Boring Portfolio

Carlisle-Titan Merger Call
Management comments

By Dale Wettlaufer (TMF Ralegh)

ALEXANDRIA, VA (August 9, 1999) -- Today I present the first part of the Carlisle Companies (NYSE: CSL) presentation on its agreement to merge with Titan International (NYSE: TWI), which was announced last Wednesday. I'll save comments for Wednesday, when I expect to finish up the conference call review.

Stephen Munn, Carlisle Cos. Chairman and CEO

"The combination of Carlisle and Titan is intended, and we believe it will, to create a better, stronger, broader niche-influencing company that will lead to substantial incremental shareholder returns, and that's the bottom line. It's a significant opportunity and a big step for Carlisle and Titan, and it may appear to some of you to be outside our M.O. [modus operandi], if you will, and I'd like to address the M.O. and selected aspects of this proposed transaction before I turn it over to Dennis [Hall, Carlisle Vice-Chairman and Chief Operating Officer] to talk about some of the strategic and operational opportunities.

"Historically... we have normally done relatively small transactions, and I don't believe we've done anything over $100 million, but we've pushed $100 million. Most of the companies we've acquired or merged with have been privately owned, not public. Most of the transactions we've done have been quietly negotiated transactions, not auctions, and we have historically in most cases used cash, but we have done stock transactions before, and again, not as large as this, and we have not done a pooling-of-interests for accounting treatment purposes.... What we have done, is most of our acquisitions have been very strategic and have fit, and we have known what we were buying and what we were doing when we've done them.

"This Titan transaction fits into some of that historical pattern, or M.O. if you will. In other cases, it doesn't quite fit, and I'll talk about those very briefly. Responding to the size, yes, it is much larger. But size and revenue growth was not our motivation and is not our motivation. Our motivation, and Titan's motivation, is [our belief that] we can generate superior industry earning power after we get organized.... This is not a function of size.... The deal is a function of increasing shareholder return, getting influential in a niche market."

This deal was "...not done spontaneously. We've known Titan and Maury [Taylor, Titan President and CEO] for some time. We've discussed putting these two companies together for a number of years, so it's been something on the table for an extended period of time. Let me respond to the issue of the deal in stock in a pooling, and that is different, but it's not something that is onerously worrisome to us. It's something we're comfortable with, and we think we know how to make this thing work. If we paid cash and used purchase accounting, the premium in goodwill without the opportunity for an asset write-up to the extent that we thought would be required, would essentially prevent Carlisle and the newly combined company with Titan from showing true economic incremental returns to our shareholders for an extended period of time. We're not that patient. Additionally, we're giving the Titan shareholders a tax deferral opportunity and an incrementally attractive return on their capital and a substantial dividend increase, all within the parameters of what we feel at Carlisle is financial reasonableness.

"Also, and importantly, we're using stock that we feel -- the CSL shares -- are worth more than cash over an extended period of time, and the $17.49 ratio we feel is quite attractive to both parties. A deal is only a deal if we get two satisfied parties. These are two parties that we think are in the right ballpark in terms of valuation. Consistent with the past, which again is something we will determine down the road, we will probably entertain, no doubt, how we would buy back some of the shares as we go forward, which we've done in other transactions where we've used shares and we haven't applied the pooling accounting treatment."

"As indicated, this is a very strategic acquisition and a very compatible fit with our tire & wheel operation and absolutely fits with our historical pattern. That is not something outside the parameters of what we've done in the past.... Consequently, I feel, and I think our management team feels that our task, is to marry the financial aspects of this transaction (meaning the debt-to-capital, the shares outstanding, the returns to shareholders, the cash flow, and the items that the normal Wall Street mentality will run to, and ours runs to it too, because we represent the Carlisle and Titan shareholders...) with the operational and strategic aspects, and we believe we can do this and do it successfully."

Dennis Hall, Carlisle Cos. Vice-Chairman and COO

"Just to put Titan in context of our goals and strategy, and not to be redundant with what Steve has said, but we need a growth rate that attracts investment, and for us that means a double-digit growth rate. We've often said in our conferences in the past, that's usually in the area of 15%, and that 15% normally comes 2/3 of the sales from acquisitions in the first year and 1/3 of the earnings in the first year. In other words, the internal portion of our business generates 2/3 of our earnings but only 1/3 of our sales. I want to put the Titan transaction in context of our acquisition discipline, taking what Steve said a little bit further.

"We focus on niche businesses that complement our existing operations, and particularly investing in those that are strong core operations. When you look at Carlisle Tire & Wheel, we've had over 40 consecutive quarters, ten years, of record profit improvement that has exceeded the Carlisle corporate average, which hasn't been bad by itself. This is a highly investable business that has demonstrated over a full economic cycle and beyond a track record of operational excellence.

"The addition of Titan, which is a strong market franchise to go along with our own small tire and wheel franchise, extends the product line, it puts us in with Titan as the leading off-road wheel provider in the world. It puts us in territories and regions where Carlisle doesn't currently operate but are attractive to us. Titan brings a strong European presence to go along with the North American presence that we both enjoy. We have a Latin American presence and they have a Latin American presence. We are strong in Asia with our tire manufacturing facilities there, so it really balances off our territorial or regional goals and allows us to be a global supplier to some of our big domestic customers who have global operations.

"It enhances our distribution. The distribution points that Titan has outnumber ours. It's an extensive channel that we can move existing Carlisle product lines through and we hope vice-versa with the Titan [products], but more likely it'll be Carlisle product moving through the extended Titan distribution system. It adds technology -- Titan has more R&D engineers than we do, they have some very interesting new technology in this low sidewall tire (LSW) and wheel system that we are fascinated by...."

"One of the points that Steve made is that we normally like to acquire well run, financially strong leadership position companies with potential for improvement. There's no doubt Titan has had some troubles over the last 18 months to two years. We believe there is very certain potential for improvement. Sure, there's a soft ag[riculture] market. It's been with us for a couple years and will probably extend through 2000. The two strikes that Titan has endured, and is enduring, have hurt. Once again, we've had prior experience with the United Steelworkers. We have three steelworker plants now with satisfactory labor negotiations and good contracts, and that'll be an important part of our due diligence to look into the strategy for particularly these operations that are on strike...."

"We like products that have relatively predictable lives. There is a huge installed base out there of ag equipment and construction equipment that provides a great opportunity for better aftermarket participation. This is more on the tire side than it is on the wheel side -- the wheel side is primarily an OEM [original equipment manufacturer] play. In tires, Titan does not enjoy the same market share at the aftermarket level that they do at the OEM level. That's been by design up until now as they've built their presence, but now is the opportunity to go after the huge 4:1 ratio in the aftermarket and we intend to do that, to exploit that opportunity."

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08/09/99 Close
Stock Change   Bid
APCC  +  1/8   19.69
BRKb  -25      2015.00
CSL   -  1/8   41.69
GTW   +2 1/4   77.38

                  Day     Month   Year  History
        BORING   -0.06%  -3.60%   0.52%  34.98%
        S&P:     -0.19%  -2.33%   6.16% 116.64%
        NASDAQ:  -1.14%  -4.53%  14.88% 141.99%

    Rec'd   #  Security     In At       Now    Change
  8/13/96  200 Carlisle C    26.32     41.69    58.36%
  4/20/99  460 American P    14.48     19.69    36.00%
   2/9/99  100 Gateway 20    72.38     77.38     6.91%
 12/31/98   12 Berkshire   2276.17   2015.00   -11.47%

    Rec'd   #  Security     In At     Value    Change
  8/13/96  200 Carlisle C  5264.99   8337.50  $3072.51
  4/20/99  460 American P  6659.25   9056.25  $2397.00
   2/9/99  100 Gateway 20  7237.50   7737.50   $500.00
 12/31/98   12 Berkshire  27314.00  24180.00 -$3134.00

                             CASH  $18177.16
                            TOTAL  $67488.41