Cambridge Industries Inc. has struck a deal to sell itself to Meridian Automotive Systems Inc., but it will complete the sale under the guidance of bankruptcy court. Cambridge voluntarily filed May 10 for protection under Chapter 11 of the U.S. Bankruptcy Code.
The Madison Heights, Mich.-based automotive composite parts supplier announced the same day that it had reached an agreement to sell its assets, valued at $345.4 million, to Meridian for $363.1 million.
In the bankruptcy filing, Cambridge listed $459.7 million in debts. It had $541 million in sales last year.
By entering bankruptcy with a signed sales agreement in hand, Cambridge has arranged the smoothest possible transition for the seller, buyer, employees, creditors and customers, said John Sieg, vice president of marketing and communications for Cambridge.
"Everything continues on schedule," Sieg said. "Bankruptcy has a certain amount of stigma attached to it, but in this case it's not so much an act of desperation as it is an administrative tool at our disposal."
Meridian formed last year from the merger of American Bumper & Manufacturing Co. of Ionia, Mich., and Lescoa Inc. of Grand Rapids, Mich. The corporate office recently moved to the Detroit suburb of Dearborn to have closer contact with automakers, said Chief Financial Officer Ed Corlett.
The company's 13 factories — all in the United States — also produce signal lights, consoles and instrument panels.
Cambridge has 18 factories in the United States, Canada and South America. The company posted more than $30 million in losses last year, its third straight year of operating in the red. It had net losses of $18 million in 1998 and $10 million in 1997.
The 4,700-employee company acquired nine companies in 10 years since it formed in the late 1980s, adding to both debt and production capacity. The purchases pushed sales to $541 million last year from $180 million in 1994.
Cambridge hit its final roadblock last year when majority owner and financial backer Bain Capital Inc. announced it no longer would pour money into the company. Facing the high cost of preparing for pending contracts, the company put itself on the market in March.
The sale will become complete once approved by the court, expected by the third quarter of this year.
Cambridge is an established molder of large composite automotive pieces such as hoods, fenders and composite pickup boxes. Officials estimated last year the business is responsible for 60 percent of the sheet molding compound in the North American auto market.
Among Cambridge's high-profile contracts is production of a thermoset box offered as an option on 2001 General Motors Corp. Silverado pickups and a rear tri-door on Ford Motor Co.'s Excursion sport utility vehicle.
That business will fit well with the front- and rear-end module systems that Dearborn, Mich.-based Meridian already produces — making the company a $1.2 billion supplier of complete automotive exteriors.
"The integration of our two companies will result in an enterprise having the resources necessary to drive growth and profits," Robert Barton, chairman, president and chief executive officer of Meridian, said in a written statement.
"This really positions us as a significant player in the entire exterior of vehicles and a strong player in the composite business," Corlett said. "We believe it's a package that represents a very attractive product portfolio."
The Dearborn company will assume "certain current and accrued liabilities," but by going through bankruptcy court it will not automatically take on all of Cambridge's debt, noted analyst David Eberly, managing director of GMA Capital LLC of Farmington Hills, Mich.
Completing the sale under Chapter 11 "makes excellent sense," he said. Cambridge buys time to work out the payment of its remaining debts, while still selling the assets to a preferred buyer under favorable terms. Meridian, meanwhile, adds to its industrial portfolio without buying into significant debt.
"They're buying the thing effectively free and clear," Eberly said.
With the sale pending, Cambridge will concentrate on paying its bills, Sieg said.
Among the top unsecured creditors listed in the company's court filing are State Street Bank & Trust Co. of Hartford, Conn., with $100 million in bonds, Ashland Chemical Co. of Dublin, Ohio, for $2.86 million in trade debt and Mexican Industries Inc. of Detroit for $1.09 million.
Mexican Industries operates a joint venture, injection molder Dos Manos Technologies of Detroit, with Cambridge. The business filed a lawsuit last month to try and force the larger company to sell it its part of the business.
Sieg said Cambridge plans to negotiate a sale of its share of the venture.
Eberly noted that the lawsuit will provide Mexican Industries with an advantage in court action. Although Mexican Industries is an unsecured creditor, it can point to the pending suit to strengthen its claim.
"They become a bigger thorn in their side," he said.
Mexican Industries President Rod Adams was not available to comment.
Meridian, meanwhile, will use the summer months to become more closely acquainted with its pending acquisition, Corlett said.
"We really will be working on integration plans the next 45 days," he said. "Our focus is to hit the ground running and have a smooth, uninterrupted flow of quality parts.
"We're very confident in our ability to make this a smooth transition."
