Shareholders gave the go-ahead June 9 to Milacron Inc.'s refinancing, and top executive Ronald Brown said the company now can devote its full attention to the recovering market for its injection presses, extruders, blow molding machines and mold bases.
The refinancing also pays off euro bonds that were due next April. ``We want to get all the uncertainty of the financing behind us,'' said Brown, the chairman, president and chief executive officer, after the shareholders' meeting in Cincinnati. He called Milacron's balance sheet ``stronger and more flexible.''
Shareholders overwhelmingly approved eight out of nine proposals for the refinancing.
``Thank you for approving the refinancing,'' Brown told shareholders. ``Congratulations. This is tremendous for this company. I can now say with confidence that your company has a very bright and exciting future. We can proceed with putting in place the solid capital structure that you approved.''
To get the refinancing completed, Milacron faces higher interest rates - a reflection of the greater risk of investing in the plastics machinery industry these days. The bonds due next April totaled 115 million euros (about $140 million), were sold in Europe in 2000 and carried an interest rate of about 7.6 percent. To pay off the euro bonds, and also retire other loans, Milacron has issued $225 million in bonds at 11.5 percent interest. The new bonds do not come due until 2011.
Shareholder ownership also is being diluted, as the Cincinnati company issues more shares of stock for two new foreign investors.
Enter new investors
Shareholders ratified a key part of the refinancing that was announced March 12 - a $100 million convertible bond deal used to pay off $115 million in bonds that came due March 15. Kicking in $70 million was Glencore Finance AG, a unit of Glencore International AG, one of the world's largest producers of metals, minerals and raw materials in Baar, Switzerland. A giant Tokyo-based bank, Mizuho International plc, contributed $30 million. The deal also included some stock upfront.
Glencore and Mizuho already had converted some of the bonds into common stock in April. On June 10, the day after the shareholders' meeting, Glencore and Mizuho exchanged their debt and equity for 500,000 shares of Series B preferred stock paying a 6 percent dividend - a new designation set up for the refinancing deal.
Shareholders had little choice but to approve the refinancing package, and most proposals passed by at least 75 percent. Voting no would have enacted a 20 percent interest rate and caused Milacron to default on other debts.
Even so, the shareholders showed some independence. They rejected a move to allow the Series B preferred shares to be senior to existing preferred stock - a designation that would have given Glencore and Mizuho greater protection than other preferred shareholders if Milacron faced liquidation.
But existing shareholders did get the opportunity to buy stock at $2 per share - the same price paid by Glencore and Mizuho, and less than half the current trading price. Milacron's board of directors launched the move, called a stock rights offering, after shareholders approved the refinancing June 9. The company will issue 15 million new common shares for the rights offering.
Right now, Glencore and Mizuho control 58 percent of Milacron. But if the current shareholders take advantage of the rights offering, the firms will own 40 percent.
Glencore and Mizuho also will get a place on Milacron's board. Shareholders approved new board member Steven Isaacs, who is Glencore's chairman and managing director. Mizuho still has not claimed its seat on the expanded board.
After the meeting, Isaacs referred questions about Milacron's management to Brown.
Gaining market share
Milacron lost $450 million from 2001 through 2003, following the collapse of the U.S. plastics machinery market. But Brown was upbeat, saying Milacron has gained market share in North America in each of its machinery businesses, and has maintained a solid position globally.
Milacron officials said they think sales will increase 6-8 percent this year.
``We are seeing the trends improve,'' Brown told shareholders. ``I firmly believe we're at the beginning of a recovery in capital spending.''
Capacity utilization at U.S. plastics factories is getting close to 84 percent, the point at which broader machinery buying begins to kick in, Brown said. Orders for Milacron machinery for April and May were up 71/2 percent from the same period a year ago.
During the downturn, Milacron has continued to invest in new plastics technologies, spending $56 million in research and development during the three-year period, he said. The company has seen double-digit growth from its machinery factory in India, and just announced plans for a factory in China.
Also, he said, Milacron is cutting costs and boosting quality through lean manufacturing and a Six Sigma program.
Milacron also has made other, more painful cuts - chopping hundreds of jobs. Brown praised employees for keeping focused on their work and customers. ``Needless to say, we could not have survived the worst recession the plastics industry has ever faced ... without the hard work and dedication of the employees, and we should all thank them,'' he said, as shareholders applauded.
Also in the refinancing, Milacron received a new $75 million revolving credit line from JP Morgan Chase.