SMS AG officials dropped a bombshell Dec. 21, revealing that the company had killed a deal to sell Battenfeld GmbH's injection molding press business to Madison Capital Partners. SMS, Battenfeld's parent company, tacked the news onto another major machinery announcement — that it was buying Milacron Inc.'s Vienna, Austria-based plastics extruder operation.
The Milacron deal was no surprise, since it confirmed several months of industry rumors.
But the cancellation of the Madison Capital deal, publicly announced two months ago, was a surprise.
"We were absolutely shocked" by the SMS announcement, said Madison President Larry Gies.
Madison Capital issued a news release Dec. 29, calling "categorically untrue" statements by SMS that the firm was not able to gain financing.
"Madison's affiliate, Battenfeld IMT Holdings LLC, and its banks, Deutsche Bank and Comerica Bank, were prepared to close the transaction on the agreed terms. SMS' termination of the transaction is inexplicable," the release said.
The Madison development has renewed speculation — which was strongly denied by SMS and Milacron — that Milacron could end up buying the Battenfeld injection press business, a move that would give Milacron large-press manufacturing capacity in Germany.
Dusseldorf, Germany-based SMS will pay Milacron about $47 million for the Vienna business, which also has a facility in Kawasaki, Japan. The extrusion business generates annual sales of about $65 million and employs 325.
Milacron will continue to build single- and twin-screw extruders in Batavia, Ohio. The machines are used to extrude sheet and construction products such as vinyl siding, pipe and window profiles.
"Our European extrusion business has an excellent tradition, but for Milacron's future long-term growth we're concentrating on our U.S. extruder operations," said Jim Abbiati, vice president and general manager of Milacron's Plastics Machinery Applications Business.
Milacron bought the Austrian operation in 1969, gaining its first exposure to extrusion machinery. It was just a few years after Milacron, then known for its metalworking machines, started building injection presses. The company set up U.S. extruder manufacturing in the 1970s.
The U.S. operation developed its own strategy, and in recent years, Milacron officials said, the U.S.-based business has performed better financially than the Austrian business, which served Europe, Asia and South America.
"We've been technologically self-sufficient in the U.S. for many years in pipe and other traditional PVC extrusion markets historically served by European manufacturers, while continually developing our alternative, value-added processes," Abbiati said. He cited products such as decking made with wood flour, and the North American shift away from lead-based stabilizers for vinyl siding and windows.
Milacron also beefed up its U.S. screw holdings, purchasing Wear Technology Inc. of McPherson, Kan., in 1998.
Two analysts who follow Milacron praised the sale for getting rid of a low-margin business. Initially, Milacron will use sale proceeds to reduce debt.
"I think that's a great strategy," said Walter Liptak of McDonald & Co. in Cleveland.
Mark Koznarek, of Cleveland-based Midwest Research Maxus Group Ltd., said the Austrian operation's profit margin has been about half of Milacron's overall plastics machinery operating margin, which was about 10 percent this year.
"It's a very good move," Koznarek said. "It will add a little bit to earnings just by its absence. It's worth more to Milacron to keep the debt down than it is to keep this kind-of struggling business."
In a news release, Harold Faig, Plastics Technologies Group vice president, said the sale "allows Milacron to invest in its faster-growing operations, including our very fast-growing extrusion business in North America."
For SMS, the purchase continues its strategy to focus on extrusion. The company builds Battenfeld extruders in Bad Oeynhausen, Germany. In the United States, SMS owns American Maplan Corp. in McPherson, Kan., and Battenfeld Gloucester Engineering Co. Inc., a blown film equipment maker in Gloucester, Mass. SMS will retain the Vienna firm's 30-year namesake, by calling the business Cincinnati Extrusion GmbH.
SMS officials pushed their extrusion-only focus in October, when SMS announced it was selling the Battenfeld injection press business to Chicago investment firm Madison Capital Partners. But now SMS is saying that agreement is over, and it will retain ownership of the $200-million-a-year firm.
"Although a definitive contract had been signed on Oct. 1, 1999, the sale of Battenfeld Injection Molding Technology cannot be executed because Madison Capital Partners was not able to provide appropriate financing," SMS said in the Dec. 21 news release.
The injection business will remain with Battenfeld under SMS ownership, according to the company.
Madison Capital officials declined to comment further, saying they "expect this matter to be the subject of legal action."
In the months before SMS first named Madison Capital as the injection press buyer, rumors swirled that Milacron might buy it, or maybe swap its Austrian extrusion plant for the injection press business.
In a late October conference call to stock analysts, Daniel Meyer, Milacron's chairman and chief executive officer, confirmed Milacron had considered a deal. "We looked at it, but when it came right down to it, we weren't interested," he said, answering an analyst's question.
Would Milacron be interested now?
Tom Jarrold, spokesman for Milacron Plastics Technologies, said there are no plans to buy the injection press business. He declined to comment further. Milacron executives were unavailable.
Ingrid Bergmann, a spokeswoman for Battenfeld and SMS, said there are no talks to sell injection presses to Milacron — or to anyone else.