NN Inc. (USA), the bearing industry's major manufacturer of balls and rollers, has signed a letter of intent with SKF AB (Sweden) to acquire its Netherlands roller and retainer factory. The structure and value of the transaction have not yet been disclosed, but it is expected to be completed during first quarter 2003.

The facility, located in Veenendaal, Holland, The Netherlands, produces tapered rollers and metal retainers. Veenendaal is a town of 60,000 people in the central part of the country, east of Rotterdam. The factory currently employs approximately 360 people and has annual sales of € 45 million (USD $45.5 million)

SKF Nederland BV will divest the Veenendaal facility, but none of its other manufacturing or service operations are affected. The move is part of a continuing long-term commitment by SKF to divest non-core assets and to reduce invested capital. Almost three years ago, SKF sold and leased back its Netherlands Engineering and Research Center (ERC).

NN manufacturers and supplies high precision bearing components, balls, rollers, seals and retainers, for bearing manufacturers. Sales in 2001 were $180 million. With the acquisition of Veenendaal, NN's sales will grow 25%, to $225.5 million.

The two companies, NN and SKF, already have close business relationships, and a joint venture through NN Euroball ApS. Euroball includes the former SKF rolling element factory in Pinerolo, Italy. The other Euroball plants are a former FAG facility in Germany and an NN factory in Ireland.

One consideration in the Euroball venture may become a factor in the Veenendaal acquisition. Ever since the formation of Euroball, FAG and SKF have had to hold their share static; NN owns 54% and the other two companies each own 23%. After January 2003, however, both SKF and FAG have the right to require NN to buy out their shares. The share price would be based on Euroball's sales and profitability.

NN has already indicated that if SKF and/or FAG exercise their exit options, the company may need to borrow additional funds. Those borrowings could possibly leave NN without sufficient remaining financing to complete the Veenendaal acquisition.

It is unlikely that SKF would force any sort of liquidity problem on NN, given their mutually dependent business relationship. SKF increasingly relies upon NN to supply rolling elements, while NN depends upon SKF for more than 35% of its corporate net sales.

Assuming the acquisition goes through successfully, it is almost entirely additive for NN. Not only does Veenendaal give NN critical additional capacity for high-precision tapered rollers, it also comes with a built-in customer base and production capacity for metal cages. NN does not currently offer metal cages; it manufactures molded plastic retainers through its IMC division in the United States.

eBearing spoke with Will Kelly, Jr., NN's Treasurer, Secretary and Chief Accounting Officer. Mr. Kelly noted that NN at this point must decline to comment about the acquisition, due to new SEC regulation FD.