Trelleborg, Sweden—After experiencing what can best be described as an on-again, off-again relationship for the last three years, Pergo and Witex are on again in a big way. Pergo AB and the main shareholder of Witex AG—HW Industries GmbH & Co. KG—have signed a letter of intent concerning a merger between Pergo and Witex. Presently, Pergo owns a minority share of 25.1% in Witex, while HW Industries owns all the remaining shares. The transaction would include the North American operations of both companies.

The integration of Pergo and Witex will create a very strong, global laminate flooring group with leading market positions, noted Annette Kumlien, CFO of Pergo AB. “Witex’ know-how in manufacturing combined with Pergo’s strengths in marketing and innovation forms a platform for profitability and future growth.” The structure of the potential merger is that HW Industries will transfer all of its shares in Witex to Pergo. As payment, Pergo will issue new shares to HW Industries, whereby HW Industries will become a major shareholder in Pergo. “Pergo will buy Witex and then we will issue shares that HW Industries will receive as payment for those shares,” said Kumlien.

“Once the transaction is completed, Pergo will still be a publicly held company on the Stockholm stock exchange and HW Industries will be the largest shareholder in Pergo.” “We are very excited about the global opportunities that this merger will afford both Witex and Pergo,” said Steve Newman, president and CEO of Witex USA. “While each company will continue to operate independently in terms of product development and marketing, we will now be able to benefit from each others’ strengths in both laminate manufacturing and innovation. “More importantly,” he continued, “we will be able to use these synergies to drive greater profit opportunities for our retail and distributor partners.”

The merger is conditional upon the execution of a binding agreement, customary due diligence, possible anti-trust approvals and the approval of the issue in kind at an extraordinary shareholder meeting in Pergo. The parties aim to sign a binding agreement before year-end. While things seem to be going smoothly now, such was not the case in the summer when both announced in separate statements that the companies were breaking off a partnership which had begun in April of 2000 ( FCNews, July 22/29). At that time, both parties cited a failure by the other company to fully comply with the original agreement that surrounded the partnership deal. Regarding the current situation, Kumlien noted, “you have to look at these as two separate issues. We had terminated the shareholder agreement because we thought Witex had violated certain parts of the agreement. Pergo bought 25.1% of Witex.

At that point there was discussion in seeing if we could do something more than just having a shareholdership entity. They have been parallel discussions. “We think there is a good fit between these two companies because Pergo has the innovation and market insight whereas Witex is strong in manufacturing.,” she explained. “For us to join with Witex, we believe there are good synergies and that we will be a very strong company in the future.” “That’s all changed with this merger,” Newman said of the past disagreements.

“When the principals sat down and looked at the opportunities that present themselves for the two companies together—not only in production capacities, product availability, efficiencies in manufacturing and economies of scale—the benefits of the business relationship outweighed the negative aspects of separation. “The goal is, as a combined company to use our purchasing power to further our profitability in the laminate flooring category,” he added. “With the companies coming together, we become the largest laminate manufacturer in the world. “We obviously have enormous market share not only in North America but worldwide,” concluded Newman. “The goal would be to put these two companies together and find out how we can greater grow both brands and take more market share.”