UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
SCHEDULE TO
Tender Offer Statement under
Section 14(d)(1) or 13(e)(1) of
the Securities Exchange Act of
1934
HAWK
CORPORATION
(Name of Subject Company)
CARLISLE
COMPANIES INCORPORATED
HC CORPORATION
(Names of Filing
Persons Offeror)
Class A
Common Stock, Par Value $0.01 Per Share
(Title of Class of
Securities)
420089104
(Cusip Number of
Class of Securities)
Steve Ford
Vice
President, Chief Financial Officer and General Counsel
Carlisle
Companies Incorporated
13925
Ballantyne Corporate Place
Charlotte,
NC 28277
Telephone:
(704) 501-1100
(Name, Address and Telephone
Number of Person Authorized to Receive Notices
and Communications on Behalf
of Filing Persons)
Copies to:
Robert A.
Rosenbaum
Dorsey & Whitney LLP
50 South Sixth Street,
Suite 1500
Minneapolis, Minnesota
55402
(612) 340-2600
x
Check the box if the filing
relates solely to preliminary communications made before the commencement of a
tender offer.
Check
the appropriate boxes below to designate any transactions to which the
statement relates:
x
third-party tender offer subject
to Rule 14d-1.
o
issuer tender offer subject to
Rule 13e-4.
o
going-private transaction subject
to Rule 13e-3.
o
amendment to Schedule 13D
under Rule 13d-2.
Check
the following box if the filing is a final amendment reporting the results of
the tender offer.
o
On
October 14, 2010, Carlisle Companies Incorporated, a Delaware corporation
(Parent), and Parents wholly owned subsidiary, HC Corporation, a Delaware
corporation (Merger Sub), entered into an Agreement and Plan of Merger (the
Merger Agreement) with Hawk Corporation, a Delaware corporation (the
Company), whereby Parent and Merger Sub will commence a tender offer to
purchase all of the issued and outstanding shares of the Companys Class A
common stock, including the associated Rights (as defined in the Merger
Agreement), at a purchase price of $50.00 per share in cash to be followed by a
merger of Merger Sub with and into the Company.
The
following is a transcript of a conference call held at 10:30 AM ET, Friday,
October 15, 2010, to discuss the strategic acquisition by Parent of the Company
via the above described merger.
IMPORTANT
INFORMATION AND WHERE TO FIND IT
This transcript is not an offer to purchase or a solicitation of an
offer to sell any securities of Hawk Corporation (Hawk). The planned tender offer by Carlisle
Companies Incorporated (Carlisle) for all of the outstanding shares of the
Class A common stock of Hawk has not yet been commenced. Upon commencement of the tender offer,
Carlisle will mail to Hawk stockholders an offer to purchase and related
materials and Hawk will mail to Hawk stockholders a solicitation/recommendation
statement with respect to the tender offer.
Carlisle will file its offer to purchase with the Securities and Exchange
Commission (the SEC) on Schedule TO and Hawk will file its
solicitation/recommendation statement with the SEC on Schedule 14D-9. Hawk stockholders are urged to read these
materials carefully when they become available since they will contain important
information, including the terms and conditions of the offer. Hawk stockholders may obtain a free copy of
these materials (when available) and other documents filed by Carlisle or Hawk
with the SEC at the website maintained by the SEC at www.sec.gov. The offer to purchase and related materials,
the solicitation/recommendation statement, the Schedule TO, and the Schedule
14D-9 may also be obtained (when available) for free by contacting the
information agent for the tender offer (when one is selected) or by contacting
Carlisle at (704) 501-1100.
FORWARD-LOOKING
STATEMENTS
This transcript contains forward-looking statements. These statements
are based on managements current expectations and are subject to uncertainty
and changes in circumstances. Actual results may differ materially from these
expectations due to changes in global economic, business, competitive, market,
regulatory and other factors, including the risk that the transaction may not
be consummated; the risk that regulatory approval that may be required for the
transaction is not obtained or is obtained subject to conditions that are not
anticipated; the risk that Hawk may not be integrated successfully into
Carlisle; and the risk that the revenue opportunities, cost savings and other
anticipated synergies from the transaction may not be fully realized or may
take longer to realize than expected. More detailed information about these
factors is contained in the Companys filings with the Securities and Exchange
Commission. The Company undertakes no duty to update forward-looking
statements.
CARLISLE COMPANIES INC.
Moderator: David Roberts
October 15, 2010
9:30 a.m. CT
Operator:
Good
morning. My name is Zennethia and I will
be your conference operator today. At
this time, I would like to welcome everyone to the Carlisle Company
Incorporated Hawk Acquisition Conference Call.
All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a
question and answer session. If you
would like to ask a question during that time, simply press star then the
number one on your telephone keypad. If
you would like to withdraw your question press the pound key. Thank you.
I
would now like to turn the call over to Mr. David Roberts, Chairman, President
and CEO of Carlisle Company. You may now
begin, sir.
David Roberts:
Thank you, Zennethia. Good morning and welcome to our conference
call concerning our acquisition of Hawk.
Before I go any further I want to remind everyone that this is our quiet
period when it comes to sales and earnings for the third quarter so I
respectfully ask that no questions are asked relative to our performance in the
third quarter.
Also,
please note that during this call we will be providing certain forward looking
information. We ask that you take a look
at todays press release and read through the forward looking cautionary
statements that weve included there.
Our press release, along with our slide presentation, can be found on
the investor relations portion of our Web site at www.carlisle.com.
1
On
the phone with me are Chris Koch, our President of the Carlisle Industrial
Brake and Friction business, Steven Ford our CFO and Kevin Zdimal, our Chief
Accounting Officer.
Before
the market opened this morning we announced the intended acquisition of the
stock of Hawk. As you saw in the press
release, our offer is at $50 per share for a total purchase price of $410
million. Were very pleased to be
announcing this transaction today as I truly believe its a unique opportunity
to provide substantial strategic benefits for our company. Hawk represents an exceptional and highly
complementary addition to our braking solutions business and brings us one step
closer to our previously stated long term goals, that of being generating or
of generating $5 billion in annual revenue, 15 percent EBIT margins, expanding
our business globally and generating substantial free cash flow. Let me provide you with the highlights of the
transaction. If you go to slide four in
the presentation well go through that.
As
noted, we signed a definitive agreement with Hawk to acquire all the
outstanding shares of the company for $50 per share through an all cash tender
offer. This represents an equity value
of Hawk at $413 million and an enterprise value of $410 million. We believe this is a unique acquisition for
Carlisle given its complementary product portfolio and similar customer mix is
certainly a plus for us.
We
estimate annual run rate synergies to be approximately $20 million or so by
2012 and will come both from the revenue side and the cost side of the
equation. The price we are paying
represents approximately eight and a half times the 2010 EBIT margins before
accounting and synergies and roughly six times after including the synergies I
just mentioned.
From
a financial perspective, we expect this transaction to be immediately accretive
to our earnings. We will fund the
transaction with a combination of cash on hand and by drawing on our $500
million revolver. And Steve will speak
about the financial impact a bit later in the presentation when we field
questions and answers.
2
As
part of our agreement with Hawk, Mr. Weinberg along with the directors, Norman
Harbert and Byron Krantz who collectively hold approximately 34 percent of Hawks
outstanding shares have entered into agreements with Carlisle to tender their
shares. This transaction is subject to
customary closing conditions including regulatory approval and we expect to
close the transaction by the end of the year.
We dont anticipate any regulatory issues to delay the closing.
If
you flip to slide five in the presentation Ill go through that one now. As I said, as a bit more we look at the
business that were acquiring and why we are, in my view, this is a natural
step for Carlisle. Hawk is a leading
global supplier of friction products for brakes, clutches and
transmissions. They have an excellent
technology and one of the largest friction material competencies in the
industry. They also have some exciting
new applications in carbon composite materials and fuel cell components that
represent an additional growth avenue for CIBF or our industrial brake and
friction business.
For
a product perspective, Hawk is focused on high margin, specialty applications
that require sophisticated engineering and production techniques. As we have stated in the past, this expands
Carlisles product offerings with very little duplication and fits very nicely
with our overall objectives to continue to grow our portfolio of technology
products and these obviously product higher margins.
From
a customer perspective, Hawk has a very strong relationship with major blue chip
customers, many of whom that were our customers as well. On the construction and mining side youll
see names like Caterpillar, CNH and Volvo.
On the ag side youll see big players like Deere and in aircraft and
defense industry youll see names like Eaton, Meggitt and Goodrich.
The
important thing to note here is that Hawks customer base, like Carlisles, is
made up of large global players and the acquisition provides an excellent
opportunity for us to further strengthen those relationships both within our
braking solutions business and cross other platforms like CIT.
3
Its
also important to note that Hawk is a source provider on more than 80 percent
of its OEM applications and the aftermarket revenue is approximately 50 percent
of the business, which makes this even more attractive.
On
the right hand side of the page youll see that Hawks products mainly go to
construction and mining, aircraft and defense and the ag markets where we see
favorable potential growth. Also Hawk has
significant international presence with about a quarter of their sales coming
from outside the U.S which we expect will continue to grow, given their
footprint in China and a new site in India which will be completed in 2012.
If
you turn to page six of the presentation, as I mentioned earlier, Hawk is a
great opportunity for us and is consistent with Carlisles long term strategic
goals again to reach 5 billion in revenue, 15 percent operating margins or EBIT
margins, expand globally and produce free strong cash flows.
From
a strategic perspective, Hawk strengthens one of our growth platforms, CIBF,
which is now positioned as a leading one-stop-shop global provider of high
performance braking solutions. The added
capability that Hawk brings really helps round out CIBFs overall product
portfolio and is consistent with our overall strategy to add highly engineered,
higher margin productions.
In
addition, this acquisition expands our global footprint and positions Carlisle
to participate in emerging growth markets.
Id
like to note that the customer benefits extend beyond CIBF by serving the CIT
aerospace customer base as well.
From
a financial perspective, looking back at Hawks performance for the last 12
months ended June 30, 2010, you can see that Hawk has contributed over 200
million in revenues and almost $40 million in EBITDA, excluding the impact of
any synergies.
And
even more importantly, Carlisles pro forma last 12 month EBITDA margin would
have been roughly 60 basis points higher excluding the impact of
synergies. If you factor in 20 million
of the annual run rate synergies mentioned earlier, Carlisles pro forma last
12 month EBITDA margin would
4
have
been roughly 12.4 percent or 130 basis points higher than what it was prior.
With
that, Id like to turn the call over to Chris Koch, whos our President of CIBF
to discuss more specifically how this fits into our existing CIBF
business. Chris, if you would please?
Chris Koch:
Thanks, Dave. We at CIBF are very excited to welcome Hawk
to our business. Hawk is a great company
and we look forward to working with their team, sharing best practices in
technology and continuing to grow a world class braking solutions
business. Together we can achieve
superior technological leadership, the highest levels of customer service and
become the first name in braking solutions for our customers.
If
youd please turn to page seven of the presentation. To start, the combination of CIBF and Hawk
creates a truly global leader in braking solutions. We will have the unique ability to provide
complete highly engineered braking solutions for our customers and will be
ideally positioned to win new business through broader products, services and
distribution.
A
key part of our ongoing overall strategy is to continue to broaden our product
portfolio to better serve our customers and to expand the business
globally. The addition of Hawk will help
us achieve these objectives as it will add attractive products that CIBS does
not already have in its portfolio. It
will also increase our exposure to key emerging markets, such as China, Brazil
and India.
As
youll see as we move to page eight, the transaction brings us production
facilities in the U.S., Italy, and China.
Hawk has also selected a site in Chennai, India to build a manufacturing
facility and this investment will help us increase our presence in this very
important region. We anticipate the
facility to be completely operational by 2012.
From
a product perspective, CIBF and Hawk products are very complimentary with
little overlap. CIBF is a horizontally
integrated brake solutions provider, we provide braking friction and hydraulic
products to our customers. While we have
exceptional capabilities in dry friction, Hawk is
5
mostly
focused on wet friction products so this combination really strengthens our
capabilities in this area.
The
transaction also substantially improves our aftermarket product portfolio and
global distribution network. Our in-market
mix remains focused on construction, mining and agriculture and now that mix
will be even more diverse with the addition of Hawk, particularly on the
aerospace and defense side. Were very positive
on the global outlook for each of these markets over the next few years.
Were
fully dedicated to growing the combined businesses both organically and through
acquisitions as evidenced by this transaction and we strongly believe we have
the right product mix, are selling to the right customers that are exposed to
the right end markets at the right time.
Were extremely excited about this opportunity and the outlook for the
combined business, and now Steve will discuss some of the specific financial
impacts of the transaction.
Steven Ford:
Thanks,
Chris. Please turn to page nine of the
slide presentation. This is a very
attractive transaction that we expect will create significant value for our
shareholders. We expect the Hawk
transaction to yield significant synergies and be accretive in the first year.
Also,
post-transaction we expect to maintain our credit rating and will continue to
have a very strong balance sheet.
First,
let me discuss some of the synergy potential that we see from this
transaction. On the revenue side, we
expect to drive synergies through our ability to establish closer relationships
with our customers by offering an expanded product and service line and
maintaining and indeed enhancing the customer service levels that our customers
have come to expect from both CIBF and Hawk.
With
this acquisition we are also better positioned geographically to capitalize on
the growth in the emerging markets as Dave and Chris highlighted earlier.
6
This,
in addition to the new aftermarket opportunities that we expect, and a broader
distribution network should result in revenue synergies.
On
the cost side, we are expecting $20 million of annual run rate synergies to be
achieved by 2012, some of which will be realized in 2011. Parts of these costs come directly from the
elimination of public company costs. We
also believe that we can drive some operational efficiencies by implementing
the Carlisle operating system worldwide.
We also see certain supply chain efficiencies and other administrative
opportunities. This is not a situation
where we expect to undertake major projects such as consolidation of facilities
or anything of that nature and scale.
Our product lines are highly complementary and Hawk is a good business,
but we continuously strive to be as efficient and profitable as possible and we
will not waiver in that dedication.
The
transaction is expected to be accretive in year one and we expect it to be
credit rating neutral. We have exercised
prudence in managing our balance sheet and have sufficient flexibility to fund
the transaction with existing cash and by drawing on our $500 million credit
facility.
Pro
forma leverage is expected to remain under two times total debt to EBITDA. In addition, Hawk generated $24 million in
free cash flow for the last 12 months ended June 30, which is 12 percent of
revenues so this is a very positive transaction for us from a cash flow
perspective. And with those remarks, Ill
turn the call back over to Dave.
David Roberts:
Thanks,
Steve. As you can tell by the excitement
in my voice, Chriss voice and Steves, we are really very positive on this
transaction.
What
Id like to do is open the call for any questions you may have. Zennethia, if you would like to do that
please.
Operator:
Yes, sir. At this time, if you would like to ask a
question, please press star one on your telephone keypad. Well pause for just a moment to compile the
Q&A roster.
7
And
your first question comes from the line of Peter Lisnic with Robert W. Baird.
Peter Lisnic:
Good morning,
gentlemen.
Male:
Morning, Pete.
Peter Lisnic:
I guess first
question if you could maybe give us a better sense as to how big the overall
business is now and just give us a sense as to where it doesnt sound like
theres all that much overlap from a product perspective, but where some of the
overlap might be and then distill that down into what the biggest I guess
revenue synergy opportunities really are.
Male:
You know, Pete,
what Im going to do, Chris is obviously intimately involved in this and
familiar with it. Chris would you answer
Petes question?
Chris Koch:
Yes, Pete. If we look at the complementary nature of it
there really, really is very little product overlap. A little bit on the I would say the dry
friction capability but again, they go to different markets, Hawk and the
performance racing market, CIBF off highway heavy construction and then a very,
very small piece in some outsourced products we buy wet friction.
Peter Lisnic:
OK, and then in
terms of the synergies, its that wet friction piece that youre marrying to
your dry business is that sort of the biggest opportunity and which end market
exactly would that be all under?
Chris Koch:
Right, and Pete
for the end markets you know we CIBF competes in that off highway heavy duty
construction ag mining market and one of the product segments weve been
missing for a while has been a very strong wet friction line and indeed thats
what Hawk brings to the to our business is the addition of that line for
those markets.
Peter Lisnic:
OK, all right
and then, Dave I just want to I guess one more question and thats on the
cyclicality of this business. You know I
understand that right now good margins, good ability to take out synergies, but
how do you sort of look at the cyclicality of this business going forward and
how that relates to you know return targets and growth targets for you that youve
laid out for us?
8
David Roberts:
Right. You know, Pete, honestly we think that it
will help us even out some of the cycles that we go through. If I look at Chris business in you know last
year, we were down and I forget the numbers, probably 25 or 30 percent. But frankly as we look in the past, that was
a very unusual year. You know I dont
think that there are going to be dramatic swings or cycles in this market,
particularly when you look overseas with whats going on with construction
equipment and ag equipment. I think the
demand there, you know with the current
mandate to go 15 percent ethanol in gasoline here in the U.S., the change in
diet overseas, going to more protein, I think thats what thats going to end
up doing is driving more ag equipment thats going to be sold and then
certainly on the construction side. I
think that you know there is going to be a large demand if not in the U.S.
certainly in the developing areas of the world, you know China, India,
certainly South America now and I think that there is opportunities that would
keep that cycle from fluctuating at you know very high rates.
Peter Lisnic:
All right, that
is helpful and good luck with the integration.
David Roberts:
Thanks, Pete.
Operator:
Your next
question comes from the line of Ivan Marcuse with Northcoast Research.
Ivan Marcuse:
Hey, guys, how
you doing?
Male:
Good morning.
Ivan Marcuse:
On the how
much is going to be funded through the revolver and whats your rate on the
revolver?
Male:
Right, Steve,
you want to walk through that?
Steven Ford:
Yes, it will be
a combination of cash on hand and use of the revolver with most of the
financing coming from the revolver and, Pete, our current rate on the revolver
is below one percent.
9
Longer
term, you know we intend to sort of term this out and you know the public
markets are very attractive and you know we would be looking closely at terming
this out Q1 of next year.
Ivan Marcuse:
OK, and then
you assume Hawks debt now right? What
sort of the rate are you looking for?
Have they paid any of that down or
Steven Ford:
Yes, no theyve
got about $50 million of debt, its at a much higher interest rate. We do assume it and we will arrange to pay
that off at a premium.
Ivan Marcuse:
So youll pay
that off sooner rather than later?
Steven Ford:
Yes, now there
is on the change of control the bond holders have the option to put the debt,
so there may be some putting of the securities and we also have a call
option. But we expect to clean that up
and eliminate the Hawk debt.
Ivan Marcuse:
OK, then on the
synergy side, on the cost side, of that $20 million, how much do you expect to
get in 2011 or are you sort of is that 50/50 or
Steven Ford:
No, I think
less than 50/50. I mean of that of
that 20 million, theres about six or seven of it thats elimination of public
company costs and we expect to certainly get most if not all of that next
year. Some of the operational synergies
will realize some of that in 11, but some of that will also dribble into 2012.
Male:
Yes, Ivan, I
think whats going to happen is that you know those which are logical costs to
take out, the public costs that Steve mentioned, we will do very quickly. What we want to do is go in you know using
COS and assess what the operations are and you know we have some costs
associated with that that we built in our model. I dont think those are going to come until
probably 2012.
Ivan Marcuse:
OK, and then
over the past few years Hawks actually taken has done a pretty good job of
leaning down their business and you know improving their operations. So where do you see the biggest benefit that
COS is going to
10
bring
to the table and is it on the inventory side?
Do you think its better there or do you think its in other areas and
what would they be?
Male:
No, I think
operationally is probably where well see some improved synergies and I agree,
theyve done a very good job over the you know the past number of years in
leaning out their operations. But I mean
its like walking through our factories, theres always room where you can
improve and I think well we have a number of ideas that were working on
today that frankly, we really cant talk about on the telephone.
Ivan Marcuse:
Got you. And then is management do they stay in
place or does Chris sort of take over the reins and you know upper management
sort of exits?
Male:
Yes, well Ron
is retiring and Chris will be managing the business. So it is now Chriss business to manage and
well go from there.
Ivan Marcuse:
OK, great. Thanks a lot for taking my questions.
Male:
Youre welcome.
Operator:
Your next
question comes from the line of Ajay Kejriwal with FBR Capital Markets.
Ajay Kejriwal:
Thank you, good
morning.
Male:
Good morning.
Ajay Kejriwal:
Just a couple
housekeeping questions on the accretion.
So, does your accretion estimate include a revolver at the less than one
percent rate or are you assuming a term out?
Male:
Were assuming
a five percent rate on a term borrowing.
Ajay Kejriwal:
Got it. And then maybe if you can help with you know
expected DNA there?
Male:
You know we
have not yet completed our purchase accounting and really until we complete
that were not going to really know how much is going to be allocated to
amortizable versus non amortizable good will.
11
Ajay Kejriwal:
Would you have
like a rough range or is it a little too early?
Male:
I think its
too early and I dont really want to speculate on that until weve completed
the purchase accounting.
Ajay Kejriwal:
OK, and on the
accretion, any sense you could provide us with on what are you looking for next
year? I mean any rough range?
Male:
You know so
much of it is dependent on the purchase accounting, Ajay. And really, until weve completed that, all
we really can say is that we were very confident that it will be accretive.
Ajay Kejriwal:
Good and that
20 million is in synergies is all cost right?
Its nothing on the revenue line?
Male:
Correct.
Ajay Kejriwal:
Got it. maybe if you can, quantify the opportunity on
the top line, sounds like you know emerging markets, you know big opportunity
there, but maybe if you can help us with what could you be doing you know by
combining this business over the next few years out.
Male:
Sure,
Ajay. Ill let Chris answer that. Chris, if you would please.
Chris Koch:
Yes, Ajay, I
think you know a couple of things that will help with the revenue side, if you
look and as Dave spoke about, the changes that are occurring right in the
emerging markets and our ability number one and youll see it in the what
Hawk Wellman has done by putting in a facility in India, they have the facility
in Suzhou as well as we do. We think
theres a tremendous opportunity to move into those emerging markets where
theres high growth potential and begin to take some share that frankly is
going to local businesses right now and there may be some opportunity for
technological upgrade there. So we see
that as a nice opportunity.
And
then, one of the things that you know Hawk has is over 5000 unique formulations
in wet friction. We have a strong
engineering department, they have a strong engineering department, 75
engineering professionals and we
12
think
that there are going to be opportunities to bring new products to our customer
and new ways for them to benefit from the relationship, so I would say working
more intimately with our global customers and then beginning to take market
share. We know this is a sizeable market
with good growth prospects in mining, construction and other areas and so just
capturing that will should be able to drive some growth.
Ajay Kejriwal:
So would you
say on a combined basis organic growth for this is mid single, is it higher
than that?
Chris Koch:
I think youd
need to look at the market let me just give you that data. I think if you look globally weve Hawk
itself and Carlisle think that well see construction markets globally
somewhere in the five to seven percent, ag markets five to six percent, you
know China were looking at in the friction side of it probably low double
digit, you know 10, 15 percent so hopefully that gives you an indication of
what the markets doing and obviously wed like to do better than the market.
Ajay Kejriwal:
Good, thank
you.
Operator:
Your next
question comes from the line of Deane Dray with Citi Investments.
Deane Dray:
Thank you. Good morning everyone.
Male:
Hey, good
morning, Deane.
Deane Dray:
Some clean up
questions. And the first, Dave, is I
know that braking has been a core legacy business for Carlisle, but I also know
theres been some mix changes and some divestitures, can you just remind us of
what prior to this acquisition Carlisle had changed in their mix. I think there was more of the on road
invested.
David Roberts:
Yes.
Deane Dray:
And just you
know bring us up to date on that and then I have some follow ups please.
13
David Roberts:
Yes, youre
exactly right, Deane, we had obviously the business that was called motion
control, which was exclusively on road braking primarily for heavy truck and
that had become a business that honestly was just not very attractive and we
exited that business. We always like the
off road braking business because it was honestly our highest margin business
we had within the company and you know we didnt have a large position in the
on the friction side and also had a very small position on the wet friction
dry friction side, we had a big position, you know wet friction we had a small
position and you know that appears to be the area that is growing on the off
road side. So while off road, or on road
was always a very low margin business our off road business was always a very
high margin business and when we made the decision to get rid of motion
control, we elected to keep CIBF just because of the margin profile.
Deane Dray:
Great and then
I might have missed this, but what percent of Hawk is overall off road?
David Roberts:
Chris, do you
have that number?
Chris Koch:
Yes, I
think if you look at depends on what you include in that, Deane, I mean
if you include aerospace as being off the road which (inaudible)
Deane Dray:
Id say so.
Chris Koch:
I would say in
excess of 60 percent.
Deane Dray:
OK, good. And then the aftermarket at 50 percent. I guess you shouldnt be surprised to see the
margins as high as they are. Whats the
mix between OE and after market in terms of margin? You dont have to be real precise but just
directionally?
Male:
Chris?
Chris Koch:
Thats a good
question. I dont know that I can give
you a breakdown on that yet on the difference in the margin between the
aftermarket and the OE, but we can follow up with you later on that.
14
Deane Dray:
OK, thats
good. And then on one of the slides it
kind of jumps out that a big concentration in Italy and theres probably a
legacy explanation there, but could you clarify please?
Male:
Sure, Italy
its a big position I would say at a very nice operation there that Hawk
has. And much like what we do in selling
into Peoria and other places in the U.S. a significant amount of that equipment
that is exported globally. So when you
look at the Italy number I think obviously that product is not all staying in
Italy but it is moving around the globe to Asia, South America and other
places.
Deane Dray:
So is that a
sales by geography? On that slide five?
Male:
Im sorry, the
Italian factory, I would say that that is the sales in Italy but the end
sales might have a different profile.
Deane Dray:
Got it. OK, thank you.
Male:
Youre welcome.
Operator:
Your next
question comes from the line of Saul Ludwig with Northcoast Research.
Saul Ludwig:
Hi, good
morning.
Male:
Good morning,
Saul.
Saul Ludwig:
What percentage
of Hawk is international sales?
Male:
Chris?
Chris Koch:
Yes, weve got
just under 30 percent, Saul.
Saul Ludwig:
OK, and who are
Hawks principal competitors?
Chris Koch:
I would say
Hawks principal competitors would be the likes of lets say on the wet
friction side Jin Myung out of Korea, Miba, Hoerbiger combination out of
Europe?
15
Saul Ludwig:
Nobody in the
U.S.? They got the market to themselves
here?
Chris Koch:
I would say
that Hawk has a there are some smaller players within the U.S. but that Hawk
is the dominant player in the wet friction market in North America.
Saul Ludwig:
Now did you buy
I mean you need friction material to make some of your products. Did you buy anything from Hawk, meaning that
on a consolidated basis are 100 percent of their revenues going to be additive
to Carlisle, or is there some elimination.
Male:
No, correct,
100 percent would be additive.
Saul Ludwig:
Hey and just a
little historical comment here, how much did you get for selling the trailer
business where some of that cash could be used maybe to help pay for this?
Male:
Yes, Steve,
have we released that information?
Steven Ford:
Yes, we
have. Thirty-five million was the sale
price. With a working capital adjustment
in an earn out potential.
Saul Ludwig:
And thats a
good price you got for that. And the
and will there be any one time expenses here like inventory step up, deal cost,
banking fees that will show up either in your fourth quarter or first quarter
relative to this transaction.
Steven Ford:
Yes, well there
will be there will be costs associated with this transaction. There were banker fees and lawyer fees and
diligence fees and theyll be you know potential change of control type
payments there will be costs that will show up in the fourth quarter.
Saul Ludwig:
Are we a $10
million or $20 million? What do you
think range might be?
Steven Ford:
It will be less
than 20, but we dont we dont really have a specific number yet that we can
share with you Saul.
Saul Ludwig:
Be less than
20, more than 10?
16
Steven Ford:
I think all I
can say right now is less than 20.
Male:
Yes, I
Saul, I dont think we have a good feel for that yet.
Saul Ludwig:
OK, great. Thank you very much.
Male:
OK.
Operator:
Your next
question comes from the line of (Glen Wortman) with Sidoti Company.
(Glen Wortman):
Yes, good
morning, everyone.
Male:
Morning.
(Glen Wortman):
Can you just
talk about how this might affect your strategy to grow some of your other
segments under you were looking to grow in (inaudible)
Male:
Yes, (Glen),
honestly it will have no impact on our growth strategy. We you know we stated in the past that our
two growth platforms are our CIT business and our braking business. We knew that Hawk potentially would come
available. We had certainly been very
interested in it for an extended period of time and you know that was one that
we were hoping that would come and we would have the opportunity to buy.
Now
that has no impact on what were doing in the CIT business. There is you know theres still some
opportunity out there that will continue to take a look at you know but with
Hawk coming on it just it was just one of those that you know the stars were
aligned I guess. It was just ideal for
us. But it will have no impact.
(Glen Wortman):
OK, and then
just back to the emerging growth opportunity, I think you mentioned the facility
in India, did you also mention that theyre building a facility in China and
can you maybe talk more specific about the growth opportunity there?
17
Male:
Yes, they have
a facility in China today, theyre building one in India. I guess what Id like to do Chris why dont
you address that thatd probably be easier for you.
Chris Koch:
Yes, if you
they do have indeed a facility thats in China, a very nice facility with a
full staff, all the expected members youd expect there and functions and then
the India facilities underway and again, as I said, that would be completely
operationally by 2012.
The
opportunities in those two markets, in China and India, when you look at the
global heavy construction mining market, were seeing significant domestic
players growing in those businesses that right now are not using products from
either Carlisle or Hawk. We have
companies such as SANY, Long gong in China, Xiu gong, XCMG, (Shugo) heavy
machinery. And then in India youve got
companies, local companies like BEML as well as global companies like JCB that
are participating in that market. So you
know there are very strong markets again we think in the friction side the
markets in India growing you know in excess of 10 percent in the addressable
markets and then in China at probably you know 10 to 15 percent.
(Glen Wortman):
All right,
thank you very much.
Chris Koch:
Yes, you bet.
Operator:
Your next
question comes from the line of (Rob Crystal) of Goldman Sachs.
(Rob Crystal):
My question was
answered. Thank you though.
Male:
Thanks, (Rob).
Operator:
Your next
question comes from the line of Zahid Siddique with Gabelli Company.
Zahid Siddique:
Hi, good
morning. Couple of questions. The first one on your current existing friction
business, how big is that business in terms of revenues and EBITDA?
18
Male:
You know we
have not disclosed that or reported prior.
Its all part of ETS. Steve, have
we or can we talk about it?
Steven Ford:
Yes, its about
15 percent of the segment.
Male:
Right.
Zahid Siddique:
Of that
segment, which is roughly
Male:
Yes.
Zahid Siddique:
Which is
roughly 30 percent of your total revenues.
So its 15 percent of 30 percent?
Male:
Yes, its about
a $100 million business right now.
Zahid Siddique:
OK. And could you comment on the process at
what time did you have did you start conversations with Hawk and what the
other parties in the process anything along those lines?
Male:
Well, I
you know yes, we began probably three months ago. Now you know I think its probably best you
know Hawk would know better than I who would who was involved in the process
and so on. We do know that they had a
tremendous amount of interest in this property and you know it was a very
competitive process. You know but weve
been involved in it for about three months.
Zahid Siddique:
Sure and just
from your personal sense, do you feel there may be someone out there who
actually still come in or do you think this has been pretty much shopped around
and you feel comfortable about your bid.
Male:
Well, I
you know I think its a I mean you never know obviously. I guess Im not privy to who else was out
bidding. You know we feel very
comfortable with the bid that weve submitted, that its a premium bid for the
property, but of course, its a publicly held company and if someone came in at
a higher bid I think the Hawk board would have to consider it.
Zahid Siddique:
OK, thank you
so much and congratulations.
19
Male:
Thank you.
Operator:
And there are
no further questions at this time.
Male:
Thank you. We want to thank everybody for attending the
call and as I said earlier, we are really excited about this acquisition and we
think it will have a dramatic impact on our business positively over the next
certainly decade at least. So again,
thanks everybody and well talk to you on our conference call.
Operator:
Thank you for
your participation. This does conclude
todays conference call, you may now disconnect.
END
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