Milacron Inc. announced May 6 it will raise $140 million by selling its Widia and Werko metal-cutting tool operations in Europe and India - a move analysts said will shore up a balance sheet stretched by the recession.
Milacron said it will sell the operations to Kennametal Inc., a cutting-tool supplier, and use most of the proceeds to reduce its bank debt. Analysts said Milacron is not currently in a strong enough financial position to make significant acquisitions, even after the newest sale. But a news-release quote from top executive Ronald Brown is sure to raise the eyebrows of people wondering about Milacron's longer-term plans to expand in plastics machinery.
``This move will enable us to concentrate resources and pursue promising growth opportunities in our plastics technologies businesses as well as in our other metalworking technologies businesses,'' said Brown, Milacron's chairman, president and chief executive officer.
Speculation has been floating around metalworking circles that Milacron wants to sell Valenite, the biggest part of its Metalworking Technologies Group. Valenite includes North American operations that supply carbide inserts, tool holders and carbide wear parts for metal cutting. The announced sell-off of Widia and Werko is lending credence among stock analysts to that speculation. Widia and Werko generated total sales of about $240 million last year - or about 40 percent of the total sales at Metalworking Technologies.
``If they're doing one piece, there's a good possibility they could sell the other,'' said Mark Koznarek, who follows Milacron for Midwest Research Inc. in Cleveland.
Milacron spokesman Al Beaupre declined to talk about future strategy but said the firm considers metal-cutting tools a solid business. Before the sale, the company's overall sales were split about evenly between plastics machinery and metalworking products.
Like many industrial companies, Milacron has come under pressure because of the sharp recession in U.S. manufacturing. Overall, the company lost $35.7 million in 2001, on total sales of $1.26 billion. In March, Milacron renegotiated its $335 million revolving line of credit, loosening up some restrictions. Analysts said the $140 million from the Widia and Werko sale helps.
``They were kind of backed up against the wall,'' Koznarek said.
Eli Lustgarten, managing director at H.C. Wainwright in New York, agreed, saying: ``The balance sheet was being stretched.
``Their balance sheet is still quite leveraged,'' Lustgarten added. ``But this shows that their focus is clearly on the plastics machinery.''
Plastics equipment lost money for Milacron in 2001, on falling sales. But Brown expressed confidence in future plastics industry growth when he spoke at the annual shareholders meeting in April.
But the sale of Widia and Werko is good news, said Walter Liptak, an analyst at McDonald & Co. in Chicago. ``This improves it to the point where they'll be in strong financial shape going into recovery,'' he said.
Liptak said Milacron could be in a position to make a significant plastics-related acquisition if it sells Valenite. ``If they sell off all their cutting tools, they'd probably be close to debt-free,'' he said.
None of the three analysts knows if Milacron is really shopping Valenite. Cincinnati-based Milacron is traded on the New York Stock Exchange.
Under the sales agreement, Latrobe, Pa.-based Kennametal will pay $170 million for Essen, Germany-based Widia.
Although the purchase price is $170 million, Milacron actually will get $140 million because it is buying a greater share of Widia India, boosting its majority ownership level to 77 percent. All of Milacron's stake will then be sold to Kennametal.