Fel-Pro Inc., a Skokie company known more for the generous benefits it provides than the automotive gaskets it makes, agreed Monday to be acquired by Federal-Mogul Corp.
Federal-Mogul, of Southfield, Mich., will pay $720 million in cash and stock to Fel-Pro’s approximately 40 shareholders, all descendants of the founders. The deal should be completed in March, said Federal-Mogul chief executive Richard Snell.
For Fel-Pro, a privately held company with annual revenue of about $500 million, the sale solves the problem of how to raise the money to grow globally. For Federal-Mogul, with about $2 billion in sales and 13,000 employees, the deal furthers its strategy of acquiring niche manufacturers to provide a complete range of automotive engine parts in a global marketplace.
Federal-Mogul also is in the process of buying T&N PLC, a British auto-parts maker with a strong presence throughout Europe. The sealing operations of T&N and Federal-Mogul will be merged along with Fel-Pro into a single, global business, Snell said.
A merger raises questions about whether Fel-Pro’s benefits will–or can–be continued. In addition to medical and retirement savings plans typical of many companies, Fel-Pro has provided unusually generous perks, even to hourly employees. These include day care and summer camps for employees’ children, a $1,000 savings bond as a gift to newborns and scholarship programs.
Benefits consultants said Federal-Mogul likely will phase out some of these benefits to avoid upsetting workers at other facilities that aren’t offered them.
But Kenneth Lehman, one of Fel-Pro’s co-chairmen, said that at least at first, the company’s 2,800 employees, including 1,900 in Skokie, should see little change in benefits. “Virtually all of our benefits are being maintained, or similar Federal-Mogul benefits are being substituted,” he said.
David Weinberg, the other co-chairman, said Fel-Pro’s benefits were a major issue during discussion with Federal-Mogul, and that Snell had indicated a commitment to maintaining the spirit of the plans. “I’m feeling pretty confident that he means what he says.”
But Snell did not guarantee that all Fel-Pro benefits would survive.
“Some of the high-visibility things like the summer camp– that frankly would be hard to duplicate globally,” he said. “Where do you get the land?”
He also said it’s unlikely that the $1,000 bond for newborns will be expanded throughout the growing Federal-Mogul; whether the perk will remain in place for current Fel-Pro employees isn’t clear. Exactly how benefits among Federal-Mogul, Fel-Pro and T&N will be adjusted hasn’t been decided, he said.
But it’s wrong to focus on those things, he said. In the end, Fel-Pro employees will benefit by working for a bigger, growing, global company that can offer more career opportunity, Snell said. “We are bringing a lot to the Fel-Pro employees, positioning the new company for a much better career path and future than they had before,” he said.
Weinberg added that, after the merger, Fel-Pro employees will have the chance to become shareholders, which they could not do in the privately held company; only family members own Fel-Pro shares, he noted.
Snell said that employee stock ownership is a major goal at Federal-Mogul.
Experts say it would be possible legally, but difficult practically, for Federal-Mogul to maintain some of Fel-Pro’s benefits and not extend them to other business units. While many benefits, particularly retirement-savings plans, are subject to federal regulation to avoid discrimination against lower-paid employees, perks such as day care or summer camps are not, said a benefits attorney knowledgeable about the automotive industry, but who does not work with any of the companies involved in Monday’s announcement.
“The only thing that is a consideration is that it is always very hard to continue two benefit structures,” the lawyer said. “It’s always a drag on transferring people. It’s not so hard to transfer people from the less-generous locations to the more-generous locations, but going the other direction–there’s always friction there.”
Mergers are disruptive enough without adding separate and unequal benefit plans to the mix, said Mike Shelton, regional director of mergers and acquisitions for Watson Wyatt Worldwide in Chicago. Shelton spoke in general terms, not about specifics of the Fel-Pro deal.
“There generally is a 50 percent drop-off in productivity in the first four to eight months of a company having any kind of merger or acquisition,” Shelton said. “The reason for that is everybody is dealing with `me’ issues: How does this affect me? Will I still have a job? Who will I be reporting to? How will this affect my compensation and benefits?”
Weinberg said Fel-Pro anticipated those worries when the company decided last November to consider a sale or other restructuring.
Employees were told of the decision and the strategic reasons behind it, he said. Snell, Weinberg and Lehman began meeting face-to-face with employees Sunday evening and will continue to do so this week to answer questions and attempt to alleviate fears, Weinberg added.
Federal-Mogul’s decision to buy Fel-Pro surprised few within the industry. Snell was recruited in November 1996 from Tenneco Automotive, a Lincolnshire-based unit of Tenneco Inc., to take the helm of Federal-Mogul.
Snell quickly began divesting the retail units and declared that Federal-Mogul would concentrate on–and expand–its core parts business.
He launched a strategy of acquiring companies to turn Federal-Mogul into a global, full-line parts supplier. The $3 billion purchase of T&N is the biggest piece of that strategy. Federal-Mogul already has had 90 percent of T&N tendered, and the deal is expected to close in February.
Lehman will join the Federal-Mogul board, but the role of other Fel-Pro executives isn’t clear yet. Only six of the 40-plus shareholders hold day-to-day business roles at Fel-Pro, Weinberg noted.
Although Fel-Pro will be merged into the new Federal-Mogul sealing-making entity, the Fel-Pro brand name will be kept because of its high visibility, Snell said.
