Britain's Lucas Industries buys Varity Corp. of U.S. Consolidation to create 'global force' in brakes


SOLIHULL, England -- Britain's Lucas Industries PLC yesterday agreed to buy Varity Corp. of the United States for $2 billion, creating the world's second largest maker of brakes for cars and trucks.

The combined company, to be called LucasVarity PLC and be based in the United Kingdom, is expected to have annual sales of $6.7 billion and trail only Germany's closely held Robert Bosch GmbH in the global brakes business. It also will have interests in diesel engines and aircraft parts.

The transaction is another sign of consolidation in the $750 billion worldwide auto-parts industry. It will give Lucas greater access to the United States and provide Buffalo, N.Y.-based Varity with a European sales network and an entree to Asia, the fastest-growing auto market.

"The end result will be better products at cheaper prices," said Jim Gillette, an auto-parts industry consultant in Grand Rapids, Michigan.

Driving the combination are demands from automakers such as General Motors Corp. and Ford Motor Co., which are looking for suppliers worldwide as they expand from their European and North American strongholds to Asia.

Victor Rice, Varity's chief executive, will become CEO of the new company. He said the company will become "a global force in our markets."

His appointment put to rest speculation about who would replace Lucas Chief Executive George Simpson. Simpson is leaving to head Britain's General Electric Co. PLC by the end of the year.

The transaction values Varity at about $200 million more than yesterday's closing market capitalization of $1.8 billion. Varity holders will own 38 percent of the new company.

The transaction will join Varity's Kelsey-Hayes anti-lock brakes and truck diesel-engine expertise with Lucas' strength in diesel parts. About a third of post-merger annual revenue, or $6.7 billion a year, would come from passenger car and truck brake systems.

"I don't believe you can compete in the auto-parts business unless you're a global supplier," Rice told investors. "If you look at Varity, it was a North American supplier. And at best, Lucas was a European supplier."

Varity's major brake customers are U.S. companies General Motors, Ford and Chrysler Corp. Lucas' big customers are European companies Volkswagen AG, BMW and Renault SA.

Lucas has a joint venture with Japan's Sumitomo Bank Ltd. that supplies Asia's burgeoning market.

Varity's Kelsey-Hayes unit is the largest maker of two-wheel and four-wheel anti-lock brakes.

Lucas is the world's largest maker of diesel-fuel injection systems and disc brakes.

Pub Date: 6/01/96

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