Monday, October 4, 2010

Cerberus IPO Looms for Tower Automotive

Cerberus Capital Management is monetizing part of its investment in Tower Automotive (TA).  They plan to raise $122 million in an independent public offering.  Proceeds will be used to "pay down debt."

Private equity underwriter (PEU) Cerberus owns much of Tower's substantial debt, 86% of the $471 million first lien term loan and 100% of the $27.5 million letter of credit facility .   The S-1 states Cerberus purchased the debt in market transactions from other lenders, likely at a huge, tax-deferred discount.  What price will one head of Cerberus charge the other to retire the debt?  I smell a PEU profit maximizing transaction.

Other odors emanate from the Cerberus Tower.  TA's employment numbers were stated in their S-1

As of December 31, 2009, we had approximately 7,400 colleagues worldwide, of whom approximately 5,000 were covered under collective bargaining agreements.
Compare that to pre-Cerberus employment levels:

As of December 31, 2006, the Company had 10,477 colleagues worldwide, of whom approximately 5,800 are covered under collective bargaining agreements:
That's a loss of 3,000 jobs in three years.  Cerberus acquired Tower in 2007 for $1 billion.
In July 2007, the company completed the sale of substantially all of its assets to Tower Automotive, LLC, an affiliate of Cerberus Capital Management, L.P. and emerged from bankruptcy court protection as a leaner, strategically focused global company.

With new leadership, including president and CEO Mark Malcolm, the company deployed a wide range of initiatives and achieved major cost, quality and operating efficiency improvements across the business.

As a result of these process-driven initiatives, the company achieved $195 million in manufacturing and purchasing cost savings from Jan. 1, 2008 through Dec. 31, 2009.
The S-1 provides more detail on job losses:
2009 Actions 

In July 2009 in the International segment, the Company announced the closure of its press shop in Bergisch Gladbach, Germany. This closure impacted 57 colleagues, who ceased employment with the Company in October 2009. Total estimated costs of the closure of this facility are $10.2 million which is comprised of $9.1 million of severance costs and $1.1 million of other exit costs. The Company recorded the entire charge of $10.2 million during 2009 related to the closure of the Bergisch press shop. The additional charges incurred in 2009 in both the International and Americas segments relate to other severance costs, ongoing maintenance of facilities closed as a result of prior actions, and an additional impairment charge on an asset held for sale.

2008 Actions

In September 2008 in the Americas segment, the Company announced certain restructuring activities in its North American operations. The Company announced the closure of its Traverse City, Michigan facility. This closure impacted approximately 360 colleagues. The costs of the Traverse City, Michigan facility closure were recognized over the required service period of the colleagues through April 2009. Charges of $4 million and $4.5 million, respectively, were recognized during the years ended December 31, 2009 and 2008 for a cumulative charge of $8.5 million. The charges incurred during 2009 were comprised of $0.1 million of severance costs, $1.8 million for an additional impairment charge on the facility, and $2.1 million of other exit costs. The charges incurred during 2008 were comprised of $4.4 million of severance costs and $0.1 million of other exit costs.

2007 Actions

During 2007 in the Americas segment, the Company announced the closure of certain facilities in its North American operations in an effort to realign capacity with demand during bankruptcy. The Company closed its Kendallville, Milan, Granite City, and Upper Sandusky facilities and incurred restructuring and asset impairment charges of $20.9 million relating to these closures. 
The 2007 restructuring must have been a bloodbath.  While in bankruptcy, Tower cut retiree medical care, shifting responsibility to VEBA's.  Cerberus assumed ownership on July 31, 2007.  How many layoffs occurred under their tenure vs. bankruptcy court?

Will the Brookings Institute study private equity's impact on employment?  Will Caritas Christi Health System look at Cerberus Capital's track record in other industries?

How many Tower related VEBA's are in health reform's $5 billion retiree medical plan giveaway?  Hell hound's love free money, especially when it comes indirectly through union agreements.

Two lists continue growing, PEU "cash ins" and ERRP recipients.  Political and corporate big boys throw billions to one another.  So what if they step on a few thousand people along the way.  Rest assured, Cerberus is on multiple tracks to profit from Tower.