Hart surgery on US$18b debt?

TIM HUNTER, SOYOUNG KIM AND GREG ROUMELIOTIS
Last updated 15:34 27/06/2014
Graeme Hart
Fairfax NZ
SELLING?: Graeme Hart.

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Graeme Hart, whose packaging conglomerate made him New Zealand's richest man, is in the early stage of exploring options for his US auto parts businesses.

He acquired his autoparts units, based in Illinois, for nearly US$2 billion ($2.3 billion) in 2011, according to people familiar with the matter.

A potential sale of the US vehicle replacement parts providers underscores Hart's efforts to pay down US$18b in debt accumulated through the buyouts in the last few years that built his industrial empire, Rank Group. Those deals include the US$6b acquisition of Pactiv, the maker of Hefty trash bags, in 2010, and the US$4.5b takeover of plastic container producer Graham Packaging in 2011.

Financial statements disclosed to the US Securities and Exchange Commission reveal UCI has been working to cut costs amid sluggish sales.

This month it closed a factory in York, South Carolina, with the loss of 232 jobs.

When the closure was announced two weeks before Christmas, UCI vice-president Keith Zar told local media there was oversupply in the market for filters made by the plant.

"We had to make tough decisions to remain competitive," he said.

York County Council chairman Britt Blackwell said the effect on employees was "devastating".

"I'm sure our economic development head will do everything they can to put another company into that building."

As well as the York plant, UCI has shuttered production in China and Mexico. Job cuts are also planned in its fuel delivery systems production.

In the three months to March UCI reported a loss of US$12.5m, deepening from a US$7m loss the quarter earlier. Earnings have declined in each of the last four quarters.

Rank's other autoparts business, Fram Group Holdings, does not report results.

Rank has spoken to investment banks in recent weeks about potentially selling both companies, the people said this week, asking not to be identified because the deliberations are private.

Rank acquired UCI for US$980 million from private equity firm Carlyle Group in 2011, and Fram Group, the former automotive consumer products business of Honeywell International, for US$950m the same year.

The discussions are at an early stage and no final decision has been made on whether Rank will try to sell both companies, the people added.

UCI chief executive Bruce Zorich declined to comment when contacted by telephone, while Rank and Fram representatives did not respond to requests for comment.

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The companies may attract interest from some of their peers as falling prices and lower profit margins have increased consolidation in the highly fragmented car parts aftermarket. Private equity firms also have invested in the sector before.

UCI supplies a range of filtration products, fuel delivery systems and vehicle electronics products for the automotive aftermarket. Its brands include Airtex, Wells, ASC and Champ.

The Lake Forest, Illinois-based company had full-year net loss of US$12.2m in 2013, down from a profit of $14.6m in 2012, according to its financial statements.

In March it had net equity of US$288m and debt of US$690m, most of it maturing in 2017. The company was in compliance with its debt covenants.

Fram, also headquartered in Lake Forest, manufactures oil, air and fuel filters. Its brands include Fram, Prestone and Autolite.

UCI and Fram are separate legal entities but are operated by a common senior management team.

Moody's Investors Services said in January that UCI had found it difficult to capitalise on its cost sharing and manufacturing arrangements with Fram sufficiently to offset the deterioration in the automotive aftermarket, which has seen more consumers opt for new cars.

Hart, a former tow-truck driver, became a billionaire thanks to his debt-fuelled acquisitions of industrial companies, mostly in the packaging sector. The 59-year-old has a net worth of US$7.1b, according to Forbes.

Reuters reported last month that Rank Group was also exploring a sale of SIG Combibloc Group that could value the world's second-largest maker of drink cartons at about US$5b. Hart acquired SIG for US$2.3b in 2007.

- Reuters, additional reporting Fairfax NZ

- Reuters

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