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December 13, 2004 01:00 AM

Vehicle sealing shake-up

Bruce Meyer
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    It's not every day that the top two players in a particular market go up for sale at the same time.

    But that's what happened this year when Cooper Tire & Rubber Co. and GenCorp Inc. both decided to sell their respective vehicle sealing systems businesses.

    Those two units combined to take nearly 40 percent of the $4.7 billion global market, with Cooper's Cooper-Standard Automotive division at No. 1 with a 22-percent share and GenCorp's GDX Automotive next at about 17 percent.

    In the end, both businesses ended up with equity or venture capital firms as the two parent companies wanted to concentrate on other businesses.

    The similarities in the two deals really end there.

    GenCorp's sale of GDX to Cerberus Capital Management L.P. closed with relative ease, but the $147 million it brought in wasn't nearly on par with what Cooper received for Cooper-Standard. By comparison, GenCorp bought the Draftex vehicle sealing system business in 2000 from Laird Group P.L.C. for $188 million.

    Although the No. 2 manufacturer of automotive weatherstripping, posting 2003 sales of $786 million, it lost $14 million in the first quarter of fiscal 2004 after seeing earnings plummet 77.8 percent in 2003.

    GenCorp blamed much of GDX's problems on its European plants and called the vehicle sealing market mature with a relatively low rate of technological change and modest growth opportunities. GenCorp instead planned to focus on its aerospace, defense and real estate operations.

    Cerberus is described as a venture capital firm that specializes in turning around distressed companies. It quickly appointed a new management team, headed by Morris Rowlett as chairman and CEO. He came to GenCorp with more than 20 years of experience in automotive and manufacturing management.

    The Cooper-Standard deal had a few more hurdles to navigate and, in fact, still hasn't closed.

    But the $1.17 billion private equity firms Cypress Group and Goldman Sachs Capital Partners combined to offer for the automotive components supplier represented roughly 70 percent of 2003 sales and 12 times earnings. Both figures are considerably higher than most rubber industry transactions in recent years. Besides weathersealing, Cooper-Standard also makes vibration control products and hoses to transport fluids, fuels and gases.

    Despite the unit's profitability, Cooper wanted to concentrate on its tire business and put its resources into further pursuing its global expansion plans.

    The major hurdle to closing the deal came from a suit filed by the United Steelworkers of America, saying that its labor contracts at four Cooper-Standard plants precluded a sale until the new owners reached agreements with the locals. Cooper than appealed a federal judge's decision to grant an injunction to block the sale.

    Negotiations in late November, however, involving the USWA, Cooper and the prospective buyers brought about an agreement that will allow the deal to go forward. The deal is expected to close by the end of 2004.

    Cypress said it looks for companies that are either industry leaders or niche businesses with unique products, lines of distribution channels or corporate resources. The equity firm has identified automotive as one of its targeted industries, and also this year bought Dana Corp.'s automotive aftermarket group for about $1.1 billion.

    Letter
    to the
    Editor

    Rubber News wants to hear from its readers. If you want to express your opinion on a story or issue, email your letter to Editor Bruce Meyer at [email protected].

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