Water Pik Has Stiff Competition as It Spins Off From Its Parent

By GREG HERNANDEZ

Nov. 25, 1999 12 AM PT

TIMES STAFF WRITER

The Newport Beach-based producer of the Water Pik brand of shower massagers, automatic toothbrushes and pool heating systems strikes out on its own Monday, facing stiff competition from a myriad of much larger corporations.

Water Pik Technologies Inc.’s stock officially begins trading on the New York Stock Exchange after the company is spun off by Pittsburgh-based Allegheny Teledyne Inc., the world’s top producer of specialty metals.

Allegheny Teledyne, seeking to focus on its core metals business, also is shedding its aerospace and electronics divisions, which will unite to form Teledyne Technologies Inc., headquartered in Los Angeles.

Water Pik executives see their company’s independence as an opportunity to raise funds and focus on developing an array of new products critical to their company’s growth.

Water Pik recently introduced a misting shower massage that creates a steam bath environment in the shower and expects to launch a new dental hygiene device next year, said Michael Hoopis, president and chief executive.

The company claims its sales of water-powered dental devices have captured 80% of the market and sales of pulsating shower heads top competitors with a 35% share of the market.

But Water Pik will be squaring off against much larger competitors, such as Procter & Gamble Co., Gillette Co., Clorox Co., and its ability to generate much-needed capital is uncertain, according to documents filed with the Securities and Exchange Commission.

“Water Pik is obviously a well-known brand,” said Mark Minichiello, an analyst with Chicago-based Spin-Off Advisors. “But one of the concerns I would have is the size of Water Pik versus its competitors. Gillette and Procter & Gamble are large players and it’s small in that universe.”

Water Pik hopes to raise $50 million within the year in a subsequent stock offering, the company said.

The SEC document did not list a price range for the stock’s debut Monday, but the shares first traded at $10 this week on a “when-issued” basis, then slipped to $9.50 on Wednesday. The stock’s symbol will be PIK.

Shares of Teledyne Technologies, the Los Angeles-based spin-off, also will begin trading Monday on the New York Stock Exchange under the symbol TDY. The stock, which also is trading on a “when-issued” basis, closed Wednesday at $10.50, up $2.06 a share.

Steven Bregman, an analyst for the Spinoff Report, said Water Pik is “a classic consumer brand kind of company” that has a good chance to succeed, but may need some time before it is a hit on Wall Street.

“They just have to manage the company well,” Bregman said.

The company’s track record over the last five years has been mixed, the SEC documents show.

After posting solid gains in profits and sales in 1996 and 1997, earnings slumped nearly 35% to $11.5 million last year as sales dropped 2.3% to $235 million. In the first nine months this year, net income fell nearly 5% to $6.1 million while sales climbed 9% to $176.5 million.

Water Pik had been a unit of Los Angeles-based Teledyne Inc., which was acquired by Allegheny-Ludlum in 1996.

Plans for a spin-off began almost immediately, said Hoopis, Water Pik’s chief executive.

“For the shareholders of Allegheny, it was the best way to enhance their value,” Hoopis said. “It was a way for us to generate the capital and put a team together that would allow us to compete in a very competitive marketplace.”

Such spinoffs are often seen as a way for a promising subsidiary to flourish or as a move by a parent company to rid itself of a money-losing operation.

In Orange County, one of the biggest spinoffs in recent years occurred last December when Rockwell International Corp. shed its struggling semiconductor division.

The new company, Newport Beach-based Conexant Systems Inc., has rebounded to post a profit much sooner than executives and analysts anticipated. The stock has rocketed more than seven-fold this year. The shares closed Wednesday at $61.81, up 38 cents in Nasdaq trading.

Water Pik has eight facilities in the U.S. and Canada, with about 1,600 employees. They will not be affected by the change, executives said.

Hoopis was hired a year ago from Black & Decker’s household products group to oversee Water Pik’s transition from a small part of a large corporation to an independent public company. He’s a 25-year veteran of the consumer products business.

He said the move provides his company with better access to capital markets and offers more growth potential.

“We’re really coming off of a heritage of product innovations and we’ll grow through providing innovative new products,” he said. “Certainly we are more accountable from the standpoint of the usual quarterly pressures. At the end of the day, we have to execute our plan and make our numbers.”

While Hoopis is optimistic, the company cited several “risk factors” in its filings this month with the SEC. Among them are the highly seasonal pool-heating portion of its business, and the need to launch a steady stream of new products into the marketplace as quickly as possible. The company acknowledged that there is no guarantee that it will be able to get the funding to develop new products.

Analyst Minichiello also noted Water Pik may not receive much coverage from analysts initially, which means there could be limited exposure to potential investors.

But he said the fact that top executives have options to acquire about 5% of the company’s stock is a positive because “it puts management in line with the shareholders’ interests.”

As part of the two spinoffs, shareholders of the Pittsburgh-based parent company will get one share of Water Pik Technologies for every 20 shares of Allegheny Teledyne, and one share of Teledyne Technologies for every seven shares of Allegheny Teledyne.

The parent company in Pittsburgh is being renamed Allegheny Technologies Inc. In a reverse stock split, investors also will receive one share of of Allegheny Technologies for every two shares they own of Allegheny Teledyne.

Allegheny Teledyne’s stock sank Wednesday to a 52-week low of $14.13 a share before closing at $14.38, down 19 cents for the day, on the New York Stock Exchange.

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Stock Market Debut

Shares of Water Pik Technologies Inc. are scheduled to begin trading Monday. The company at a glance:

Business: Developer, manufacturer and marketer of personal health care products, pool products and heating systems

Headquarters: Newport Beach

Employees: Approximately 1,600 (5 in Newport Beach)

Operations: Facilities in California, Colorado, New York and Canada

Leadership: Michael P. Hoopis, president and chief executive officer

Ownership: Publicly held. Management will own 5% stake. Former division of Allegheny Teledyne Inc.

Net income:

(millions)

1994 $ 6.6