Japanese Toilet Maker Lixil Buys 138-Year-Old Brand American Standard for $342 Million including $200 Million Debt

Updated June 28, 2013, 7:09 p.m. ET

Japanese Toilet Maker Lixil Buys American Standard

Lixil Gains Well-Known Brand as It Looks to Capitalize on U.S. Housing Market

JAMES R. HAGERTY

Though Japan’s economic might has faded, the country continues to enhance its status as a powerhouse in one realm: toilets.

Japan’s Lixil Corp. said on Friday it agreed to pay about $342 million for American Standard Brands, a 138-year-old U.S. maker of toilets and bathroom and kitchen fixtures. The purchase from Sun Capital Partners Inc., Boca Raton, Fla., includes the assumption of $200 million of debt.The acquisition positions Lixil to ride the recovery in U.S. home building, which is spurring demand for kitchen and bath products. It also propels Lixil into the top ranks of global toilet makers, vying with Toto Ltd. 5332.TO +2.44% of Japan, Roca Sanitario SA of Spain and Kohler Co. of Wisconsin in that market. Global sales of toilets are about $8.5 billion a year, according to Freedonia Group, a research firm in Cleveland.

The History of American Standard

The century-old company has a long history of mergers and owners.

1872: John B. Pierce opens a shop in Massachusetts offering enameled iron products; later forms American Radiator

1875: Standard Manufacturing founded; later introduces one piece toilet and combination faucets

1929: American Standard brand created when Standard Sanitary merges with American Radiator

1968: Westinghouse Air Brake, or Wabco, merges with American Standard

1984: Acquires air-conditioner manufacturer Trane

1988: Spurns takeover by Black & Decker, goes private in leveraged buyout by Kelso & Co.

1997: Rejects takeover offer from Tyco International

2007: Bain Capital acquires the global bath- and kitchen-products business

2008: Sun Capital buys the Americas business and merges it with Crane Plumbing and Eljer

Source: company reports

Toto is currently No. 1 globally in toilets, with sales of $1.4 billion, said Matt Zielenski, a Freedonia analyst, and Lixil’s acquisition will boost it into the same range.

Japanese toilet makers are known for high-tech toilets, with features such as bidet-like jets of water, air dryers and sensors that lift the lid when a person approaches and flush automatically. Such toilets, popular in Japan, can cost $5,000 or more. But the U.S. market, where many toilets are sold at big box retailers, is much more price conscious, with an average price of between $200 and $300, said Jay Gould, chief executive of American Standard Brands.

Most Americans are unlikely to trade up to the fanciest types of toilets, Mr. Gould said, though there is big potential in that category. David Krakoff, president of Toto’s sales division for the Americas, said sales expansion in high-end toilets, including those that wash the user’s bottom, “has been phenomenal” recently in the U.S. Toto is selling thousands of them a month in the U.S., he said.

The more than century-old American Standard was sold in 2007 to a Bain Capital Partners LLC fund for $1.76 billion. Bain sold the North American part of the business to Sun Capital for about $130 million and later sold the Asian business to Lixil, then known as JS Group, while retaining the European and Latin American operations, known as Ideal Standard.

At the time of that breakup, the North American business was losing money, hit by a slump in the U.S. housing market and heavy competition from Chinese imports. Marc Leder, co-chief executive of Sun Capital, said the North American business had earnings before interest, taxes and depreciation of about $49 million in the 12 months ended May 31. The company being sold also includes other operations acquired by Sun Capital, including the Eljer and Crane plumbing businesses. Mr. Leder said Sun Capital was selling the combined businesses to Lixil for about twice the amount Sun paid.

Along with toilets, American Standard makes bathtubs, kitchen sinks and faucets. It employs more than 5,000 people.

About 78% of U.S. bathroom fixtures are imported, mostly from China and Mexico, said Hayden Shipp, an analyst at IBISWorld Inc., Santa Monica, Calif., up from 49% in 2002. American Standard moved toilet production to Mexico and other countries but has kept a plant in Nevada, Mo., partly to satisfy government and other buyers insisting on U.S.-made products. It also makes bathtubs and other items in Salem, Ohio, and Grand Prairie, Texas.

Toilet making still involves lots of manual labor to handle ceramic molds, apply enamel and inspect the goods after baking, among other things, said American Standard’s Mr. Gould: “It’s very much like making pottery.” Toto’s Mr. Krakoff said his company increasingly relies on robots to help with toilet production at its plants in the Atlanta area and Japan.

Lixil Corp., whose sales totaled the equivalent of about $15 billion in the year ended in March, has made a big push into overseas markets under Yoshiaki Fujimori, who became president of the Japanese company two years ago after a career at General Electric Co. GE -0.56% In late 2011, Lixil bought Permasteelisa SpA of Italy, a maker of curtain walls, for about €575 million. Curtain walls are used as the nonload bearing outer skin of large commercial buildings.

While the American Standard acquisition is far smaller than some of Japan’s legendary takeovers of the 1980s—including trophy assets like Rockefeller Center and Universal Studios—it does involve a well-known U.S. brand and is an example of a Japanese company ramping up its overseas presence, an increasingly common phenomenon in recent years as the domestic market shrinks.

Recently, Japanese telecommunications firm SoftBank Corp 9984.TO +2.48% . agreed to acquire U.S. wireless carrier Sprint Nextel Corp. S +0.57% in a $21.6 billion deal that has been approved by Sprint shareholders and is expected to close in July.

American Standard traces its history back to Ahrens & Ott Manufacturing, founded in Louisville, Ky., in 1875 and later merged with Standard Manufacturing of Pittsburgh.