By spurning Johnson Controls Inc.'s advances in favor of another suitor, Chivas Products Ltd. has saved a plant from closing but possibly jeopardized its role in a major $900 million automotive contract.
Sterling Heights, Mich.-based Chivas submitted a bid March 2 to form a joint venture with injection molder Continental Plastics Co. of Fraser, Mich. Chivas had been in Chapter 11 bankruptcy protection since October before the restructuring plan was approved March 4.
Under terms of the agreement, Chivas Chief Executive Officer Joseph Anderson Jr. will own 51 percent of the joint venture, to be called Continental Chivas LLC. Continental, which makes interior auto trim, will own the rest and help the company get back on its feet, said Continental sales manager Russ Thomas.
The agreement trumps a bid by JCI's auto division in Plymouth, Mich., to form a similar venture with Chivas. Two weeks ago, the firms announced plans to set up a company to operate Chivas' Sterling Heights plant.
The joint venture with JCI also was expected to manage a contract in Detroit's empowerment zone to assemble seats for General Motors Corp.'s Cadillac models due out in 2000. The five-year, $900 million contract, first announced by Chivas and JCI two years ago, includes building a $5 million plant by summer 1999.
But the new Continental-Chivas means that minority-owned Chivas may not work with JCI as its partner on the project, said JCI spokesman Jeff Steiner. As part of the GM arrangement, JCI is expected to work with a firm that is more than half-owned by members of the minority community.
JCI plans to move ahead with the project but is evaluating other minority-owned suppliers as partners, Steiner said.
``Certainly we'll look at continuing to have Chivas as a partner, but we'll explore other alternatives as well,'' he said. ``The plant is still on schedule, but the only hiccup is whether we will work with Chivas. It's too early to tell what will happen.''
Continental's bid for Chivas was for a maximum of $12.3 million, depending on the value of inventory and receivables at the closing date, said Anthony Frabotta, chairman of Follmer, Rudzewicz & Co. PC in Sterling Heights, Mich. The firm acted as a consultant to Continental in the joint venture.
The deal — worth about $750,000 more than JCI's proposal — includes keeping open Chivas' 37,500-square-foot Canton, Mich., plant, which injection molds plastic parts for seats, interior trim and lighting. JCI's arrangement would have closed the Canton plant by May 1.
That may have been the deal breaker for Anderson, who was unavailable for comment. He believed closing the Canton site would have been a big blow to his long-term plans, Frabotta said. Also under the JCI agreement, Anderson would have held only a 46 percent ownership interest.
Continental has much shoring up to do to revive Chivas, which Frabotta said has serious problems with both parts quality and delivery. GM and Chrysler Corp. — Chivas' two largest customers — have taken the firm off their minority supplier quote lists for future projects until Chivas can be turned around, Frabotta said.
Still, Continental believes Chivas, which recorded 1997 sales of $47 million, can re-emerge, Frabotta said. The company's main problem from the outset was too much debt, he said.
``[Anderson] was overleveraged right off the bat when he bought the company in 1994,'' Frabotta said. ``He was already in trouble and needed to come out of the chute with a lot of new business. Unfortunately, he built layers of management rapidly to make debt payments but it continued to grow too quickly.''
The empowerment zone venture with JCI, a major Chivas customer, might not be off the table, Frabotta said. Chivas will be a stronger company than when the partnership was first announced in December 1995, he said.
Continental, which scrambled to put together the deal in 20 days, currently is working to repair equipment and tools at Chivas' two facilities and assess their processes and management.
Continental, with roughly $120 million in sales, has three molding plants and 41 injection presses with clamping forces of 700-2,200 tons, Continental's Thomas said. Chivas' Canton plant has about 18 presses.
Thomas said Chivas brings Continental business with a minority-owned firm and added technology in lighting and trim products.