Singer Buys German Sewing Machine Maker Pfaff - Synergies to Yield Significant Cost Reduction

Business Wire, Nov 6, 1997

NEW YORK--(BUSINESS WIRE)--November 6, 1997--The Singer Company (SEW: NYSE) today announced an agreement to acquire G.M. Pfaff AG, the German sewing machine manufacturer, in a move that will provide it with the opportunity to significantly lower its costs and become more competitive in the worldwide consumer and industrial sewing machine markets.

Singer will acquire an 80.5 percent interest in Pfaff from Semi-Tech (Global) of Hong Kong for $157.5 million. The purchase price will be $82.5 million in cash and $75 million in Singer preferred stock. The agreement is subject to receipt of all necessary government, regulatory and other approvals, as well as approval of the shareholders of Semi-Tech (Global) other than Semi-Tech Corporation.

Already the largest producer of consumer sewing machines, Singer becomes number one in the industrial sewing machine market with the addition of Pfaff. Pfaff sales in 1996 were $448 million, about two thirds of which were industrial sewing machine sales, with the remainder consumer sewing machine sales. Singer sales last year were $1.3 billion. Pfaff's 185 retail stores and over 4,100 dealers will increase Singer's total distribution points for consumer machines to more than 36,000.

Concurrent with the acquisition, Singer said that it will embark on a program to rationalize manufacturing facilities and streamline operations with the goal of further lowering the manufacturing cost of consumer and industrial sewing machines. The greatest savings will result from the integration of production currently in Singer and Pfaff factories in Germany, Japan, Taiwan and Brazil with those in China and Russia. For example, Singer will integrate its industrial sewing machine affiliate, Singer Nikko Japan, with Pfaff and combine marketing and distribution operations worldwide, eliminating redundancies between the two companies.

Singer has reviewed the cost-effectiveness of all of its production facilities as a consequence of this acquisition and is developing a plan which will ensure that its plants are located in the most strategic and economic locations.

"This acquisition is timely, for after several years of business restructuring and repositioning, Pfaff is now on a firm road to profitability and is poised to take advantage of being part of Singer, which was always our plan," said James H. Ting, chairman and chief executive officer of Singer.

"The acquisition also is a fine example of synergy," said Mr. Ting, "The businesses of Pfaff and Singer are complementary. Pfaff specializes in high-end industrial sewing machines; Singer manufactures mainly low-end to mid-range industrial models. Our consumer lines also complement each other. Pfaff will now be able to take advantage of Singer's greatest strength, marketing and distribution in developing markets. "The combined strengths of Singer and Pfaff should make us the most competitive producer of industrial and consumer sewing machines," Mr. Ting said.

Founded in 1862, Pfaff has been the industrial sewing machine quality leader for over a century. Semi-Tech (Global) acquired control of the company in 1993 and implemented a restructuring program that produced a significant turnaround in operations. Employment has been reduced to 2,400 from 6,400 at the time of acquisition. Pfaff's industrial machines are sold to manufacturers of outerwear, underclothing, shoes, furniture and automotive upholstery and many other products.

The Singer preferred stock issued to Semi-Tech (Global) is a non-voting convertible preferred stock. The stock will pay a quarterly preferred and cumulative dividend of 7.5 percent annually. The principal amount of the preferred stock may also be convertible into common stock of Singer at the average closing price of Singer on the New York Stock Exchange for the 30 trading days immediately prior to the date of conversion. This deferred payment structure provides Singer with the time needed to sell the surplus real estate resulting from the rationalization of current manufacturing operations.

The remaining 19.5 percent of Pfaff's shares remain publicly traded on the Frankfurt Stock Exchange.

With operations in more than 140 countries, Singer is one of the most widely recognized and respected brands in the world. The company is the largest manufacturer and seller of sewing machines and a leading retailer of consumer durable products for the home.

Visit our website at: http://www.singer-nv.com

Corporate Profile

G.M. Pfaff AG

Georg Michael Pfaff created the first industrial sewing machine in 1862 when he built a sewing machine to sew leather for the shoe manufacturing trade in Kaiserslautern, Germany. Today, Pfaff operates in more than 130 countries and has sales of $448 million (1996 actual) and is the second largest producer of industrial sewing machines.

About two-thirds of Pfaff's sales are industrial sewing machines, with the remainder consumer sewing machines and other related sewing products. Major customers of industrial sewing machines produce woven fabrics, knitted fabrics, shoes, leather, and furniture and automotive upholstery. Pfaff distributes industrial sewing machines worldwide through independent dealers and distributors.