Xaloy Inc.'s purchase of New Castle Industries Inc. creates a giant screw and barrel maker, with $80 million in sales and 700 employees - and makes the struggling industry healthier by taking out some excess capacity, say officials of both companies and competitors.
Another wrinkle: The whole thing is for sale.
Xaloy said Aug. 18 it paid $17 million to buy New Castle, of New Castle, Pa., from its Pittsburgh parent, Ampco-Pittsburgh Corp.
Saurer AG, Xaloy's parent in Zurich, Switzerland, has said for some time it wants to divest its Surface Technology division, which includes the Xaloy screw and barrel business, to focus on its main businesses in textile machinery and automotive transmissions. Saurer, in a letter to shareholders detailing the first half of 2003, said it was looking at how to consolidate overcapacity in the U.S. market to make the business more attractive to a buyer.
Xaloy's Aug. 18 announcement talks about how the companies fit well - how New Castle's strength in extruder screws complements Xaloy's strength in injection molding, and the addition of New Castle's chill rolls for film and sheet.
Company officials also spelled out the capacity issue.
Walter Cox, Xaloy's chief executive officer, said the companies ``plan to rapidly consolidate production capacities.'' New Castle's barrel factory in Wales, Wis., is shutting down and the work will be moved to Xaloy's headquarters plant in Pulaski, Va., eliminating 35 jobs. Xaloy will close a New Castle plant in Londonderry, N.H., and move into a 2-year-old Xaloy plant in nearby Seabrook, N.H. Cox said Xaloy has offered jobs to about a third of the 25 Londonderry employees.
Tom Doland, president of New Castle, and several other key executives have joined Xaloy.
Screw and barrel makers have been impacted by the decline in new equipment sales, especially injection molding machines, which are 40-50 percent of the peak years in the late 1990s and 2000. Plastics processors have put off buying replacement screws, too, as they struggle to recover.
Based on first-half 2003 numbers projected out over the entire year, Cox said screws are running 44 percent lower, and barrels 36 percent lower, than in 2000.
``We don't believe in the U.S. that the industry is ever going to recover to its peaks,'' Cox said.
Ampco-Pittsburgh blamed the slumping plastics machinery market for its decision to sell New Castle, which it has owned since 1983.
``The plastics industry is in its third year of poor demand and low levels of capital investment. The outlook continues to be uncertain,'' the company said in its quarterly report. Ampco-Pittsburgh makes a variety of industrial products including air handling systems, pumps and hardened steel rolls.
Ampco-Pittsburgh reported that New Castle lost $270,000 in the quarter ended June 30 on sales of $6.25 million. But Cox disputed that as an accounting gimmick. ``It was window dressing for tax purposes to optimize for them the return on the transaction,'' he said.
Both Xaloy and New Castle are making a profit this year, and both generated a small profit in 2002, according to Cox and Doland.
Xaloy and New Castle, combined, make a stronger company that is more attractive to a buyer, they said. Asked about the chances for a management-led buyout, Cox said ``anything's possible in the future,'' but he added that nothing is happening right now.
Even though Saurer has wanted to sell Xaloy, the Swiss company has continued to invest money into the screw and barrel operations, Cox said. ``There's not any rush to see a fire sale,'' he said.
In November, Xaloy bought Progressive Alloys, a company that makes bimetallic barrels for parallel twin-screw extruders, from Spirex Corp. Xaloy also built a new screw plant in the Czech Republic.
Doland said Xaloy's worldwide reach should benefit New Castle. ``New Castle needed to become a global supplier. This was the perfect vehicle,'' he said.
Competitors said the Xaloy/New Castle combination will change the competitive landscape. Several said the giant company could move to push prices, already under pressure, down even more.
``The real advantage to Xaloy, what they really gain, is processor contacts,'' said Jeffrey Kuhman, president of Glycon Corp., a screw maker in Tecumseh, Mich. ``New Castle has done an excellent job [in retrofit sales] over the years. Especially in the extruder market, they're strong.''
Kuhman pointed to another reason for overcapacity - screw makers invested heavily on new technology, such as high-speed whirling machines. Suppliers now can make many more screws than the market can absorb.
Paul T. Colby, president of Spirex Corp. in Youngstown, Ohio, expected some type of deal. ``There needs to be some consolidation in our industry, everybody agrees on it. So I actually think it's a good thing,'' he said.
Zeiger Industries of Canton, Ohio, uses a unique gas-turbine powered machine to crank out screws. James Allen, plastic products manager, also thinks the consolidation is a good thing. ``It's got to be healthier for the plastics industry, because you're going to end up with stronger companies,'' he said.
The deal ``wasn't a total surprise,'' said Peter Jones, president of barrel maker Wexco Corp. of Lynchburg, Va. ``We knew that Xaloy has been looking to consolidate because of overtures they made to us and other people.''
``I would hope that it will stabilize the industry. I believe it can only help,'' said Louis Berger, a managing partner of Inductametals Corp., a Chicago-based barrel maker.
Dave Larson, president of Westland Corp. in Wichita, Kan., was not so sure. ``I don't know that it's a good thing for the plastics industry, because we're taking away the opportunity for the end users to have a choice. I want people to have a choice,'' he said.
Screw and barrel makers said the retrofit market appears to be picking up, but the segment still faces choppy sales.
``It's up and down and up and down,'' said David Mantyla, vice president of General Plastex Inc. in Barberton, Ohio. ``We're pretty much maintaining our own.''
The replacement business is ``very spotty and erratic,'' Kuhman said. ``It's spotty but there's been some major projects going. So if you're in the right place at the right time, there's some good business to be had. But it's not widespread.''