Case Study: Wells Aluminum Corp. : Robert Amter

Case Study: Wells Aluminum Corp.

Wells Aluminum Corp., Indiana

Situation & Problems:

In March 1991, Wells Aluminum sold one of its customers, Kero Company, an unusually large volume of aluminum extrusions. Before Wells could obtain payment for the extrusions, Kero filed Chapter 11 Bankruptcy in May 1991.

Wells Aluminum was owned by Gibbons, Green, van Amerongen – the New York Leveraged Buy-Out Firm. Wells’ subordinated bonds were in work-out at Wells Fargo Bank. Wells Aluminum wanted to advise the bank of the alternatives available, other than a 100% write off of the Kero receivable without the prospect of any recovery.

Wells Aluminum became Robert Amter’s first client when retained to complete a due diligence review of Kero.

Kero’s product lines, sales and profit are as follows:

………….Actual…………
Product Line (000$) Sales Pretax Profit % of Sales

Above ground swimming pools $9,066 $ 645 7.1%

Office products: file cabinets,
security boxes, desks, chairs 6,231 (2,019) (32.4%)

Radiator enclosures 971 (55) (5.7%)

Total $16,268 $(1,429) (8.8%)

Conclusions:

» Sales could be increased in the swimming pool business. The product was competitively priced. Quality was equal to or better than competition. Sales were limited to the mid-west and mid-atlantic states, and distribution could be expanded to other geographic areas. The product line was not complete, and could be extended without a large capital investment.

» The money losing office products line should be shut down. The line was not competitive in price, quality or features. The capital investment needed to improve it would have a negative return.

» The radiator enclosure line’s sales could be increased. Quality and reputation were good. Price points were competitive. Distribution was limited to New York City Metropolitan area and could be expanded to additional cold weather geographic areas.

» Evaluation of the manufacturing operation indicated that cost of sales and inventories could be improved in the swimming pool and radiator enclosure product lines.

» The plant was owned by Kero. It was relatively new, in a good industrial park, and was salable.

Recommendations and Results:

Suggestions to the creditor committee:

~ Not accept a low settlement offer from the owners.

~ Break Kero’s exclusivity. Petition the Court for the right to present a reorganization plan. Kero agreed to it.

~ If an acceptable negotiated settlement could not be reached with the owners and the creditors gained control of Kero, the alternatives were as follows:

Sell Kero’s two profitable businesses and the plant “as is”.

Hire a general manager to improve Kero’s two profitable businesses. Shut down the money loser. After two years of improved results, sell the company and the plant.

At this time, the exclusive master distributor of Kero’s swimming pools offered to purchase the entire company for about 7 cents on each dollar owed to the trade creditors. The bank’s $3.3 million loan would be fully paid.

This was not acceptable. The creditors knew Kero had a higher value.

Rather than accept this offer, a general partner of Gibbons, Green, van Amerongen entered a bid to acquire Kero and also the swimming pool master distributor’s business.

» After meetings in and out of the bankruptcy court, the swimming pool master distributor raised its offer for Kero to 65 cents on the dollar. This offer was accepted by the creditors.

Wells Fargo Bank reacted favorably to the settlement.

Reason I wrote my book “Learn to Whisper”

Click on this link for a more complete description of “Learn to Whisper”

The reason I wrote “Learn to Whisper”:

My conclusion after operating as a Turnaround Chief Executive Officer for more than twenty-five years is that the majority of this country’s top management is far from first-rate. In fact top management, particularly at the chief executive officer level, is at best average with a large number that can be rated mediocre. This lack of management competence has seen this country’s market leaders lose sizeable market share to foreign manufacturers able to export better quality and lower cost products to the USA. It has seen manufacturing and service operations unnecessarily moved to foreign countries. All of which has negatively affected the economy, severely damaged former blue-chip corporations and seen quality jobs lost.

It is quite common to discover that companies struggling with this inability to compete with foreign companies have been simply mismanaged. The once successful business deteriorated because of an incompetent chief executive officer and weak senior management

Why doesn’t this nation have first-rate management? Inadequate training. Chief executive officers and vice presidents learn “on the job”. A number get promoted based on personality, political connections and drive – not merit. They are not carefully screened for the potential to become successful at managing. For some all that is needed is a well-written resume, the right interviewing style and the inability of a new employer to accurately assess skills, performance and potential.

Compare this to the process doctors go through. From medical school to internship to residency to a senior role after years of education, experience and continuous training their progress and capabilities are constantly monitored even after they become senior in the profession. Generals and Admirals go through a similar protocol. They must prove themselves in low-level assignments before they are judged qualified for senior positions. Unqualified applicants in both professions are culled out. What can be done to improve management competence? Education, on-the-job training and job performance monitoring. My book will educate people on the subject of managing. Its 101 management lessons are separated into the 17 subjects managers need to know.