Penske Unit to Buy Outboard for $500 Million

Outboard Marine Corp., the largest U.S. maker of outboard engines, on Wednesday agreed to be acquired for about $500 million--a price so low that one investor called the deal a “take-under” rather than a takeover.

Detroit Diesel Corp., a unit of closely held Penske Corp., will pay $16 a share in cash and stock for Waukegan, Ill.-based Outboard, the nation’s second-largest maker of recreational powerboats.

“It’s a good acquirer. It’s someone who knows how to run manufacturing operations, but I’m surprised that that’s all they can get for this company,” said James Schmitt, head of Westcountry Financial, an investment firm in Somis, Calif.

Outboard Marine’s stock lost $3.63 to close at $15.88 on the New York Stock Exchange--after a run-up over the last week driven by acquisition rumors that had pushed the stock as high as $19.

“Whoever bought this stock in the last few days is going to be very disappointed,” said Michael Pizzi, an industry analyst at Standard & Poor’s Equity Group in New York.

Said one Outboard investor of the purchase price: “It’s a take-under. It just shows the trouble the company has had.”

Detroit Diesel added $2.13 to close at $25.88. Analysts said the Detroit-based Penske unit recently indicated increased interest in acquisitions. But it was low on the list of likely buyers of Outboard, which put itself up for sale in April.

“It was a little surprising that Detroit Diesel wants to get involved in this business,” one Outboard investor said.

Detroit Diesel makes heavy-duty engines for trucks, buses, cars, boats, military vehicles and power generation, construction, mining and industrial equipment.

Outboard has an innovative fuel-injection technology called FICHT that it put into its boat engines this year and that probably was a major attraction to Penske, analysts said.

But they said Outboard’s struggling powerboat business was less alluring to Penske.