Friday, March 19, 2004

Behind the Milacron deal

New investors would get chunk of company

By Mike Boyer
The Cincinnati Enquirer

When the board of Milacron Inc. ended an eight-hour meeting close to midnight March 11, it reached a refinancing deal that removed months of uncertainty about the future of the 120-year-old maker of plastic molding machines and industrial fluids.

The meeting culminated three stressful weeks, as the company conducted simultaneous negotiations with as many as half a dozen parties interested in providing financing. The company employs 1,000 in Greater Cincinnati and 3,500 worldwide.

The company even considered filing for Chapter 11 bankruptcy protection but decided against taking that route.

Milacron's investment banker brought Milacron the two European companies that ultimately provided the new capital.

The refinancing process "was painful,'' Ron Brown, Milacron's chairman and CEO, said Thursday in his first interview since the deal was struck. "I don't want to do it again. But what is it they say? What doesn't kill you makes you stronger.''

Perceptions that the company's back was against the wall as it faced a March 15 deadline to refinance $115 million in senior notes weren't true, Brown said. "I'm confident we got the right investors," he added.

The financing package called for two European firms to buy $100 million of Milacron's convertible debt and for Credit Suisse First Boston to provide $140 million in new bank and accounts receivable financing.

The $100 million invested by Swiss-based Glencore Finance AG and Mizuho International Plc, a London investment bank, strengthens Milacron's balance sheet, Brown said. Meanwhile, the new bank financing gives the company the cash it needs to grow its business.

To complete the refinancing package, Milacron must obtain shareholder approval to issue 50 million new shares, on top of the 34.8 million shares outstanding. Although Brown was limited during the interview in what he could say (because the company hasn't issued its proxy solicitation to shareholders), the company has the option of making a rights offering to existing shareholders for 15 million of the new shares at the same $2 price given Glencore and Mizuho.

Depending on whether the company makes that rights offering, the two investors will end up with 40 percent to 60 percent of Milacron's equity.

The company still faces $140 million in eurobonds expiring in April 2005. The expectation is that with new financing in place and an improving market, it will be in a better position next year to complete that refinancing.

Milacron's shares have lost 80 percent of their value in the last couple of years. The news of the refinancing sent them up 45 percent Monday - the first day after the financing deal was announced late last Friday - to close at $3.48. The shares closed Thursday off 6 cents at $3.10.

Taking a breather

Brown has spent much of this week visiting most of the company's North American operations, thanking employees for their efforts and answering questions about the refinancing.

Although the company acknowledged in the weeks leading up to the deadline that it didn't have the cash to pay off the bonds, Brown said the company still had options.

"We had a number of proposals,'' he said, "and we had to present them all to the board.''

Because of confidentiality agreements signed with all the parties, Brown said he couldn't disclose who proposed what.

But one of the options the company did consider was a Chapter 11 bankruptcy reorganization, he said. That would have given the company more time to work out a repayment plan with the bond holders.

"In a situation like this, that has to be considered,'' he said. "But we didn't think it was in the best interests of the all the stakeholders. We had confidence we had better alternatives.''

A Chapter 11 filing would have benefited the senior-note holders, many of them speculative investors, who would stand to own the entire company in a bankruptcy reorganization.

Although the company didn't have the cash to pay off the long-term debt, it continued to have plenty of cash - $90 million at the end of last year.

Brown said the company increased its cash position in part because it feared some suppliers might not extend credit, but that never happened.

"We saw an incredible amount of loyalty from our vendors,'' he said.

He said privately held Glencore, which has extensive mineral and mining interests, and Mizuho were familiar with Milacron through Milacron's European operations. After looking more closely at the company's operations in recent weeks, they "liked what they saw,'' Brown said.

Improving outlook

After losing more than $450 million in the last three years amid the worst manufacturing slump since the Great Depression, Brown said the company continues to see signs the market for its products is improving.

The latest sign came Tuesday when the Federal Reserve reported capacity utilization among U.S. plastic processors rose in February to 82.4 percent from 81 percent the month before. When the utilization rate hits 84 percent, processors traditionally begin spending money on new machines - including those made by Milacron.

"We continue to see evidence of improvement,'' Brown said.

In anticipation of a turnaround, Milacron this week said it was reintroducing the Cincinnati Milacron brand name for the injection molding machines produced at its Batavia plant.

The company abandoned the Cincinnati part of its name after selling its machine tool business to Unova Inc. in 1998 but has found customers still call its equipment "Cincinnatis'' as they had for decades.

"We're the No. 1 injection molding technology source,'' said Karlheinz Bourdon, Milacron's vice president for machinery technology.

"With our new financing in place, rebirth of the Cincinnati Milacron brand name is our way of marking a fresh start,'' he said.

Brown said readopting the Cincinnati Milacron brand name has been under consideration for some time, but the company didn't want to do it until the refinancing was completed.

The big picture

Analysts say the uncertainty over Milacron's financing situation has cost it some sales. Brown said that's probably true, but he can't quantify it.

He said the extensive examination by all potential investors gave the company a chance to look at its operations with fresh perspective.

The refinancing "took a lot more of my time than I would have liked," Brown said. "We've got a very good operating management and a lot of dedicated employees who focused on the task at hand. They know their jobs and do them well.''


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