in 1999; $154 million in 2000;
and $161 million in 2001. Specific cost savings targeted by management to
realize synergies from the Cooper Acquisition include:
Manufacturing. Consolidation of the friction products operations, combining
Cooper Automotive's EIS(R), Wagner(R) and Abex(R) operations with Federal-
Mogul's Ferodo(R) operations to rationalize manufacturing sites, transfer
assembly labor to expanding lower cost facilities and reduce headcount.
Sales and Marketing. Consolidation and streamlining of the combined sales
and marketing personnel to take advantage of overlaps and economies of scale.
Distribution, Sourcing and Administration. Consolidation of the aftermarket
company based distribution network, transfer from "buy" to "make" sourcing and
consolidation of both the administration and headquarters of Cooper Automotive
located in St. Louis, Missouri to Federal-Mogul's Southfield, Michigan
headquarters.
THE COMBINED COMPANY
The Cooper Acquisition is expected to substantially expand the Company's
brakes and friction business and management anticipates establishing brakes and
friction as a separate manufacturing operating unit.
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FINANCING
To finance its acquisition of Cooper Automotive, Federal-Mogul has entered
into (i) a $1.95 billion floating rate senior credit agreement (the "Term Loan
Agreement"), consisting of a senior term loan facility, and (ii) a $200 million
364-Day floating rate revolving credit agreement (the "Revolving Credit
Agreement," together with the Term Loan Agreement, the "1998 Credit Agreements"
in addition to its pre-existing $2.75 billion floating rate senior credit
agreement (the "1997 Credit Agreement and, together with the 1998 Credit
Agreements, the "Credit Agreements"). Each of the Credit Agreements is with the
Chase Manhattan Bank as agent and a syndicate of lenders. The senior term loan
facility will consist of (i) interim loans (the "New Interim Loans") in the
aggregate amount of $1.55 billion, and (ii) Tranche C loans (the "Tranche C
Loans" and, together with the New Interim Loans, the "1998 Term Loans") in the
aggregate amount of $400 million.
Under the Term Loan Agreement, the New Interim Loans will mature April 9, 2000
and are to be payable in full on that date. The Tranche C Loans will mature
September 30, 2006 and are to be repaid in 29 consecutive quarterly installments
commencing September 30, 1999, the first 28 of which shall be equal to $250,000
and the final installment of which shall be equal to $393 million.
Under the Revolving Credit Agreement, Federal-Mogul may borrow up to an
aggregate amount of $200 million outstanding at any time in revolving credit
loans (the "1998 Revolving Credit Loans"), which will be available for working
capital and other general corporate purposes for a period of 364 days commencing
October 9, 1998.
Indebtedness under the 1998 Credit Agreements shall bear interest at a
floating rate based upon, at Federal-Mogul's option, either (i) the Base Rate
(as therein defined), plus a margin of 1.25% for the New Interim Loans, a margin
of 1.75% for the Tranche C Loans, and a margin based on Federal-Mogul's
consolidated leverage ratio for the 1998 Revolving Credit Loans, or (ii) the
Eurodollar Rate (as therein defined), plus a margin of 2.25% for the New Interim
Loans, a margin of 2.75% for the Tranche C Loans, and a margin based on Federal-
Mogul's consolidated leverage ratio for the 1998 Revolving Credit Loans. In the
case of the 1998 Revolving Credit Loans: (i) for Base Rate loans, the applicable
margin will vary between 0% and 0.5%, and (ii) for Eurodollar Rate loans, the
applicable margin will vary between 0.75% and 1.5%.
Collateral and Guarantees, Covenants and Events of Default
Indebtedness under the 1998 Credit Agreements will be secured by the same
collateral and guaranteed by the same subsidiaries as applicable to the 1997
Credit Agreement. The 1998 Credit Agreements will also have the same covenants
and events of default as the 1997 Credit Agreement.
Fees
Federal-Mogul will pay a facility fee on the used and unused portion of each
lender's commitment to make 1998 Revolving Credit Loans at the rate of 0.25% and
0.5% per annum, depending on Federal-Mogul's leverage ratio. In addition,
Federal-Mogul will pay customary fees to Chase and reimburse customary expenses
in connection with the closing of the 1998 Credit Agreements.
ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial statements of business acquired.
It is impractical to provide the required financial statements of the
business acquired with this filing. Such information will be filed by an
amendment to this initial report on Form 8-K no later than sixty (60) days
from the date hereof.
(b) Pro forma financial information.
It is impractical to provide the required pro forma financial information of
the business acquired with this filing. Such information will be filed by
an amendment to this initial report on Form 8-K no later than sixty (60)
days from the date hereof.
(c) Exhibits.
2.1 Purchase and Sale Agreement between Cooper Industries, Inc. and
Federal-Mogul Corporation, dated August 17, 1998 (the "Purchase and Sale
Agreement").
2.2 Amendment to Purchase and Sale Agreement, dated as of October 9, 1998.
10.1 Loan Agreement, dated as of September 30, 1998, among Federal-Mogul
Corporation, the several banks and other financial institutions from time
to time parties thereto and The Chase Manhattan Bank as Administrative
Agent.
10.2 $200,000,000 364-Day Revolving Credit Agreement, dated as of September 30,
1998, among Federal-Mogul Corporation, the several banks and other
financial institutions from time to time parties thereto and The Chase
Manhattan Bank as Administrative Agent.
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FORWARD-LOOKING STATEMENTS
Certain statements above that are not statements of historical fact
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 (the "Act"). Such statements are made
in good faith by Federal-Mogul pursuant to the "safe harbor" provisions of the
Act. Forward-looking statements include financial projections and estimates and
statements regarding plans, objectives and expectations of Federal-Mogul and
its management, including, without limitation, plans to integrate the businesses
of Cooper Automotive into Federal-Mogul. Forward-looking statements may involve
known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of Federal-Mogul to differ
materially from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such risks, uncertainties and other
factors include, without limitation, those relating to the combination of
Federal-Mogul's business with that of Cooper automotive, the anticipated
synergies and operating efficiencies and restructuring charges in connection
with such acquisition, conditions in the automotive components industry,
certain global and regional economic conditions and other factors. Moreover,
Federal-Mogul's plans, objectives and intentions are subject to change based on
these and other factors (some of which are beyond Federal-Mogul's control).
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
SIGNATURE
FEDERAL-MOGUL CORPORATION
By: /s/ Kenneth P. Slaby
------------------------
Kenneth P. Slaby
Title: Vice President, Controller
Dated: October 26, 1998
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EXHIBIT INDEX
2.1 Purchase and Sale Agreement between Cooper Industries, Inc. and
Federal-Mogul Corporation, dated August 17, 1998 (the "Purchase and Sale
Agreement").
2.2 Amendment to Purchase and Sale Agreement, dated as of October 9, 1998.
10.1 Loan Agreement, dated as of September 30, 1998, among Federal-Mogul
Corporation, the several banks and other financial institutions from time
to time parties thereto and The Chase Manhattan Bank as Administrative
Agent.
10.2 $200,000,000 364-Day Revolving Credit Agreement, dated as of September 30,
1998, among Federal-Mogul Corporation, the several banks and other
financial institutions from time to time parties thereto and The Chase
Manhattan Bank as Administrative Agent.