In a stunning move, Cincinnati Milacron Inc. is selling its 114-year old machine tool business to focus on higher-growth, more-profitable areas of plastics machinery and industrial products.
In a deal announced Aug. 21, Unova Inc. is paying $178 million for Milacron's Machine Tool Group. Unova will add the business, which generated 1997 sales of $458 million, to its Industrial Automation Systems segment in Warren, Mich.
Unova also is buying Milacron's headquarters in Cincinnati. Milacron is looking for a new headquarters in the Cincinnati area.
Milacron's Plastics Technologies Group in Batavia, outside of Cincinnati, will generate more than half of sales for Cincinnati Milacron, which will be renamed Milacron Inc.
Milacron announced the move at 7:20 a.m. Aug. 21, before trading opened on the New York Stock Exchange. The company's stock price rose one point in early trading that day. Employees learned of the news when they arrived to work at 8 a.m., said plastics group spokesman Tom Jarrold.
Plastics Technologies generated $735.7 million in 1997 sales and operating profit of $59.7 million. Sales should climb to about $1 billion after two recent purchases: the $210 million deal for Johnson Controls Inc.'s blow molding and structural foam machinery businesses; and the earlier purchase of Autojectors Inc., a vertical injection press maker. Milacron's plastics division makes injection presses, extruders, blow molders and mold components.
Industrial Products—consumable metalworking products like grinding wheels and metalworking fluids—reported 1997 sales of $703 million and $81.2 million in operating profit.
``The new Milacron should have [sales] around $1.8 billion in 1999, and can be expected to register more-consistent earnings,'' said Daniel J. Meyer, Milacron's chairman, president and chief executive officer. The transaction will result in an after-tax loss of as much as $32 million in the third quarter, or 80 cents a share.
Analysts applauded the move, which they said rids Milacron of its underperforming machine tools business. Machine tools generated just $14.5 million in operating profit last year on sales of $458 million.
``People have been talking about it for years, but the fact that they did it is the biggest surprise,'' said Walter Liptak, analyst at McDonald & Co. in Cleveland. ``It is shocking, but it brings Cincinnati Milacron full circle. The company's done everything right in terms of transforming their business, and the one last piece of baggage has been the machine tool business.''
Meyer said the sale makes Milacron ``a stronger, less cyclical company.'' Milacron will invest money from the sale into its plastics and industrial businesses, and make strategic acquisitions, he said. Still, Meyer called the sale ``a bittersweet move.'' Milacron's history in metalworking equipment began in 1884, and the company became one of the dominant players in machine tools. In the 1970s and 1980s, however, Japanese imports soared, capturing half the U.S. market.
Milacron had created its Plastics Machinery Division in 1968. Japanese imports also hammered the U.S. injection molding machine industry, but Milacron's plastics unit fought back with an aggressive strategy called Wolfpack to slash manufacturing costs and build more-reliable machines. Other parts of Milacron later adopted Wolfpack.
Mark Koznarek, analyst at Cleveland-based Midwest Research, said machine tools remain a brutal business.
``From the perspective of an investor, I think it's a positive [move],'' he said.
Koznarek said moving Milacron's headquarters and severing the machine tools business will cause some emotional upheaval among employees, but that could help give Milacronites a fresh perspective. ``It's a big cultural shift, which can often be positive,'' he said.
Competitors were astonished by the news. Some wondered if Milacron would use cash from the deal to make another major acquisition. In recent years, rumors have abounded in machinery circles that Milacron would buy Davis-Standard Corp., the biggest North American extruder manufacturer.
That speculation was fueled again by comments in the Aug. 10 Plastics News story about Milacron buying JCI's machinery business. The story quoted Harold Faig, Milacron vice president of plastics machinery worldwide, saying the company wants to beef up its U.S. single-screw extrusion portfolio.
Davis-Standard, which has been on a buying streak of its own in recent years, now has more than 50 percent of the U.S. single-screw extrusion market. The company in Pawcatuck, Conn., reported sales of $311.7 million from single-screw extruders, twin-screw compounding extruders and blow molding machines.
Faig, who met with financial analysts right after the Aug. 21 announcement, was not available for immediate comment on this story. Davis-Standard officials declined to comment.
Contacted the day of the announcement, competitors gave Milacron credit for changing gears.
``I think it speaks well of the plastics industry,'' said Sid Rains, vice president of sales at Van Dorn Demag Corp. in Strongsville, Ohio. ``It's encouraging when a company of the stature of Cincinnati Milacron makes such a commitment to the plastics industry.''
Mike Santa, executive vice president of Krauss-Maffei Corp., said the change took guts.
``A lot of times companies make an error in sticking with an industry that gave birth to their company, even though that segment may not be profitable,'' he said. ``In Cincinnati's case, they made a decision and decided to go with the area they thought would be profitable and bring back the greatest return to their investors.''
Krauss-Maffei is based in Florence, Ky., near Cincinnati.
``Is it surprising? Yes,'' said Kurt Fenske, vice president of Engel North America in Guelph, Ontario. ``Strategically, they have gone towards plastics over the past decade. Plastics machinery has done well for them and it's fitting into their strategy better than their machine tools.''