Packaging and tubing maker Tekni-Plex Inc. has completed a financial restructuring and appointed a new chief executive officer.
The new CEO is Paul Young, an industry veteran who joins Somerville, N.J.-based Tekni-Plex from Graham Packaging Co. LP of York, Pa. Young replaces CEO and Chairman F. Patrick Smith, who has retired.
The restructuring was needed after Tekni-Plex failed to make a $20 million interest payment in December, causing it to default on a portion of its debt. As a result, private equity firms Oak Tree Capital Management of Los Angeles and Avenue Capital Group of New York now own more than 80 percent of the firm. Previously, private equity firm Weston Presidio Capital Management Inc. of Boston owned 70 percent of Tekni-Plex.
In the acquisition, $340 million of Tekni-Plex's debt was converted into equity for Oak Tree and Avenue. That step will save Tekni-Plex $40 million in annual interest payments, chief restructuring officer James Mesterharm said in a June 4 phone interview.
The deal ``goes a long way to helping de-leverage and reduce the burden on the company,'' added Mesterharm, a managing director at Chicago-based turnaround firm Alix Partners who was brought in to Tekni-Plex in November.
Tekni-Plex still has about $500 million in debt, but now has ``greater flexibility to invest in the business,'' he said.
Tekni-Plex hasn't shown an annual profit since 2003 and continues to struggle in 2008, losing almost $87 million in the first nine months of its fiscal year, which runs through June. The loss is double what the firm lost during the same period in fiscal 2007. Tekni-Plex's full-year loss for fiscal 2007 was $61 million. Nine-month sales for fiscal 2008 were up 1 percent to $545 million.
In the past year, Tekni-Plex has eliminated about 125 jobs by closing a foam products plant in Fullerton, Calif., and reducing its workforce at a garden hose plant in Bucyrus, Ohio, and elsewhere throughout the company. Bucyrus now is being run as ``a seasonal plant,'' officials said.
Like many processors, Tekni-Plex has struggled with higher prices for raw materials, including PVC, polystyrene, vinyl chloride monomer and plasticizers. But new CEO Young said he's looking forward to the challenge.
``We want to put the best company together that we can and be as competitive as we can,'' said Young, who left Graham late last year for a consulting and advisory role with Oak Tree.
Young, 47, had been with Graham and predecessor companies Owens-Illinois Inc. and Continental Can Co. for almost 20 years. He ran the integration of Owens-Illinois after it was bought by Graham in 2004, and served as general manager of Graham's PET business.
``There are a lot of very good businesses and market niches inside this company,'' he said of Tekni-Plex. ``Our customers have stayed with us through the hard times, and now with the new ownership, we'll be able to invest in new equipment and new technology.''
Young cited several ``highly technical applications'' in the pharmaceutical market as successful niches for Tekni-Plex, but he also didn't rule out the possibility that Tekni-Plex might ``shed some less-profitable, less-competitive work.'' Previous ownership proposed similar action in late 2007, but no steps were taken.
Young added that he wants Tekni-Plex to integrate its various businesses and eliminate areas where they overlap and compete with each other. Tekni-Plex also has room to improve in its sourcing, where it lacks an integrated strategy on raw materials, he said.
Packaging - including foam egg cartons, pharmaceutical blister films and processor trays for poultry and meat - generated about 60 percent of the firm's sales in the first nine months of fiscal 2008.
Tubes, including medical tubing and garden hoses, brought in 18 percent of sales in that period. The remainder of sales came from compounding and recycling operations.
Tekni-Plex operates its units as more than a dozen divisions, including Colorite Polymers, Tekni-Films, PureTech Plastics, Dolco Packaging and American Gasket & Rubber Co. The firm employs 3,200 at sites in North America, Europe and China.
