ICS Group (UK) - Downhill Debacle
Extract from JimPinto.com eNews dated 24 July '00
Downhill Debacle(From JimPinto.com eNews dated July 24, '00)
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)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 itself had been sold off piecemeal to Honeywell and others) and also Triplex and Transmitton. At about $110 million in sales a couple of years ago, its recent market-cap of $17 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 $2.5m was made by a low-ball venture group in late July. The bid has apparently been accepted by the board of directors, though rumors abound that rival bids are brewing - probably wishful thinking on the part of disgruntled shareholders.
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...Some time ago, I asked a venture-capitalist friend why he never got involved with turnarounds. His reply: “Never play with a pig. You both get dirty, and the pig likes it….”
ICS(UK) Stockholders wait for 'white-knight'(From JimPinto.com eNews dated August 1, '00)
The "company in trouble" mentioned in the last JimPinto.com eNews, is ICS(UK). Alchemy, a bottom feeding "vulture capitalist" with experience in turnarounds and asset-sales, has made a penny-a-share offer, valuing the $ 60-70m company at $ 2.5m. ICS is drowning in debt and apparently the banks support the Alchemy offer. The ICS board is probably a rubber stamp.
A Veep at one major automation competitor says :
The institutional investors have been bailing out in recent weeks and as of a couple of days ago the main shareholder was Deutsche Asset Management with about 11%. At the same time small investors who see this as a 'penny stock' play. About 20m shares were traded at the end of last week (from a total of about 170m) with a spread of 1.25p to 2p. Clearly some people were selling in the market, but the great majority of small investors seem prepared to wait and see, with the hope that a white knight will come along. The rumor is that 2 American firms might make a joint bid. There is also talk of Swedes taking a look. As always a lot of froth in circumstances like this.
I'm told that Alchemy cannot force the 1p sale until they hold 90% and so far they have less than 10%. The other institutions hold 20% and so far have not sold. Could be an interesting few weeks, while ICS turns slowly in the wind......
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?
eFeedback - ICS (UK)(From JimPinto.com eNews dated August 7, '00)
Regarding my coverage on the ICS "downhill debacle" in eNews dated 1 August 00, Graeme Philp, Managing Director of of MTL responded :
I asked the well-respected CEO of a significant industrial instruments company whether he was interested in acquiring ICS. His reply:
An ICS stockholder reported:
To join the bulletin board where ICS shareholders e-congregate and e-commiserate, click on :
eFeedback : ICS(UK) low-ball takeover(From JimPinto.com eNews dated August 14, '00)
An ex-employee of ICS asked:
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."
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.
ICS(UK) firesale saga continues(From JimPinto.com eNews dated September 5, '00)
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?
Pinto PostscriptExtract from article : Companies in Trouble
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.
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