PVC pipe giant J-M Manufacturing Co. Inc. could finalize a deal to purchase polyethylene pipe maker Quail Piping Products Inc. by mid-September.
Livingston, N.J.-based J-M would purchase Quail out of bankruptcy. Privately owned Quail, based in Magnolia, Ark., filed July 15 for Chapter 11 protection from creditors in U.S. Bankruptcy Court in Wichita Falls, Texas, where it maintains a corporate office. The price is $12 million, but is subject to certain adjustments. That purchase price has dropped dramatically, sources said, from the original $20 million that was being discussed before Quail filed for protection.
Quail and J-M have been in negotiations for months. Quail filed for Chapter 11 bankruptcy protection as a means for an orderly sale, officials said.
``I don't know that the company would have gone Chapter 11 if all parties didn't believe it was in the best interest for an orderly sale through Chapter 11,'' said Leslie Lewis, Quail's chairman, in an Aug. 18 telephone interview.
The hearing to approve the sale of the company is scheduled for Aug. 28. The court was accepting bids through Aug. 20, but it received no additional bids.
``Unless something happens between now and then, I expect the court to approve the sale,'' said Kevin Lippman, a lawyer representing the committee of unsecured creditors. ``The committee is not opposing the sale motion. The committee recognizes in order to maximize any value coming back to them, the company does need to be sold.''
Lippman said it was each party's original intent to conduct the sale outside of bankruptcy, but Quail was experiencing financial problems during those months of negotiation. In Quail's statement of financial affairs filed Aug. 14, it reported sales of $7.6 million through July 15. By comparison, the firm reported sales of $33.8 million for fiscal year 2002.
In January, Quail sold part of its business to Advanced Drainage Systems Inc., based in Hilliard, Ohio, which is one of the reasons for the precipitous decline, said Charles Dale, Quail's lawyer. In that transaction, ADS acquired two corrugators and Quail's customer list.
According to court documents, Quail owes more than $13 million to its 20 largest unsecured creditors. The firm was pushed into bankruptcy after not being able to recover fully from the collapse of the telecommunications market.
``We just couldn't get out of that business,'' Lewis said. As of 2001, nearly 80 percent of the firm's business was in fiber optics. ``We were making the conversion from fiber optic to pressure pipe. Moving into the pressure pipe business just took much longer than we anticipated. It was almost impossible to catch up.''
The potential buyout of Quail by J-M has been a drama of sorts in the pipe industry, a deal that would give mammoth J-M an increased foothold in polyethylene pipe production. J-M operates 12 extrusion plants throughout the United States. Quail operates one facility each in Kingman, Ariz., and at its headquarters site. According to court documents, both facilities are capable of producing pressure pipe. Kingman also is capable of making corrugated pipe. One other site in Leon, Mexico, operates as Quail y Pipe but will not be included in the transaction, Lewis said.
J-M has been looking to grow its high density PE pipe business, according to industry sources. J-M officials were not immediately available for comment.
On the same day as its filing, Quail requested court permission to sell the company to J-M. Officials indicated they would pursue an asset sale as soon as possible.
Quail outlined the financials in court documents. The firm reported strong sales through 2000 with significant operating profit. When 2001 rolled around, the firm had sales of $38 million, a decrease of more than 20 percent from 2000.
``Indeed, gross margins for 2001 decreased to 15 percent as compared to 25 percent from the previous year,'' according to those documents. As the company moved into 2002, it believed prices for its products would begin to rebound and that sales volume would increase as well. But the company was unable to achieve the production rates necessary to return to profitability.
Lewis does not expect J-M to close any Quail plants.
``They're buying a good company that can help them with polyethylene technology and they've got a dependable and terrific workforce,'' he said, estimating that the firm now has about 80 employees.
Lewis is also chief executive officer of Asahi America Inc., the manufacturer of plastic fluid flow products based in Malden, Mass. Asahi owned Quail until 1999, when it divested the firm to private investors.
There remains no affiliation between Asahi and Quail, Lewis said.
J-M had estimated extrusion sales of $590 million in the 2003 Plastics News pipe, profile and tubing ranking.