Boring Portfolio

Carlisle Deal
To Acquire Titan Int'l

By Dale Wettlaufer (TMF Ralegh)

ALEXANDRIA, VA (August 4, 1999) -- Tire and wheel manufacturer Titan International (NYSE: TWI) today agreed to merge with Syracuse-based Carlisle Companies (NYSE: CSL) in a stock swap valuing Titan at $17 per share (subject to a collar of 0.3652 Carlisle to 0.3242 shares of Carlisle -- putting the collar on Carlisle's stock at $46.55 to $52.44 per share), or $600 million in total enterprise value, including debt. Though Carlisle is the largest U.S. manufacturer of golf cart tires and has numerous lines of specialty wheels and tires, the company is a diversified manufacturer with less than a third of revenues coming from the tires and wheels segment.

The Titan merger is a major step forward in terms of the size of the deal, as this is the largest acquisition in the company's history. Based on year-end fiscal 1998 data, the acquisition of Titan would increase Carlisle's revenues 44% and invested capital by 68%. Carlisle has grown through numerous private-market acquisitions in the 1990s, but given the level of valuations in public and private equity markets over the last couple years, the company has kept its acquisition activity low-key lately, sticking with smaller niche businesses. In addition, this would be something of a turnaround effort, which has not really been the norm for Carlisle acquisitions. In 1998, Titan was hurt by numerous strikes, at least one of which continues at its largest tire facility in Iowa, as well as a downturn in the market for agricultural equipment.

Due to cyclical pressures, labor problems, and perhaps bringing new facilities online, capacity utilization pressures manifested themselves in 1998 results. Titan's 1998 revenues fell 4.2% year-over-year and gross margin contracted 1.57 percentage points from 1997 and 318 basis points from 1996's 16.97% gross margin (before realignment costs). Capital turns decreased to 1.3 turns in 1998, down from 1.49 turns in 1997. Operating margins, meanwhile, have basically fallen off the map. With Carlisle's track record of intelligent financial and operational management, returns on this business have a decent chance of coming back into a more attractive range.

In a couple of areas, Carlisle matches up well with Titan. Titan has good market share in heavy construction and agricultural vehicles while Carlisle has good share in smaller-vehicle wheel and tire businesses. The combination of geographic coverage in manufacturing and distribution could give the company leverage over both operating expenses and capacity utilization. Though Carlisle speaks more in terms of economic value added, Bloomberg reported today that the company expects the acquisition to be additive to "earnings" in fiscal 2000. Whether the reporter meant EPS or something else, I'm not sure, but Carlisle will hold a call Friday morning, so I can get clarification on that. I did talk briefly with Carlisle President Dennis Hall this afternoon and he said he believes this is the sort of company that can beat its cost of capital (over the course of the business cycle). My observations on the other stuff above, by the way, don't reflect the company's guidance. This is just what I see at the moment.

For the Boring Portfolio, this is the sort of acquisition style I like to see. I don't appreciate activity for the sake of such. Carlisle has been very discriminating in its acquisitions and has a good track record to show for it. A large increase in the size of the company isn't worrisome, even when that's the result of acquiring a slightly troubled company, because Carlisle's management has its head screwed on correctly. They know Titan's industry, they know value, and they manage capital properly. These aren't just product people that don't care about economic value, and they're not skewed the other way to being financial buyers who don't care about the product. In short, they're smart businesspeople. I'll have more to add on Friday to this necessarily cursory look at today's news.

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08/04/99 Close
Stock Change   Bid
APCC  -  1/8   20.88
BRKb  -11      2074.00
CSL   -  1/16  44.13
GTW   -1 3/8   75.13

                  Day     Month   Year  History
        BORING   -0.49%  -1.43%   2.78%  38.01%
        S&P:     -1.27%  -1.76%   6.77% 117.85%
        NASDAQ:  -1.85%  -3.73%  15.84% 144.01%

    Rec'd   #  Security     In At       Now    Change
  8/13/96  200 Carlisle C    26.32     44.13    67.62%
  4/20/99  460 American P    14.48     20.88    44.20%
   2/9/99  100 Gateway 20    72.38     75.13     3.80%
 12/31/98   12 Berkshire   2276.17   2074.00    -8.88%

    Rec'd   #  Security     In At     Value    Change
  8/13/96  200 Carlisle C  5264.99   8825.00  $3560.01
  4/20/99  460 American P  6659.25   9602.50  $2943.25
   2/9/99  100 Gateway 20  7237.50   7512.50   $275.00
 12/31/98   12 Berkshire  27314.00  24888.00 -$2426.00

                             CASH  $18177.16
                            TOTAL  $69005.16