Mulay Plastics Inc. is liquidating, and contract manufacturer Xpectra Corp. agreed to buy the assets in a tentative July 10 deal.
In April, Mulay retained High Ridge Partners Inc. of Chicago to conduct an orderly out-of-court liquidation of corporate assets including two Mexico manufacturing operations. Xpectra offered to purchase the assets through an agreement called an assignment, for benefit of creditors. Xpectra has assumed control of the plants in Tijuana and Ciudad Juarez, but its entire purchase is subject to a bidding process that Patrick D. Cavanaugh, a High Ridge partner, is orchestrating this month. Usually an assigned party prevails.
The assignment process is designed to solve a liquidity problem without going through a bankruptcy proceeding.
In a notice to creditors, Cavanaugh said Mulay Plastics had unaudited assets exceeding $5 million and liabilities of nearly $32.6 million as of July 10.
The combination of Mulay and Xpectra employs about 1,200 and boosts Xpectra to 104 injection molding presses of 28-2,000 tons, mostly Toshibas, Milacrons and Van Dorns.
Total manufacturing and warehousing space exceeds 420,000 square feet. The operations can mold television housings ranging from 19- to 53-inch-projection sets.
Kevin McShea, Xpectra president and chief executive officer, said he expected total sales of $60 million to $75 million for the next 12 months.
``We acquired the assets of Mulay's U.S. company and, additionally, the stock of the Mexico operating corporations,'' McShea said.
Negotiated over several months, the deal involved cash and assumed liabilities.
Xpectra gains a strong customer relationship with Philips Electronics NV. The deal ``adds to our capacity and blue chip clients,'' McShea said.
Privately held Xpectra was formed in 2000 with a core of contract manufacturing, engineering and program management experience and the financial backing of GE Capital. Xpectra is based in Niwot, Colo., where it also operates a plant.
Xpectra purchased another Tijuana processor, AB Plastics de Mexico, doing business as Dynamic Plastics Corp., in October. The Dynamic and Mulay plants are about five miles apart.
Xpectra has faced significant consumer electronics demand at its busy Tijuana facility. Typically, the busy season for consumer electronics is June through November.
``Had Mulay Tijuana not presented itself, we were evaluating expansion of operations,'' McShea said.
In February Xpectra shuttered a small Santa Cruz, Calif., injection molding operation employing 10 and relocated the work to Tijuana.
Sam Mulay and six associates formed Mulay Plastics in Illinois in 1969 and, through the years, the company expanded into the South, Southwest and Mexico. By 1998 Mulay Plastics was molding cabinets for nine television manufacturers.
Mulay invested heavily in Mexico, creating the sophisticated robot-rich Tijuana and Ciudad Juarez molding, painting and assembly operations. The Tijuana plant has 110,000 square feet and Ciudad Juarez 105,000 square feet.
In recent years, market changes forced Mulay to sell or close manufacturing operations in Addison, Ill.; Forrest City, Ark.; Holly Springs, Miss.; and Casa Grande, Ariz.
The investments in Mexico stretched Mulay resources, and the economic downturn sealed the company's fate.
Cash was drained, margins eroded and price competition intensified, James Newman said by telephone. As president, Newman succeeded the founder's son, Douglas Mulay, in December 2000.
``In order to grow, we would need sufficient capital for product development,'' Newman said. ``We did not have the capacity to reinvest.''
The directors opted to sell the business via High Ridge Partners. McShea noted that Mulay was marketed to about 75 prospects ``before we emerged successfully.''
Newman said serious discussions took place with at least eight possible buyers.
``Xpectra moved ahead of the pack a month ago,'' Cavanaugh said July 16.
For the fiscal year ended Sept. 30, Carol Stream, Ill.-based Mulay had sales of $60.5 million, down from $100 million in the previous fiscal year.
Dubin Clark & Co. Inc. of Greenwich, Conn., Cigna Corp. of Hartford, Conn., and Douglas Mulay transferred the title of Mulay Plastics assets to Cavanaugh as trustee for the assignment. Dubin Clark acquired a majority of the Mulay family ownership in a 1992 leveraged buyout. Douglas Mulay remained for eight years as a key employee with a small equity interest.
Notice of the assignee's sale indicates that Xpectra made an offer of about $4.3 million, of which $600,000 went into an escrow for return to Xpectra if certain conditions are not met. Interested bidders also must deposit $600,000 in earnest money.
The sale will take place July 31 in the Chicago law office of D'Ancona & Pflaum LLC.
``This process is primarily being done for benefit of creditors,'' Douglas Mulay said by telephone. ``The shareholders are unlikely to benefit.''