When Dallas investment house Hicks, Muse, Tate & Furst Inc. bought injection molder Courtesy Corp. for $353 million in 1999, it looked like the foundation for a strong partnership. The investment fund said it planned to use the company to build a bigger network of plastic molding firms.
Reality never lived up to that vision.
Today Courtesy sits on the auction block after its parent, LLS Corp. in St. Louis, filed for bankruptcy and said it was burdened with too much debt. The top bid thus far: $105 million.
Courtesy, which was Plastics News' Processor of the Year in 1998, also is locked in a separate court fight with its former owners, Walter Kreiseder and Gerald Sommers. That battle is over whether Kreiseder and Sommers misrepresented the company's health when they sold Courtesy - a charge the two deny - and whether LLS still owes the pair $20 million.
On April 23 a piece of that legal thicket was untangled when a U.S. Bankruptcy Court in St. Louis brushed aside objections from Kreiseder and Sommers and agreed to let the firm's sale proceed. The auction is to conclude in August.
Right now the only offer is the $105 million bid from Hicks, Muse, Tate & Furst to buy back the firm. Kreiseder and Sommers previously submitted a tentative offer of $120 million, but withdrew that after they said LLS did not provide enough specifics about the operations of Buffalo Grove, Ill.-based Courtesy.
David Webster, LLS senior vice president, said Kreiseder and Sommers were given enough information, and he noted that they both remain on the LLS board.
LLS is a holding company for Courtesy and sister company Creative Packaging. Hicks, Muse, Tate & Furst owns 58.5 percent of LLS, while together Kreiseder and Sommers own 31.5 percent, and LLS managers have 10 percent.
Webster blamed the slumping economy, in part, for the bankruptcy. But he said a second factor in LLS' troubles stems from its court fight in Cook County (Ill.) Circuit Court, where he said LLS has accused Kreiseder and Sommers of misrepresenting information about Courtesy when it was sold.
``We are alleging misrepresentations with respect to customers, inventory [and] receivables,'' Webster said. ``The operating performance of the underlying assets were not as expected at the time of the purchase.''
Kreiseder and Sommers deny that: ``Our clients steadfastly believe they did not do anything wrong,'' said Steven Blonder, a Chicago lawyer representing both men.
Blonder said his clients sued LLS in December 2000 to get $20 million that was held in escrow from the purchase but was supposed to be released after a year. LLS filed its counterclaim, and both those Cook County cases are on hold while the bankruptcy case proceeds.
Webster said Courtesy is operating normally, generating enough cash for things like paying its suppliers and employees and fulfilling orders. The LLS bankruptcy does not affect Courtesy's day-to-day operations, which remain strong, he said.
The operations do not generate enough cash, however, to pay the firm's $265 million debt, Webster said.
The $353 million purchase price was more than seven times Courtesy's earnings before interest, taxes, depreciation and amortization of $48 million in the last fiscal year before the purchase, according to a 1999 LLS filing with the Securities and Exchange Commission.
``The company was initially overleveraged at the holding-company level,'' said David Solomon, managing director with investment banking firm Goldsmith Agio Helms in New York. Solomon is handling the sale. The company listed assets of $158 million in its Chapter 11 filing.
LLS actually filed Jan. 16 for Chapter 11 protection from creditors, but kept the news under wraps. When a reporter asked Courtesy Chief Executive Officer David Sindelar about the rumored bankruptcy last month, Sindelar said Courtesy had not filed and he did not offer an explanation for the story.
Tom Blaige, managing director of Lincoln Partners LLP in Chicago, said the sale price easily could rise above the $105 million ``stalking horse'' bid because Courtesy is a strong company. Blaige said he is not involved in the sale.
One industry official familiar with the medical molding industry, where Courtesy does a significant chunk of its business, said the firm was hurt because it did not move beyond its base as aggressively as its competitors. Kreiseder acknowledged in a Plastics News interview when he sold the company in 1999 that the lack of a significant overseas presence was starting to hurt the firm.
The company's sales have been flat in recent years, according to SEC filings. The firm had sales of $172 million in 1998, $171 million in 1999 and $162 million in 2000. Its sales through June 2001, the most recent data available from the SEC, were down slightly from 2000.