Leggett and Platt divestiture ‘on track’ for 2008 completion
In the wake of the emotional sale of Leggett and Platt's aluminum division, Leggett CEO David Haffner sees struggle and potential in the next few months.
Record home foreclosures and slowing home sales cannot bode well for a company that makes a large part of its living manufacturing furnishings for the home, but Haffner said Leggett and Platt is achieving good things in a tough North American economy.
"For those parts of our business that are associate with housing, and there are some that are not of course, and more specifically housing in North America, it's a challenging environment," Haffner said. "There's good news though, and I said this in our conference call, we are gaining market share and pretty significant market share in a tough market, especially in bedding and furniture, and we're doing that through various ways."
Haffner said federal anti-dumping legislation has helped reduce the number of innersprings for beds being imported into the U.S., meaning more business for Leggett and Platt.
Haffner said Leggett also convinced a major regional maker and user of innersprings in the U.S. to stop making the springs themselves and buy them from Leggett.
He said new products developed by Leggett for the bedding industry have become very popular and the company actually sold out of some of those products.
"We've also deverticalized a manufacturer of reclining chair mechanisms and we're just now ramping up to full speed on producing those for a company by the name of Brookline," Haffner said. "So there are some very positive things happening for Leggett and Platt's divisions that are in fact directly correlated to housing, so the market's pretty poor or soft, but we're gaining market share. What that implies for someone thinking in the future, is that when, not if, but when the housing situation improves significantly, then Leggett is just going to be in an extraordinarily positive position."
Benefits of sale
Haffner said the sale of the aluminum division will help both Leggett and the newly christened Pace Industries in a number of ways.
He said much of the $300 million in cash will go to repurchase stocks of Leggett and Platt "at currently very attractive prices.
Haffner said Pace Industries will continue to exist and will even continue selling some products to Leggett.
"In fact I suspect that not only will it exist, it will continue to expand," Haffner said. "I know that the new owners, who I found delightful to work with. Quite honestly, the private equity people we worked with were true to their word, good negotiators but true to their word and refreshing to work with. They have an intention to not only expand the business domestically, but look for international opportunities. I was quick to tell Jeff Kenner, of Kenner and Company, remind him that that preferred stock which was part of the transaction, was a way for Leggett not only to further enhance the value that we receive from the transaction, but also to keep me hooked in, from an emotional perspective."
Haffner said the sale was an accomplishment in a tight credit environment like this one. He said skeptics didn't think they could pull this deal off.
"It's a tough environment to sell a business at fair value," Haffner said. "The smaller deals are a little bit easier to get done and there were plenty of skeptics who didn't believe that we would generate anywhere near the proceeds for our aluminum segment that we did. On one hand I'd like to tell you it was easy, but on the other hand, it was very complicated, tiring process, but we're pleased to have gotten it done."
Haffner said the company is still looking to sell off six business units and is in negotiations with buyers for each one. He said those sales should be finished by the end of the year.
In the meantime, Leggett in Carthage will benefit from the increasing market share the company is gaining once the economy gets better.
"With regard to the divestitures, there will not be any affect on our Carthage area and folks," Haffner said. "With regard to the significant gain in bedding market share, it means that we will see more product produced in our Missouri operations, not limited to Missouri, but to our Cartage operations, not only the innerspring products, but also machinery oriented modifications and things like that. So it's a very strong net positive associated with the bedding market share we're gaining."
Haffner said the company will have to learn to adjust in an economy that has been forever altered by the cost increases in food and energy as well as the housing crisis.
"I think that inflation has put an indelible mark on, not just Leggett and Platt, but all manufacturers in North America, an indelible mark on the cost to produce products," Haffner said. "Now that's offset by the fact that it's becoming more difficult products in Asia and bring them back here, and of course that helps us. Leggett has 12 operations in China, but most of product that we produce in China stays in China. There are parts of the world that have in the not-to-distant past enjoyed some unfair advantages and some of those unfair advantages are being diminished or eliminated, so that helps offset some of the permanent increase in the costs of manufacturing."