Merger's Demise Dashes $36M Pergo Garner Proje

Raleigh, NC, June 2--Plans for a $36 million expansion by Raleigh-based Pergo Inc. of its Garner manufacturing facility have been thrown into limbo after the flooring company's planned merger with Kennesaw, Ga.-based Witex Inc. collapsed for lack of financial backing, according to the Raleigh Business Journal. "[The plan] is being put on hold," says Kevin Nelson, president of the Garner Chamber of Commerce. "It's a punch in the stomach ... it was a huge deal." Pergo had proposed the expansion - which would have created 70 new jobs - to state commerce departments in both North Carolina and Georgia. The company had drawn offers of $200,000 in cash incentives in North Carolina and an undisclosed amount in tax credits from Georgia. Though Garner was the leading candidate to land the new production work, Georgia's bid was substantial, and locating it in that state, where Witex has a facility, had not been ruled out. But that issue now is moot because the expansion was postured as being contingent on Pergo's parent company in Sweden buying the 75 percent of Witex it currently does not own. The merger, announced in November 2002 and postponed twice, has been abandoned, the company said in a May 26 news release. "Given the now prevailing circumstances the deal ... will not take place," Pergo's release said. Analysts covering the company say the deal fell through because banks refused to lend money to the merged entity. "We've got to reassess where we are," says Bill Hodges, chief financial officer for Pergo's U.S. operations. He declined to provide details, directing all questions to the company's headquarters in Sweden. Representatives of the company in Sweden could not be reached. Some analysts believe Pergo needs to add new product lines to its existing portfolio for competitive reasons. They predict the company ultimately will go through with an expansion of its manufacturing capacity. The Garner facility has been plagued by capacity constraints, and the Witex merger would have made the "case for expanding facilities here (in the U.S.) stronger," said Pergo's U.S. chief executive, Anthony Sturrus in April. Pergo, which invented laminate flooring that now has attracted powerful competitors such as Armstrong, has suffered a decline in market share in recent years. "Pergo was being pummeled, both profit-wise and product-wise," says Santo Torcivia, an independent flooring analyst based in Reading, Pa. In 2002, Pergo sales slid to $410.8 million compared to $479.6 million the previous year. Tight control over expenses, though, meant the company's net profit came in at $4.24 million in 2002, a turnaround from a net loss of $90.93 million the previous year. U.S. operations contribute about 50 percent of the company's overall sales.

Related Topics:Armstrong Flooring, Mohawk Industries

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