Bell Sports Embarks on a New Era in Private Hands
An Article from
Bicycle Retailer and Industry News
August 1, 1998 by Marc Sani
SCOTTSDALE, AZ-Terry Lee quickly summed up the reason Bell Sports is about to become a privately held company, ending a
six-year ride on Wall Street.
"There's a time to go public and there's a time to be privately held. And right now Wall Street isn't rewarding
non-growth companies or non-growth industries," Lee explained.
On Aug. 11, if shareholders approve, Bell Sports will merge with HB Acquisition, a $250 million merger that will pay
stockholders approximately $155 million, or $10.25 per share. That merger also includes assuming $95 million in debt.
The August vote at The Radisson Resort in Scottsdale will, for all practical purposes, occur on schedule. A lawsuit to
block the sale has been dropped.
Lee said the decision by Bell's board of directors to take the company private was a tough one. Bell's 15 corporate
officers own 26 percent of the company's stock, or 3,737,837 shares.
"It's a judgment issue and it was simply a judgment on management's part, and by the board, that this company is
better off being private than being in this public environment," said Lee, adding, "There's not a right or
wrong answer."
Lee pointed out that many in the industry, including Bicycle Retailer & Industry News, have been critical of the
company's financial performance over the last three years. But, he said, most fail to realize what a dramatic impact the
1995 crash in helmet sales had on the company.
Lee traced the company's growth back to April 1992 when the already fast-growing company went public. That decision was
made as more states were either contemplating or enacting helmet legislation requiring kids to wear bicycle helmets.
"We were maximizing the upside in a very robust market," he said. "In 1994, which was our last record year
Bell was number one in the market place. Our earnings were extraordinarily high and we had completed a run of almost five
years of 40 percent compound growth," he said.
Bell's performance on Wall Street made it a star-its stock hit the mid-40s. In November 1992, it bought Blackburn
Designs. In January 1994 it bought VistaLite. In May 1995 it acquired SportRack of Canada. And in July 1995 it merged
with American Recreation, which owned Denrich Sporting Goods, a Canadian manufacturer and distributor of helmets and
accessories to the mass market.
With the merger, Bell also absorbed Cycle Products, another mass merchant supplier, Service Cycle Supply and Mongoose
Bicycles. Bell Sports appeared to be a financial juggernaut. But the helmet market was crumbling, and crumbling fast.
"The helmet market, after growing 40 percent a year, didn't pause. It didn't stall; it literally crashed, declining
20 to 30 percent a year for the next three years," Lee said.
A glut of inventory further compounded Bell's woes. Helmet suppliers, including Bell, were slashing prices.
Bell's annual reports tell the tale. Its overall net income dipped from a robust $6.9 million in 1993 on net sales of
$82.6 million, to a year-end loss in 1997 of $18.2 million on net sales of $259.5 million. That amount included a $25.4
million pre-tax loss absorbed from the sale of Service Cycle and Mongoose.
"Everyone in the helmet business got hurt. Bell was the leader and Bell was in the public's eye and it didn't matter
whether you were Trek or Bell or Specialized or Troxel or Denrich or Headstrong or Renaissance," he said.
Bell saw its earnings tumble, but it's balance sheet was strong. The company slashed prices to maintain market share and
then, in the midst of continuing market turmoil, it snapped up Giro Designs in 1996.
"During the downturn we took the classical approach and opportunity to buy both our competitors, Denrich and Giro,
and consolidate the marketplace," Lee explained.
That strategy appears to be working. This year, as earnings began to rise, Bell branded helmets held a 65 percent market
share in the mass market and specialty retail. In addition, Bell maintains an 80 to 85 percent market share for helmets
priced at $50 or more.
When Bell got nailed by the 1995 crash, it was primarily a one-product company, although it owned Blackburn, Rhode Gear
and VistaLite.
According to Lee, the downturn is what prompted Bell to merge with American Recreation and get control of its biggest
competitor in the helmet market, Denrich, now part of Bell Sports Canada.
The July 1995 merger was, at the time, the industry's biggest, with combined sales of about $250 million. Only one
shareholder, Bell's single largest with 9.5 percent of the company's stock, the Zell/Chilmark Fund, voted against the
merger, sharply criticizing Bell's management in the process.
Bell then began a costly restructuring as it moved American Recreation's operations from Commack, New York to San Jose,
California. Other office shifts included closing an office in Cerritos, California, and moving it to Commack; shutting a
sales office in Providence, Rhode Island, and moving it to Los Gatos, California; and shifting other functions to
Scottsdale, Arizona, and then to San Jose. Those moves cost the company about $10 million in 1995 and 1996.
Bell's operations are now largely centralized in an office complex in San Jose.
Last year, the company exited the bicycle side of the business, selling off its Mongoose brand to Brunswick, as well as
Service Cycle Supply. While the company took a loss on the Mongoose sale, it got out of a segment of the market where
profits are hard to come by.
But Brunswick, as part of the sale, retained an option to buy 600,000 shares of Bell stock at $7.50 per share. With the
merger, Brunswick gets a windfall of 81.65 million.
Bell Names Plimpton to International Post
SAN JOSE, CA-Jon Plimpton, a career international businessman who has worked in more than 60 countries, is Bell Sports'
new vice president of international business. Plimpton will focus on doubling Bell's international business within the
next three years, one of the helmet company's most critical strategic priorities. Plimpton's experience includes service
as international vice president for Prince Manufacturing, where international sales became a major contributor to company
profits under his leadership. He formed International Business Management in 1991, working with clients such as Nordic
Track, Huffy, JanSport, Etonic, Schwinn and others to establish their brands and offices in foreign markets. Bell Sports
markets helmets and accessories under the brand names of Bell, Blackburn, Giro, Rhode Gear and VistaLite through the
specialty retail channels, and Bell, Cooper Canyon, Cycle Products, Fisher Price and Spoke Heads through mass
merchants.
New Pay Plan Set for Bell's Lee, George
SCOTTSDALE, AZ-When Bell Sports merges with HB acquisitions, a new compensation package for Terry Lee, Bell's chairman,
and Mary George, Bell's president, goes into effect Lee will serve as a full-time chairman for six months at an annual
salary of $415,000. He will earn $207,500 per year on a part-time basis. Lee's chairmanship is for two years. In
addition, Lee will receive a onetime bonus of $860,800 and will be eligible for future performance bonuses if certain net
income levels are met. Lee will continue to receive his base salary and bonuses if the company were to seek his
resignation for any reason other than cause. Lee also will receive $1.5 million payable in three equal installments for
signing a five-year non-compete and non-solicitation agreement And because of a phantom stock option, Lee will get
$233,071 once the merger is approved. George's base salary will be $350,000 per year and will be eligible for annual
performance bonuses. In addition, she will be granted stock options in the new company. If George were to leave the
company on good terms, she will receive an additional 18 months of her base salary. In addition, George will receive
$758,234, the result of a phantom stock option.
Copyright 1998 by Miller Freeman, Inc, Santa Fe, New Mexico. All rights reserved. Used with permission.