Milacron Inc. took another step June 18 to become a "pure play" plastics technology supplier, as the Cincinnati company announced it will sell Valenite, its North American metal-cutting tool subsidiary.
Milacron said the sale ``signaled its long-term strategy to extend the global leadership of its plastics technologies businesses.'' Interviewed two days later, top Milacron executive Ronald Brown said Mannesmann Plastics Machinery AG is on his company's radar screen.
``MPM has some businesses that are things we'd be interested in,'' Brown said in a telephone interview.
He declined to identify those units and said no significant deals are in the works right now.
``There are parts of that business that I think could help us in adding value to our customer base, and we're positioned as well as anybody in our industry to take advantage of any future opportunities,'' said Brown, Milacron's chairman, president and chief executive officer.
The Valenite sale to Sandvik AB of Stockholm, Sweden, follows Milacron's announcement May 6 that it is selling the Widia and Werko metal-cutting products businesses in Europe and India. From both deals, Milacron will generate $345 million, or about $290 million in net cash proceeds, which it said will reduce debt significantly. That will put the company in better shape to make acquisitions, according to analysts.
In an interview, Brown signaled that Milacron is not afraid of making big purchases, especially to pick up leading-edge technology. The company's recent acquisitions have been small ones, designed to boost aftermarket business and service, instead of blockbusters.
``We don't necessarily have a strategy of just acquiring bolt-on companies. Our strategy is to provide what our customers require in products and services. And sometimes, doing that means making an acquisition,'' he said.
The MPM machinery giant has exploded into the headlines again, after Reuters reported June 6 that Kohlberg Kravis Roberts & Co., a New York leveraged buyout firm, is talking to Siemens AG about buying MPM as well as the Demag factory crane unit.
MPM includes plastics equipment brands Krauss-Maffei, Van Dorn Demag, Demag Ergotech, Netstal, Berstorff and Billion. KKR and Siemens both have refused to comment, calling the news reports rumors.
Analysts who participated in Milacron's June 18 conference call heard Brown talk about acquisitions, but only in general terms.
``We are not looking at any major acquisitions at the present time,'' Brown said, adding that debt reduction is the ``biggest short-term impact'' of the divestitures.
But later in the call, he told analysts that now is a good time to sell the metalworking product businesses ``because I do feel there will be good opportunities down the road in the plastics sector.''
Brown did not elaborate. The analysts did not ask any specific questions about MPM.
Milacron first was linked with MPM last year, when Brown's predecessor, Daniel Meyer, revealed that the company did look at buying MPM - and even had lined up financing. Meyer said Milacron eventually backed away.
Milacron has not been afraid to change. Four years ago, it sold its original business, metalworking machines, to focus on plastics and consumable industrial products. Now Brown said Milacron wants to be the ``supplier of choice'' for plastics processors.
The businesses most recently sold off - Valenite, Widia and Werko - produce a variety of products for metalcutting, such as carbide inserts, tool-steel holders and carbide wear parts. After selling Valenite to Sweden's Sandvik AG, and Widia and Werko to Kennametal Inc. of Latrobe, Pa., Milacron will be left with cutting fluids, grinding wheels and round tools such as drills and taps. That remaining metals-related business should generate between $155 million to $170 million in sales this year - compared with $570 million to $600 million expected from the plastics machinery businesses, the company said.
Milacron, with $662 million in plastics equipment sales last year, already is the largest U.S. plastics machinery manufacturer - and second worldwide only to Munich, Germany-based MPM, which has estimated sales of $1 billion.
Announcing the Valenite sale, Brown said the firm will ``continue to expand our geographic presence'' in plastics technology and industrial fluids, ``with a growing emphasis in higher-margin products and services'' designed to reduce customers' costs and boost productivity
Exiting most of the metal-cutting-products market does not come without short-term risks, however. Milacron had touted those products, which are used up and then have to be reordered, as less cyclical than the plastics machinery business. Walter Liptak, an analyst at McDonald & Co. in Chicago, said he is surprised Milacron is selling the North American Valenite operations, ``even though the rumors have been flying.''
``Now all they have is long-cycle businesses. This is all capital goods now, and it will take them into 2003 to recover,'' Liptak said. He downgraded Milacron shares to ``hold'' from ``buy.''
The company also faces an upcoming financial challenge with a write-down of impaired goodwill. Created by an accounting change, the write-down will be about $180 million to $210 before taxes.
Another Chicago analyst, Alexander Paris, doubts that Milacron will buy MPM, or any major machinery company. ``There's no way they could make an acquisition of that size, even with their improved balance sheet. Nor should they,'' said Paris, president of Barrington Research. Paris has continued his ``hold'' recommendation on Milacron stock.
Milacron's share price has been less than $15 for much of this year on the New York Stock Exchange. At the end of trading June 20, the stock closed at $10.90, just 8 cents above its 52-week low.
Plastics machinery remains mired in a major slump. Milacron has said spending on new machinery will lag two or three quarters after any solid rebound in overall U.S. manufacturing.
In the conference call to analysts, Brown said the weak market has forced Milacron to reduce its 2002 profit projections for plastics equipment: ``We're not seeing any signs of a pickup in the remainder of the year.''
Harold Faig, vice president of the Plastics Technologies Group, said that earlier, Milacron officials thought business could pick up in the second half.
``But I've tempered that back to a flat projection,'' Faig said. Machinery demand is flat in both North America and Europe, he told analysts.
Brown acknowledged that the poor economy ``influenced the timing'' of the divestitures. But he said the sell-offs are part of a long-term plan. Milacron wants to solidify and increase its lead in plastics technology, he said, so it can benefit when plastics equipment does rebound.
``As we've seen in the past, when this industry comes out of a down cycle, it keeps growing and growing and growing,'' Brown said.