Brunswick to sell New Technologies unit

LAKE FOREST, Ill. – Brunswick Corp. intends to sell most of its Brunswick New Technologies business unit including its Navman, Northstar and MX Marine brands, the company reported in a press release yesterday.

Brunswick said it would retain MotoTron, which designs and supplies sophisticated engine control and vehicle networking systems and IDS Integrated Dealer Systems.

The company also announced that its board of directors has authorized the repurchase of up to $500 million of Brunswick’s outstanding common stock. Share repurchases will be made from time to time in the open market or through privately negotiated transactions, based on market conditions. This authorization supplants the $200 million authorization approved by the board in May 2005, under which the company repurchased approximately 3.6 million shares for approximately $137.8 million. The company currently has approximately 94.5 million shares outstanding.

“This business unit has experienced exceptional growth under Brunswick’s ownership over the past few years – especially in the portable land-based navigation segment,” said Brunswick Chairman and Chief Executive Officer Dustan E. McCoy. “As we become increasingly focused on our core business segments – marine, fitness, bowling and billiards – we have determined that continuing to invest in this business unit to fuel growth is not consistent with our long-term strategic objectives. We believe that BNT’s excellent long-term prospects may be better achieved under different ownership – one that is focused on BNT’s technological expertise – to enable it to reach its full potential.”

BNT’s products are primarily based on GPS technologies and sold in the portable consumer navigation, fleet tracking and automotive and marine markets.

Brunswick said it had retained Merrill Lynch & Co. to act as its financial advisor in connection with the proposed sale.

Analyst comments
An analyst with Merrill Lynch said in a press release that Brunswick’s decision to sell close to 90 percent of its BNT division “could fetch $525 to $575 mn (based on 2007E EV/EBITDA multiple of 12x – 14x, which is slightly below the valuation range of market leaders Garmin and TomTom).”

Hakan Ipekci, a research analyst with MLPF&S, said that assuming a 2007E EV/EBITDA multiple of 5.0–5.5x on Brunswick’s remaining business, which is in-line with current valuation levels, the stock could be worth $39–$43.

He went on to say that “in light of continued weakness in certain marine markets in the US, we are reducing our 2006 and 2007 EPS estimates from $3.40 and $3.80 to $3.05 and $3.55 respectively due to lower revenue growth and lower operating margin assumptions in 2Q06. However, we are encouraged by the fact that inventory levels for both engines and boats are roughly in-line with last year’s levels.”

Ipekci said that with the sale of BNT, acquisitions in international markets are likely to be Brunswick’s main source of growth in the near future, which could result in a slightly lower and “more lumpy” growth pattern.

“While we are encouraged by management’s decision to uncover shareholder value, we maintain our Neutral rating, as we feel there could be more downside to earnings estimates in 2H06,” Ipekci said. “The company’s current guidance implies improving market conditions in 2H06, which could be challenged by high gas prices, slowing GDP growth and housing market. However, we would revisit our rating if we feel that BNT could be sold at a different price or conditions change in the marine market.”

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