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Big merger in the pipeline

A proposed deal will join two giants in corrugated polyethylene pipe at a time when higher resin prices and federal erosion-control regulations have forced companies to seek economies of scale in purchasing and production. Advanced Drainage Systems Inc. (ADS; Hilliard, OH) will acquire Hancor Inc. (Findlay, OH) creating a combined private company with more than $400 million in annual revenue and North America''s largest plastic pipe processor.

Terms of the deal going forward were not disclosed, including the future of Hancor''s 1000 employees. Officials at both firms refused to discuss details of the merger at press time in mid-April.

The companies serve similar markets in storm sewers, water retention, highway, and agricultural pipes and drainage, making dual- and single-wall corrugated pipes from 3 to 60 inches in diameter. The addition of Hancor will augment ADS''s stature as the largest manufacturer of PE drainage pipe in the world. After adding four U.S. plants in five years by 2002, ADS announced in January that it would add four more sites in the U.S., Puerto Rico, and Mexico in addition to the 21 domestic and five international facilities it already operated.

A portion of the growth has been spurred by federal regulations included in Phase II of the Clean Water Act, which reduced the acreage of acceptable disturbed land from five to one, forcing construction companies that perform grading or excavation to account for and control runoff and soil erosion through items like piping, drains, and sediment fences. This 2003 act came at a time of construction boom in the U.S., with new housing permits reaching record levels.

The move also comes at a time when Hancor and ADS, as well as competitors like Contech Construction Products (Middletown, OH; 2004 revenue $140.8 million), PW Eagle Inc. (Eugene, OR; 2004 revenue $475 million), and Diamond Plastics Corp. (Grand Island, NE; 2004 revenue $57 million), are dealing with PE prices that have risen by 50% or more in the last couple years. "Our resin suppliers and petrochemical industry watch groups show that the worldwide supply for PE will remain tight with prices rising well into 2005 and beyond," Bill Altermatt, Hancor''s VP of sales and marketing said in a recent press release.-Matt Defosse [email protected]

TAGS: Business
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