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March 26, 2001 01:00 AM

Lakeland buyout could be Hobson Mould's savior

Joseph Pryweller PLASTICS NEWS STAFF
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    A large builder of rotational molds, Lakeland Mold Co., is close to buying blow mold producer Hobson Mould Works Inc., saving it from liquidation.

    Lakeland has offered to purchase all of Shell Rock, Iowa-based Hobson, including its tooling and blow molding operations, Lakeland President John Newhouse said in a March 23 telephone interview.

    The acquisition would keep the doors open at the cash-hampered company. Lakeland still is negotiating final terms and has at least until March 31 to make a decision, Newhouse said.

    "We're still very much in the discovery process," Newhouse said. "But I think we have a good chance of striking a positive outcome in the whole endeavor."

    Lakeland, a maker of cast-aluminum rotational molds, employs 85 at its Brainerd, Minn., facility. The company recorded sales of $8 million last year making molds for the industrial, kayak and agricultural markets, among others.

    Lakeland wants to diversify into new areas and believes that Hobson's blow mold technology will fit well with its existing processes, Newhouse said.

    On March 19, Milwaukee-based Firstar Bank approved Lakeland's bid, said Ken Mann, principal of Easton, Md.-based Equity Partners Inc. If the deal goes through, closing will be in late April.

    Lakeland also applied for about $450,000 of funding from the state of Iowa and local sources, said Carol Jahnke, director of economic development for the Waverly (Iowa) Area Development Group.

    If Lakeland buys Hobson, it plans to keep most of the management and employees, Newhouse said. The status of Hobson President Gerald Hobson is unclear until Lakeland decides how to integrate the businesses, Newhouse added.

    Gerald Hobson, part of a management group that bought the company from Chardon, Ohio-based Essef Corp. in late 1996, did not return a telephone call seeking comment.

    Hobson Mould currently has 23 employees working two shifts in its molding operations, down from about 140 employees last year, said Hobson acting plant manager Mike Klinefelter.

    If Lakeland buys the company, it will ramp up slowly, Klinefelter said.

    "It's my guess that they'll probably bring back another 30-35 people at first," he said.

    Hobson makes blow molds for the automotive and appliance industries and operates a smaller blow molding division at its headquarters. The company recorded about $12.5 million in sales last year but found itself unable to make payments to Firstar and other creditors in December. Debt reached more than $6 million, Mann said.

    Hobson had been shopped to potential buyers since January. If no buyer was found, the next recourse would have been liquidation, Mann said.

    One bidder wanted to buy the company's assets and shut down the facility.

    Several initial bids by Lakeland were rejected by the bank in early March because they were considered too low. Mann asked Lakeland on each occasion to submit a new bid that would keep Hobson in business.

    Firstar verbally accepted the March 19 offer, even though it was still about $50,000 lower than what the bank had wanted, Mann said.

    "It didn't always look like we could bridge the gap enough to suit the bank," Mann said. "But we did."

    The news of Hobson Mould's travails should serve as a wake-up call to other mold makers, said Matt Coffey, president of the Fort Washington, Md.-based National Tooling & Machining Association.

    The company's troubles were traced partly to the lack of payments by its automotive customers. In that industry, customers typically take 180 days or longer from the time a tool is delivered to pay for it, Coffey said.

    Compounding the difficulty is the fact that tooling, especially in the auto industry, has skidded into a downturn since mid-2000.

    "The basic problem is that [original equipment manufacturers] and first-tier suppliers are not paying bills," Coffey said. "It's unheard of in other industries. And companies end up getting caught by the downturn."

    Hobson's troubles and seesaw-bidding activity have rocked the Iowa community, Klinefelter said.

    "It's something we only want to do once," he said.

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