Two publicly traded makers of plastic truck bedliners last week threw the first punches in a possibly bitter ownership fracas.
The battle stems from a bid by Colonel's International Inc., a light-truck parts and accessories manufacturer based in Milan, Mich., to merge with the industry's largest bedliner producer, Durakon Industries Inc. of Lapeer, Mich.
On March 25, Colonel's surprised industry analysts by submitting an unsolicited letter to Durakon executives proposing the marriage. Durakon's annual sales are four times those of its bidder. The letter outlined Colonel's plan to offer stockholders of each company an exchange of one share of Colonel's stock for an equal share in Durakon, said Colonel's spokesman Robert Frost.
``With our manufacturing, distribution and retail chain, we can do things very effectively,'' Frost said. ``The combined profitability for both companies would be enhanced, and our modern facilities would give them economics of efficiency.''
Colonel's asked that a meeting date be set to discuss the proposed match.
However, later that same day, Durakon's board of directors rejected the advance and refused a meeting. In a terse statement, Durakon officials said the combination would not be in the best interests of Durakon or its shareholders.
Colonel's does not plan to take the rejection to heart, Frost said. Although he did not disclose other steps Colonel's might take, he said that the merger still makes great sense for Durakon stockholders.
``We'd like them to at least sit down with us,'' Frost said.
The merger bid caused Colonel's stock price to spike upward by more than a point by the close of business March 25, to $9.50 per share. Durakon's stock price rose by about three-eighths of a point, to $8.875 per share.
If the merger were to occur, it would propel Colonel's to the top ranks among makers of light-truck parts and accessories, said analyst David Andrea of Detroit-based Roney & Co. Yet, the arrangement has its problems, he said.
``On the surface, it looks more positive for Colonel's than it does for Durakon,'' Andrea said. ``Durakon has a different set of relationships with original equipment manufacturers than does the Colonel's. They aren't going to jeopardize that by any merger that might weaken something they've created.''
The two companies have taken divergent paths in the light-truck parts market. Colonel's, which injection molds and vacuum forms plastic truck parts at two plants, aggressively has pursued the aftermarket, Frost said. During the past year, the company has set up—primarily through acquisition — a string of 30 retail outlets in 13 states.
It hopes to increase that number to more than 100 outlets within the next year, he added.
``That has to be attractive to Durakon stockholders,'' Frost said. ``Size is important and gives you the ability to deliver to more people.''
Colonel's is a relative newcomer to bedliners, entering the business in 1995 after forging a niche as a maker of plastic bumper fascias. The company operates a 300,000-square-foot sheet extrusion and thermoforming facililty to make plastic bedliners in Owosso, Mich., located north of Flint.
Colonel's also molds bumper fascias at its 350,000-square-foot Milan plant. That plant had eight injection presses with a clamping forces of 75-3,000 tons and six reaction injection molding machines as of 1995, according to Plastics News stories.
Durakon does not make bumper fascias.
Conversely, Durakon has gone after the OEM market, a weak area for Colonel's. Durakon, a maker of thermoformed composite bedliners, launched a major contract with Ford Motor Co. in the first quarter of 1997 to supply bedliners for its F-series light trucks. The firm also serves General Motors' light-truck line as well as Nissan.
Durakon prefers to work with independent distributors instead of owning its own retail stores, Andrea said.
Through its Jerr-Dan subsidiary, Durakon also makes rollback car carriers and wheel-lift towing vehicles, areas in which Colonel's does not compete. The disposition of Jerr-Dan in a merger agreement could be a major sticking point, Andrea said.
Still, while Durakon is four times the size of Colonel's, Durakon's sales and profit figures recently have dropped. In 1997, the company reported sales of $179.9 million, compared with $183.6 million the previous year. Profit plummeted to $1.1 million from $8.9 million the year before.
While that could leave an opening for Durakon stockholders to push a merger bid, the company expects to rebound this year, Andrea said. Wrecker and towing business was down about 20 percent last year for the entire industry, and the firm recorded onetime writedowns to clean up its retail and manufacturing sites, he said.
Colonel's recorded sales of $46.5 million for 1997, an increase from about $40 million for the previous year, Frost said. The company also expects about $3.5 million in profit, he added. Its profit margin, compared with Durakon's, could be a key factor in the merger, Frost said.
The stock swap would involve Colonel's 24 million outstanding shares. Durakon has about 6.2 million outstanding shares. Both companies are traded on Nasdaq.
Colonel's employs 330; Durakon employs about 880 at four plants in the United States and Mexico.
Durakon ranked 11th on Plastics News' list of North American thermoformers in 1997, with $85 million in related sales.