The plastics machinery and metalworking fluids businesses of Milacron Inc. have new owners, a new top executive, a stronger balance sheet and new life after nearly six months in Chapter 11 bankruptcy, company officials said.
I see it as a fresh start, and a second chance, said Dave Lawrence, who guided Milacron through bankruptcy as president and CEO. We had what we thought were some good brands and some good products, and certainly some good people. The investors saw it that same way and gave it a second chance, so we can continue to drive this business forward.
Milacron LLC is a new, privately held company owned by a group of investors led by Avenue Capital Group and DDJ Capital Management LLC, two firms that hold about 93 percent of Milacron's senior secured notes.
Avenue Capital and DDJ Capital have brought in a new top executive, naming Dennis Smith as president and CEO. Lawrence moves over to become president of Milacron's injection and extrusion machinery and D-M-E mold components businesses, worldwide.
Smith also will serve as president of the Uniloy blow molding machinery and structural foam molding operations.
Other top executives are Robert McKee, president of Cimcool metalworking fluids; and John Francy, who will serve as chief financial officer and chief administrative officer.
The Milacron businesses emerged from Chapter 11 on Aug. 21. The new owners have completed the previously announced purchase of the businesses and assets of the Batavia, Ohio-based Milacron.
Smith, 59, said he acted as a senior adviser to Avenue Capital and DDJ Capital during their due diligence on Milacron. Avenue and DDJ were the preferred, or stalking horse bidders. The bankruptcy court approved the sale, for $175 million, on June 26.
During a Sept. 1 telephone interview, Smith said Milacron management is changing from a geographic focus on different countries and regions which he said sometimes resulted in duplication and moving to a focus on business segments.
The best way to set the company up so we can push decision- making to the lowest possible areas, closest to the customer, so we can be more responsible to the customer and the customer's needs, he said.
Smith said each business unit has a different customer base and a different average selling price and profit margin, so we want to hone in on each area, across the world, not just looking at one geographic portion of it.
Milacron will continue to operate all of its major businesses.
That structure, Smith said, gives our business units greater flexibility to satisfy evolving customer requirements across the globe. Meanwhile, by sharing resources and leveraging our strengths globally, our businesses will be much better positioned to succeed.
A company news release notes that Smith has a strong operations background and has led significant, successful turnarounds in his last five engagements.
Most recently, Smith was president, CEO and director of Magnatrax Corp., a private-equity- owned $400 million maker of custom-engineered metal buildings. He joined the company in early 2004, just as it was coming out of bankruptcy, and helped make operational and financial improvements that led to Magnatrax getting sold in 2007. Prior to that, Smith was president of Service Experts Inc., a $1 billion heating, ventilation and air-conditioning equipment subsidiary of Lennox International.
Smith has an MBA from the Wharton School at the University of Pennsylvania and he completed the executive development program at General Electric Co. in the mid-1980s, when he worked at GE's circuit- breaker business.
This is his first time running a plastics machinery company and it comes when the industry is struggling to recover from a major downturn. Milacron has not turned a profit since 2000.
Smith acknowledged the tough machinery market, but he said Milacron LLC is in a strong position to benefit when the global economy improves and capital investment picks up. Changing from a publicly traded company to private ownership will help, because it removes the pressure of answering to stockholders and a daily share price, he said.
The people we're focused on today ... is our customer base. And our customer base are the only people we truly care about, Smith said.
When Milacron filed for Chapter 11 on March 10 in Cincinnati, the company listed total assets of $523.3 million and liabilities of $752 million. According to court filings, Milacron faced a severe liquidity crisis.
But now the business has a much stronger balance sheet. Milacron LLC has more than $500 million fewer liabilities, including about 80 percent less debt. It also has secured a new $55 million revolving credit line from Wells Fargo Foothill, part of Wells Fargo & Co., and Bank of America N.A. The new investor group also has provided a $75 million second-lien term loan facility.
Milacron is in a stronger competitive position than at any time in the past decade, the news release said.
Smith called the sale to new investors good news for Milacron LLC and its customers.
The new capital structure, combined with the cost savings of operating as a private entity, gives the company considerable financial strength, he said.
New York-based Avenue Capital concentrates on distressed debt and undervalued securities, which includes companies in bankruptcy, reorganization or liquidation. The group manages assets valued at about $17.3 billion. DDJ Capital, of Waltham, Mass., invests in high-yield securities and special situations.
No breakup plans
There has been industry speculation fueled by some bankruptcy court filings that Avenue Capital and DDJ Capital would sell off parts of Milacron after buying the company.
Smith gave a blunt response: Are we looking to sell parts off? The answer is no.
During bankruptcy proceedings, there was opposition to the sale from unsecured creditors, a group of 14 retired Milacron executives, and Mahendra Patel, who partnered with the company to create a joint venture machinery factory in India. They argued that, under the bid procedures, the deck was stacked against any offers for individual parts of the company. (There was only one such bid, for the Cimcool cutting fluid unit, which was rejected).
The committee of unsecured creditors said there were potential strategic bidders interested in buying specific units of Milacron, but they were blocked by the court-approved procedures.
These potential bidders also realize that, if the stalking horse bidder is successful in acquiring all of the debtor's assets, it intends to sell off these businesses and their parts within a relatively short period of time, the creditors committee wrote.
Instead, the committee added that it makes sense to wait until the stalking horse bidder owns the businesses to negotiate a private sale.
But Smith said that is not going to happen. We're not looking to sell things off, he said.
Smith said this type of talk is common when a company comes out of bankruptcy. We can speculate until we're blue in the face, he said. But he stressed that each of the units has significant opportunities to become a more vibrant and more valuable enterprise under the new ownership.
The real objective in the short run is to get the organization stabilized and getting back to satisfying the customers, Smith said.
Lawrence heard the breakup rumors. There was a lot of talk, he said, but ultimately one company wrote a check.
Milacron has had some layoffs most recently announcing, on Aug. 13, plans to cut 130 positions across its North American operations, or about 10 percent of the workforce. One of things we have to do to be successful is to continually look at the level of business and adequately size the business for it, Lawrence said.
Out of the woods?
Since nobody knows if plastics machinery has hit the bottom, Lawrence said, more layoffs could come. We're prepared to operate the business as effectively as we can, and we're going to continually reassess, he said.
A high-profile executive, Ross Anderson, left the company in mid-July, shortly after the NPE2009 trade show. Anderson was president of Milacron's Machinery Technologies North America division.
Smith and Lawrence said Milacron is focused on moving forward, not looking back.
Lawrence said some customers were hesitant about buying Milacron equipment during the bankruptcy. But most customers, suppliers and employees were understanding and supportive.
We communicated with them very openly. We believe, for the most part our customers supported us and we think that, now that we're out, there's even going to be greater support, he said.
We were spending a lot of energy sidetracked by the wrong things, and now can really focus on doing the right thing, Lawrence said.
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