Tyco Int'l continues buying Spree; agrees to acquire Keystone for 1.75 times revenue

Weekly Corporate Growth Report, Jun 2, 1997

The Deal: In a move that will help weather economic conditions and expand its global presence in industrial valves, Tyco has agreed to acquire Keystone International for $1.2 billion in stock, or $34/ share. Shareholders of Keystone will receive 0.54183 share of Tyco for each share of Keystone subject to the price swings of Tyco's stock This is close to a 66% premium over Keystone's recent closing price of $20.50, down 25cents. The transaction will be structured as a pooling of interests for accounting purposes, and will be tax-free to the shareholders of Keystone.

Discussion: Keystone makes valves, pipes and other equipment used by the chemical, power, food-and-beverage, and petroleum industries, among others. Close to 60% of its annual revenue comes from international markets.

Keystone will become a part of Tyco's valve business, called Flow Control, which is anchored by its Grinnell Supply Sales business, catering mostly to industrial, commercial construction and automotive industries. The combined division will have $1.4 billion in annual revenue, making it a global leader in the valves business. The move will also allow Tyco to cater to noncyclical companies such as beer makers, petroleum producers, and others.

It is expected that the acquisition of Keystone will be immediately accretive to earnings. Last year, Flow Control accounted for 23% of Tyco's revenue. There will be cost-savings from overlapping operations, but the companies will also save expenses from products they current sell to each other. Tyco buys $35 million annually from Keystone.