W.L. Ross & Co. LLC bought a bankrupt steel company in 2002 for $325 million in cash and debt.
Within a year it added Bethlehem Steel to its LTV Group steel business under the new International Steel Group Inc. umbrella.
By 2003, ISG was a publicly traded company, with newly resurgent plants and products. By the end of 2004, ISG was sold to Mittal Steel NV, netting more than $4.2 billion for a series of acquisitions once considered nearly worthless.
Now Ross & Co. and Wilbur L. Ross Jr., its chairman and chief executive officer, are setting out to bring the same turnaround magic to the automotive plastics business. This time they plan to team with interior supplier Lear Corp. in a venture that would buy Collins & Aikman Corp. assets out of bankruptcy.
``We think that as the car companies cull the number of vendors that they use, it's clear that there is a need to be larger, individual units,'' Ross said in an Oct. 17 telephone interview. ``Those companies should be low-cost producers but also be in a much better position to do the research and development and technology.''
And while the current turbulence in the auto industry is scaring off a lot of potential investors, the Ross and Lear proposal has something going for it that other possible suitors for C&A lack: Ross & Co.'s history in turning around distressed companies in troubled industries.
``The fact that he's involved makes it seem like more of an opportunity to a lot of people,'' said Jeff Mengel, a consultant with Plante & Moran PLLC in Southfield, Mich.
Ross' involvement adds credibility to the proposal that existing suppliers and other financial groups lack, agreed Kim Korth, president of IRN Inc., a Grand Rapids, Mich.-based consulting group. But the steel business may prove much simpler than the world of auto suppliers.
Korth said she has the same doubts about the Lear and Ross proposal that she had when Collins & Aikman was first created in 2001 through a series of acquisitions. Size alone does not guarantee success, especially for large-scale molders trying to compete against smaller, more focused and nimble suppliers.
``People keep trying to take a shot at this space and seeing if they can compete in it,'' she said. ``I keep waiting for someone to help me understand why it is you think you can make it work when no one else has.
``In this market, size and sales revenue does not yield profitability,'' Korth said.
A successful bid also would create a $5.5 billion company with more than $2.7 billion in injection molding operations in North America alone - and unlike C&A, the company could potentially emerge from bankruptcy with little debt.
``We believe that a very strong balance sheet will be a very competitive weapon,'' Ross said.
Ross & Co., a New York-based private equity group, and Southfield, Mich.-based Lear have a ``framework agreement providing for a joint venture relationship'' that will explore strategic acquisition opportunities.
The proposal would combine Lear's plastics-heavy interior business with at least part of C&A, along with other potential ``opportunities.''
Collins & Aikman spokesman David Youngman said the company - currently operating under Chapter 11 with the U.S. Bankruptcy Court in Detroit - will evaluate all legitimate offers as it reorganizes. The Troy, Mich.-based company also is continuing to reshape itself under Chapter 11 bankruptcy protection to prepare for the day it will exit that process.
The company announced Oct. 18 that it would close its Westland, Mich., facility during the first quarter of 2006, ending 250 jobs and shifting production there to other C&A plants. The site injection molds interior trim and headliners.
Ross & Co., created in 2000, has invested in coal and textiles in addition to its work in steel production. As the auto industry began falling into disarray this year, it took a serious look at auto suppliers. Its potential targets also took in Delphi Corp., the Troy, Mich.-based supply giant that entered Chapter 11 protection with the U.S. Bankruptcy Court in New York on Oct. 8.
Teaming with Lear will combine both manufacturing and technology know-how and fiscal strength.
``The market for interior component products is severely distressed,'' said Lear Chairman and Chief Executive Officer Bob Rossiter in a news release.
There are plenty of automotive plastics options from which to pick and choose.
Collins & Aikman entered Chapter 11 protection for restructuring in May. Its nearly $4 billion in annual sales comprises more than 20 injection molding operations in North America making parts that include instrument panels, center consoles and door panels.
Visteon Corp. followed that up in May with its announcement on an agreement with Ford Motor Co. that would put some of its largest plastics operations on the auction block, including interior plant in Saline and Utica, Mich.
Delphi has not given any details for restructuring plans yet, but it will close or sell some operations.
Lear, meanwhile, wants to emphasize its seating and electronics businesses and has been seeking alternatives for the rest of its interior operations.
``The business model of the auto parts suppliers is clearly a broken model,'' Ross said. ``It really doesn't work for the automobile manufacturers either. They've had to dump millions of dollars into Collins to keep it going.''
Franklin Mutual Advisers LLC, which is working on creating the joint venture agreement framework, also has agreed to invest. The joint venture agreement will be finalized once the companies have a better handle on the expected purchase costs.
Ross & Co. already has shown interest in other C&A assets, bidding on parts of its European operations, also operating under court jurisdiction through an insolvency filing.
Any sale of Collins & Aikman's North American operations will have to go through court approval and an auction process, and the Ross and Lear proposal may have competition at that point. Dearborn, Mich.-based injection molder Plastech Engineered Products Inc. also has expressed an interest in buying C&A.
Ross said the firms know what they face. He noted that he thinks the auction could take place by early next year.
``The [automakers] have been feeding money into it, and they don't want the process to drag out any longer than we do,'' he said.
And even if the Ross and Lear venture is successful, there may still be pieces of C&A up for sale, Plante & Moran's Mengel noted. The operations include some niche products - such as accessory mats and convertible tops - which may not fit into their business plan.
``All of it is not going to be a perfect fit,'' he said. ``They would have to look at some prioritization of resources and decide which are worth integrating and which are not.''
