AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 25, 2003
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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HERCULES INCORPORATED
(Name of Registrant as Specified in Its Charter)
THE HERCULES SHAREHOLDERS' COMMITTEE FOR NEW MANAGEMENT
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THE HERCULES SHAREHOLDERS' COMMITTEE FOR NEW MANAGEMENT
17 State Street, New York, NY 10004
June 24, 2003
Sender's Direct Dial# (212) 821-1601
Ms. Florentina Marinescu, Senior Analyst, U.S. Research
Mr. Rajeev Kumar, Senior Analyst, U.S. Research
Institutional Shareholder Services
2099 Gaither Road, Suite 501
Rockville, MD 20850
Dear Florentina and Rajeev:
In response to your request in connection with our telephone conference
yesterday afternoon, we are forwarding the following information:
(1) A copy of our June 24th letter to shareholders which is being
sent today (Ex. A);
(2) Details concerning Hercules refinancing options, including
copies of a presentation from a major money center bank (Ex.
B, name of bank redacted) outlining these options at a
December 12, 2001 Board meeting, presentations made by the
Company itself at the February 11, 2002 Board meeting
regarding refinancing proposals by money center banks, and
term sheets outlining the refinancing available to the Company
(Ex. C, names of banks redacted);
(3) A minority directors' presentation ("Analysis of Strategic
Alternatives") made to the December 12, 2001 Board meeting,
indicating our view that as a result of the BetzDearborn sale
the Company's stock was estimated to have a value between
$8.10 and $12.45 per share, depending upon whether the Company
was able to sell its remaining businesses (Ex. D). As to the
BetzDearborn retention option, the minority directors
estimated that the stock could be worth upwards of
approximately $10 per share more than the sale option.
Parenthetically, we believe that this has proven not far from
the mark given the earnings projections for Hercules had it
retained BetzDearborn, as referred to in #4 below;
(4) Based upon GE's 2003 projections, as referred to further in
our June 24th letter, we estimate that, with the retention of
the BetzDearborn business,
earnings per share at Hercules this year would have been
approximately $1.39 vs. $0.72 as per Wall Street consensus
estimates (See Ex. E)(1);
(5) The BetzDearborn story is not only relevant to illustrate how
improvident the sale of the business to GE was, but so also it
strongly bears on the issue of Joyce's operating strategies
for Hercules' businesses. We spent a portion of the call
yesterday on our contention that Joyce is not operating
Hercules' businesses as one would expect for high value-added,
specialty chemicals businesses. While it is often difficult
for a third party observer to assess the relative merits of
two parties' contentions regarding operating strategies for
the running of a business, the BetzDearborn example offers an
almost unique case study dramatically illustrating the
difference between how Hercules' largest and most attractive
business was run under Joyce prior to the April 29, 2002 sale
and how it has been operated under GE's management in just the
past 14 months.
As can be seen from the Board information presented at our
February 11, 2002 Board meeting, Joyce estimated
BetzDearborn's future revenue as increasing from $1.042
billion in 2002 to only $1.176 billion in 2006 - an average
annual increase of 3.1% - (p. 33, February 11, 2002 Board
book, Ex. G). In addition Joyce estimated BetzDearborn's
EBITDA to be almost flat over the four year period, increasing
from $262 million in 2002 to $286 million in 2006 - or an
average annual increase of 2.2% (p. 33, February 11, 2002
Board book, Ex. G).
Now under GE management only 14 months later, we have a
business that's the linchpin for a platform for future growth
that will be creating shareholder value for GE shareholders.
See GE's "Water Technologies" June 20th investor conference
slide presentation (Ex. H) and analyst reports in the wake of
the investor conference (Exs. L, M, N). I would call your
attention to the following pertinent excerpts from these
analyst reports (Exs. I, J, K). See also p. 13 of the "Water
Technologies" GE investor presentation (Ex. H), which
indicates that GE's water technologies business, of which
BetzDearborn comprises approximately 80% ($1.1 billion of
sales out of a total of $1.4 billion in sales) is projected to
have internally generated revenue growth of an additional $800
million by 2006 - an increase of approximately 15% per annum.
As illustrated at the same page, operating margins for the
business are projected to increase from 15% in 2002 to 20% in
2006. Also confirming Sunil Kumar's comments yesterday
concerning the opportunities for growth, please see p. 10 of
the "Water Technologies" GE investor presentation (Ex. H)
regarding opportunities for growth in China and
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(1) We are enclosing Ex. F from the Board's February 11, 2002 presentation
indicating that the Company's own estimate for 2002 earnings, had it
retained BetzDearborn, would have been $0.41 per share higher - or an
increase of 55%.
2
capital investment in field resources and research centers to
fuel this growth.
We realize that this is a lot of material to absorb, and if you would
like us to take you through this on another call, we would be happy to do so. In
addition, if there is any further information that we can provide you, please
let us know.
Sincerely,
/s/ Samuel J. Heyman
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Samuel J. Heyman
enclosures
Note: Permission to use included material was neither sought not obtained.