What happens when a company gets into trouble and cannot recover? Well, the natural answer is that it gets bought out or sold off or merged into another entity. Something they have is valuable to someone else, a competitor perhaps - products, technology, market-share, people, location. But sometimes, the rot goes much deeper - and there is very little left to save.

Let's review a going-on-as-we-e-speak example:

ICS Group (UK)

The problem with this type of company is that, although it has some good pieces and management, nobody wants to buy it, because nobody wants the wants the headaches. The only ones willing to buy a pig in the poke are vulture-capitalists who will carve up the carcass and sell it off piecemeal.

Never play with pigs...

"I actually think that the Max system is good, if the parent wasn't so screwed up. The system design is sound (far better than many other DCS systems). It uses 100 megabaud Ethernet for a system bus, supports sequence of events monitoring down to 1 millisecond, has windows NT based HMI, controllers based on windows CE and a very broad range of I/O. Further, the President, Chip Halloran, is a good motivator and perhaps the best salesman in this business. It is too bad the parent sucks! And, we won't touch it with a barge-pole...."

Pinto's Pointers

a/ Alchemy is the same vulture that wanted to buy Rover (the UK car company) to milk off all the assets - BMW finally bought Rover, with a much better deal for everyone involved.

b/ I hear that Alchemy also owns INSTEM, another small systems-integrator. After firing the hangers-on and selling off the buildings and company-cars, they will likely integrate ICS and INSTEM, and sell the package to one of the majors. Interesting that most of the majors are getting IN to systems, while the minors are starving to death.

c/ After having sold the company "down the river", it's a pity that the board and corporate management will probably retire with high salaries, company cars and a golden parachute. Or, does Alchemy send them to Siberia?

Regarding my coverage on the ICS "downhill debacle" in eNews dated 1 August 00, Graeme Philp, Managing Director of of MTL responded :

"Alchemy was not involved when BMW bought Rover from British Aerospace. Alchemy was one of the few "lifeboats" that Rover had after BMW decided to divest. It is however true that Alchemy are bottom feeding venture capitalists and they were certainly not a favourite solution for the Rover workforce. In the end the government backed a buyout by former Rover management and the Alchemy bid failed."

"ICS is not in the best of health (note the British understatement) but I do not think that much of the blame can be laid at the door of the current management team. They were brought in as a "turnaround team" by investors to sort out the mess that the company was in. They have always seemed to me to be trying to do the right things. The problem is, as you say, that the company is drowning in debt and has found it impossible to bootstrap itself out of difficulties. In my opinion, a good parent could still salvage something worthwhile from ICS."

I asked the well-respected CEO of a significant industrial instruments company whether he was interested in acquiring ICS. His reply:

"It would do nothing for our quality of earnings. Maybe Alchemy can turn lead into gold!"

An ICS stockholder reported:

"The current state of play is that Altium (Alchemy subsidiary) holds 16.67%, the big institutions 18.44% (incl. Deutsche Asset Management 10.10%) and the directors 6.28%. The small shareholders are being belligerent and will refuse Alchemy's offer; they clearly won't get 90%. As they say it's not over till the fat lady sings...."

Pinto Analysis

ICS has already been reviewed by all the majors and they have declined involvement. No one likes "bottom-feeding vultures" (mixed metaphor purely intentional). The banks are evidently spooked enough to support a low-ball offer and will be delighted to entertain alternatives. ICS has some good people, products and profit potential and I see two possibilities: 1/ A public-company white-knight; or 2/ Leveraged buyout by venture-capital backed management group. This is a good time for an in-house Sir Galahad to take the reins....

To join the bulletin board where ICS shareholders e-congregate and e-commiserate, click on :

Interactive Investors International

An ex-employee of ICS asked:

"ICS owns Triplex, which has one of the best safety systems and control products currently available on the market. I can understand that the company has suffered at the hands of poor management. However I cannot understand why they have not been acquired by a larger company, such as Emerson or Rosemount which I'm sure could market the Triplex technology and also integrate it into existing products.

In your opinion why have they been left to be taken over by a company like Tritrax (Alchemy) who have bid a vastly reduced value (1p a share). This does not make any sense to me. I believe that if ICS is bought by Tritrax then a whole lot of larger companies will have missed a gift and a golden opportunity to make money from a good product and a large installed base which will require servicing for many years to come."

Yes, ICS has many good people and good products. I understand that ALL the major industrial automation companies had been approached (in the past year or so) about buying ICS. Most were really "fishing" and "viewing the merchandise" so to speak - but no one stepped in to buy it. Why not? Because the industrial automation market (as a whole) is doing badly (no growth, poor profit) and no one wants to work with a turnaround that will need a lot of attention.

Why Alchemy (Tritax)? The banks control ICS because it is very deeply in debt. Alchemy are the only ones who seem to be willing to do a "turnaround" - and have somehow won the confidence of the banks. The low bid takes into account that ICS will still need to repay the banks and Alchemy will assume the debts.

Yes, ICS has some value (beyond their debt and the 1p per share) - and may still be bought by someone else. My own opinion is that some of the good managers within ICS should stage a management buyout. The banks will be delighted. If you know anyone who is gutsy enough to get some good ICS employees together to attempt an employee-owned buyout, ask them to get in touch with me. If they don't DO anything, then they will simply be "fodder" for Alchemy's turnaround tactics - these vultures always think they are 'smart', when in reality they are simply ruthless.

"Well the offer has been extended to 17th August. Alchemy now has 43% plus the 3.45% which doesn't count towards the total for 'majority' purposes. They may sweep-up the remaining 8% next week to secure overall control. But still, 13m shares is a lot if none of the big boys are playing ball. 90% looks a universe away."

Tritax, the Alchemy subsidiary that made a low-ball offer for ICS (UK), currently have garnered about 63% of the equity. ICS is a publicly held company, and is expected to be "de-listed" from the London Stock Exchange on September 13th. Some of the stockholders, who are still withholding their support for what they think is a ridiculous price, suggest that 63% is not enough to enforce a compulsory acquisition and the shareholders can only be forced to sell if Tritax owns 90%.

Invensys is in a similar situation with the purchase of Baan. Invensys wanted 90%, but only got about 75% of the total outstanding shares. It has been reported that Invensys will deal with this standoff by holding a shareholders meeting to vote for "voluntary liquidation". If they own more than 51%, they will win the vote and the remaining shareholders will get a price equivalent to what was offered in the first place. I don't know British securities law, but it seems to me that Tritax can make a similar move with the 63% they already own.

I heard from a couple of ICS people, when I suggested that employees could and should stage a buyout, if they were strong enough or gutsy enough to make a move. But, I haven't heard from them since. A recent press release about completion of the acquisition came from ICS Triplex MD Glenn Cooper, rather than from the group. It seems as if Cooper is attempting to protect his part of the operation by identifying with the change. And, perhaps, as Alchemy's man for the whole operation?

Browse around the ICS Shareholder contact site

What happens when a company gets into trouble and cannot recover? Well, the usual answer is that it gets bought out, or sold off, or merged into another entity. Something they have is valuable to someone else, a competitor perhaps - products, technology, market-share, people or location. But sometimes, the rot goes much deeper and there is very little left to save.

An interesting example of things gone sour in industrial automation is ICS Group (in the UK). They bought a bunch of dogs: MAX Control Systems from Leeds & Northrup (which, as I had previously mentioned, was itself sold off piecemeal to Honeywell and others) and also Triplex and Transmitton. At about $110 million in sales a couple of years ago, its final, flailing market-cap of about $12 million (down from about $100 million) reflected serious losses and sales decline. To bail them out of default on bank-loans, a cash-bid of just $2.5 million was made in July 2000 by a low-ball venture group with the dubious name of Alchemy. No, that’s not a typo; it really was sold for a penny a share - about $2m - with some stockholders still holding out for more. The acquisition was supposedly completed in September 2000.

The problem with this type of company is that, although it has some good pieces and management, nobody wants to buy it, because nobody wants the restructuring and integration headaches and costs. The only ones willing to buy a pig in the poke are vulture-capitalists who hope to carve up the carcass and sell it off piecemeal after nominally fixing it up (a little paint here and some layoffs there, coupled with market spin about being healthy and making a comeback). It is doubtful whether Alchemy can really turn ICS into gold….

ICS is the warning to those who fail to see the writing on the wall. It is an example of management has-beens who don’t pay enough attention to customers and their own employees and isolate themselves from reality. They fiddle around in executive suites and boardrooms while their company burns. They must inevitably pay the piper. The only ones who ultimately profit are those who have the stomach for vivisection and the initiative to carve up the carcass. These are the vultures that peddle the pieces and profit off the entrails - the real-estate remains and surplus inventory.