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March 2004: Volume 46, Number 3

Pentair`s Jorge Fernandez Comments on WICOR Acquisition
by Carlos David Mogoll?n, WC&P Executive Editor

WC&P had an opportunity to speak with Jorge Fernandez, Pentair Water senior vice president for emerging markets, on his companies recent agreement to buy WICOR, including its Sta-Rite Industries subsidiary, from Wisconsin Energy, which was announced in early February. Following is that interview:

WC&P: I'm writing for our March issue on the subject of consolidations and Pentair buying WICOR and everyone wondering when Culligan will be sold? I wanted to get your thoughts for it as well, if possible.

Fernandez: You know our proposal with WICOR has a few hurdles still and isn't likely to be approved before March.

WC&P: Yes, I'm sort of trying to look at this from the perspective that it will be approved. How it gets approved and what qualifications there might be remains an open question until the regulators rule on it. What I'm looking at is what is the meaning of this for the industry. Are there bigger issues that it implies for the industry? And with Pentair buying WICOR/Sta-Rite, you've amassed in the last two years a very cohesive, big unit that's larger than anything that's been put together in our industry in some time.

Fernandez: Right. And we're very proud of what we have done in terms of our presence in the water industry. What I think this Pentair/WICOR union will do is obviously provide a much larger mass of operations. And that will translate into efficiencies that eventually will benefit customers in the form of quality, product cost, and expediency to market. WICOR, specifically, is an organization that is excellent in customer service and customer support. And, honestly, we can lean on them to upgrade ourselves. We, on the other hand, have excellence in manufacturing and operations that will benefit the WICOR operations.

WC&P: It would help on logistics, too, in terms of shipping.

Fernandez: That's right. Those efficiencies are what will enable us to compete better in a market that's become very competitive, a market where not only U.S. manufacturers compete but where overseas manufacturers are increasingly present . You have to have a global footprint and economies of scale to compete with these manufacturers, and offer the best products at the best possible price to the customer. I think at this stage in our industry, this is a union that's going to bring a lot of benefits to a lot of people. Pentair has brought stability to the market, by maintaining relationships with our customers over time. Many people say, "Pentair is going to do this. Pentair is going to sell softeners. Pentair is going to sell complete systems. " Pentair hasn't done that. Pentair has been a stabilizing factor to all of its customers.

WC&P: In addition to a host of brands that include Sta-Rite, SHURflo, Hypro, Park International, Fibredyne, Berkeley, Aermotor, and Flotec, WICOR does have a couple for completed systems, Omnifilter and Hydro-Flow.

Fernandez: Right. Obviously, we’ll look at that as part of the integration that needs to happen after day one of the acquisition. Pentair intends to maintain its position with fundamentals. We will not bring significant changes. The customer will be able to access their usual products, their usual brands at their usual terms. It's going to be Pentair again working hard on the operational side, Pentair bringing itself to the level of customer support that WICOR has shown in the past, and I think the customer is going to get a better value altogether.

WC&P: Tell me three things, if you could. One, I understand there's some restructuring going on right now at Pentair as far as who would be over what with this acquisition. As I understand it Bill Waltz would probably move over to head up the Pumps Division; Scott Levin would go from pumps to head the pool and spa side of things, and John Abbott would go from Pentair Enclosures to Pentair Water?

Fernandez: Pentair Filtration & Purification. It's the new name for what used to be Pentair Water Treatment. Pentair Water Technologies is the overhead, the name of the operating group. The three divisions in Water Technologies are Water and Wastewater Systems, Pool and Spa Products, and Filtration and Purification Technologies. The reason for the change from Water Treatment to Filtration and Purification is that it signals a broadening of scope.

WC&P: It could also leave Pentair open to broadening into other things such as air filtration or filtration of other fluids.

Fernandez: No, we're not contemplating that at this time. The focus is on water. The focus is on making water drinkable, and making water usable for industrial purposes. It's filtration and purification. It underlines the importance that we give to the acquisition of Plymouth, now Pentek, Everpure and now the WICOR filtration business. All put together, we are now very meaningful in a competitive arena with the CUNOs, the Palls, the people interested in making water better globally. Whereas, before we were more maybe of a manufacturer of mechanical components, valves, pumps, etc., we now are definitely looking at the filtration segment as something that's fundamentally important to our business.

WC&P: Do you anticipate being able to get through the regulatory approval stage intact? Or do you see possibly some things having to be spun off due to antitrust or competitive concerns?

Fernandez: No, I think we are very positively optimistic to go through intact.

WC&P: With this, you pick up Park International. You bought K&M Plastics last year and already own Structural Fibers. It somewhat gives you almost a lock on tanks in the market.

Fernandez: I wouldn't say that. There are alternatives. There are overseas alternatives that have a very strong, competitive position. Our behavior in the markets where we have had larger prominence is one of being a good partner to our customers. We manage our business with common sense. I think we look again very optimistically to go through this process in whole.

WC&P: I noticed also in speaking about matching up with CUNO and Pall, Pentair is moving from a components manufacturer to one that's sort of horizontally and vertically integrated really.

Fernandez: Well, we're still very components oriented. And we're very residential/commercial-oriented. That's, let's say, the place on the mat that we sit.

WC&P: The reason I was bringing up the issue was more so that with the acquisitions you'll have grown significantly. And someone asked me several months ago if you might be a candidate for buying Culligan and I said that you'd need to do somewhat of a strategic restructuring to get to that point.

Fernandez: Right.

WC&P: That's simply because you'd need to refocus the organization to integrate things for an expanded vision going forward. It would no longer be simply picking up this and that. You'd need to have an overall picture of where you wanted to go. It can't be an agglomeration, but rather would need to be massaged into something new to handle the economies of scale that would entail.

Fernandez: Yes, WICOR is a company that in many aspects was maybe a little smaller but it was another Pentair, if you will.

WC&P: Yes, exactly, it's been somewhat following your model, almost.

Fernandez: And we found that together, we fill in important product gaps. We fill in important geographical maps. Pentair is growing very strongly in China and India. WICOR is strong in Latin America and Australia. It's very strong in Australia, where we were not present basically at all. And it has a very strong pump market and pool market. So, the complementarity is there. Both companies have a great set of values, a great set of policies. Both companies have great people and teams. I think that both companies have great complementarity of products and geography. When put together, it's going to be a powerful organization that can generate significant efficiencies and improvements in customer service, logistics, etc. And the customer will see the difference. At the end of the day, the industry—we feel very strongly—will be better because of the two companies being together.

WC&P: I was going to point out that I noted on the Pentair Water website now you have listed Pentair Mexico, Pentair Brazil, Pentair Europe, Pentair Middle East, Pentair India, Pentair Asia, Pentair Pacific… so, it's also somewhat of a worldwide restructuring as well, yes?

Fernandez: That's right. This global footprint is now very significant.

WC&P: In order to be able to compete on that scale?

Fernandez: We have to compete everywhere. And I think all of our customers—some of our customers, at least; certainly the commercial customers in pumps, the industrial customers in pumps, the pool business and the water treatment business—are becoming more global. Customers in the pool business are showing up in Mexico. They're appearing in other geographies. And they want us to be there with them. A company, a commercial builder or a large banking organization, that trusts their pumps to us, whether they build a building in China or Mexico, or whether it's McDonalds or Coca-Cola buying our filters, they want us to be with them in those markets. So, there is a larger number of global accounts that needs global management and global supply and global support. In that role as a components supplier, in that role as a global player, I think the union of these two companies is terrific. And you have seen our stock price. It's very reflective of what the market sees as Pentair being a better value for the customers and, therefore, a better value for the shareholder.

WC&P: You also made the decision to ditch something that's been a laggard, which is the Tools Business Unit, and are positioning that for a sale.

Fernandez: Yes, the tool market has become more competitive, but our strategies are really driven by the tremendous opportunities we see in the global water arena.

WC&P: Considering GE's jumped in and a number of others have as well, your timing couldn't have been more perfect to sort of consolidate your position in the market.

Fernandez: Yes, I think you're right. I think this was good for us.

WC&P: Any chance you're going to go after Culligan?

Fernandez: I cannot comment on that, but if you look at our stated vision of components, global supplier, supplier to the industry overall, maybe that's a bit remote.

WC&P: So, you won't be bidding on it?

Fernandez: I don't know about that.

WC&P: I have to ask the question.

Fernandez: I know you do. I can't comment on that really.

WC&P: OK. Well, thanks for taking the time to talk with us.

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