Collins & Aikman Corp.'s recent management upheaval, poor financial results and the resulting drop in its stock price provide the company with a unique opportunity to take itself private - if it wants to do so.
The stock price dropped to $2 after poor second-quarter results were announced Aug. 5. The drop represented a loss of more than 50 percent of the share price. C&A shares closed Aug. 8 at $4.43.
A source close to the company who asked not to be identified said going private is unlikely to happen soon. But if the stock stays depressed long-term, that could change.
``If it stayed where it is now for six or eight months, then it might be something to look at,'' he said. ``[But] you risk upsetting investors by taking the company private, then trying to roll it back out later.''
Collins & Aikman's largest shareholder, Heartland Industrial Partners LP, announced plans Aug. 7 to accumulate an additional 5 million shares of company stock through a series of purchases on the open market. If completed, the purchases would increase the partnership's ownership to more than 35 percent.
Industry analyst Rajesh Kothari, managing director of Walled Lake, Mich.-based Accelero Capital Partners LLC, said it would not take much for Heartland to take Collins & Aikman private.
The company has a market capitalization of about $318 million, he said, and $92 million in available cash, meaning Heartland would need to borrow only about $225 million to buy the rest.
``I suspect for Heartland, that wouldn't be too difficult to come up with,'' Kothari said.
The low stock price, he said, provides Heartland with choices: take the company private, improve operations and relaunch as a public company, or simply buy stock cheaply now and resell it later when the price rebounds.
Heartland made the first choice last year when it created the privately held Metaldyne Corp., a combination of the publicly traded MascoTech Corp. and Simpson Industries Inc. and privately held Global Metal Technologies Inc.
A pair of events is responsible for the decline of Collins & Aikman's stock.
On Aug. 1, Chairman and Chief Executive Officer Thomas Evans was ousted, Executive Vice President Jerry Mosingo became CEO and David Stockman, senior managing partner of Heartland, became nonexecutive chairman.
On Aug. 5, Collins & Aikman reported a second-quarter loss of $20.3 million on sales of $1.1 billion. The company took a charge of $36.3 million to cover a $133 million stock-repurchase plan. The news sent the stock plunging.
The way Evans handled the stock repurchase was one reason for the management change, said Tim Leuliette, a Collins & Aikman board member and a partner in Heartland.
``There were a couple of issues, and that clearly was one of them,'' he said. ``The buyback created a loss that should've been communicated [to Wall Street] better. We hit every number we wanted to hit in the second quarter.''
The Troy, Mich.-based maker of interior plastic components, carpets and convertible roof systems more than doubled its 2001 second-quarter sales of $457.6 million. Profit in that quarter was $9.2 million.
During an Aug. 5 conference call with analysts, company executives warned that profit for the full year would be lower than expected. They forecast profit of $15 million to $20 million on sales of $3.85 billion to $3.95 billion for the year. Those numbers were significantly lower than analysts' consensus estimates.
Crain's Detroit Business is a sister publication to Plastics News.