SAVAGE, Minn. (Sept. 26, 2008) — GreenMan Technologies Inc. is getting out of the scrap tire processing business, although the firm is keeping its recycled rubber playground surfacing and alternative energy subsidiaries.
The company announced Sept. 15 it has signed an agreement with Liberty Tire Services of Ohio L.L.C., for Liberty Tire to acquire GreenMan's tire recycling operations in Iowa and Minnesota.
GreenMan expects to realize more than $26 million from the divestiture, said GreenMan CEO Lyle Jensen in a Sept. 15 teleconference. With that money, it plans to pay off the $13 million it owes its primary lender, Laurus Master Fund Ltd., as well as several million dollars in transaction-related obligations.
At the end of the transaction process, GreenMan hopes to have minimal long-term debt and more than $5 million cash to fund projects at Welch Products Inc., its Des Moines-based playground surfacing subsidiary, and at GreenMan Renewable Fuel and Alternative Energy Inc., which it founded earlier in September.
GreenMan first borrowed money from Laurus in June 2006 predicated on the success of Jensen's five-part recovery plan for the financially ailing company, Jensen said.
The fifth part of the plan, which is being deployed now, involves both seeking joint venture partners for new projects and divesting properties to retire long-term debt.
“Laurus generally gives companies three years to turn around, and June 2009 would come all too soon,” Jensen said. GreenMan's payment schedule to Laurus was scheduled to change Oct. 1, 2008, with annual payments increasing to $3.6 million annually from $1.2 million, plus a balloon payment coming due.
Jensen and Chuck Coppa, GreenMan chief financial officer, tried to find other financing but failed. “Lenders don't want to see $13 million of new capital going to repay $13 million of old capital,” Jensen said.
Tire recycling is a small-business industry, so it was difficult to find a recycling firm that could attract capital for a joint venture with GreenMan, according to Jensen. Signing a deal with a subsidiary of Liberty Tire Recycling, the largest scrap tire recycler in the U.S., was a logical choice. “They were the ones who ultimately could come to the table,” he said.
The deal includes a multi-year agreement for Liberty to provide feedstock to GreenMan, as well as a noncompetition clause to ensure the two companies don't vie for the same business in the same markets, Jensen said.
The divestiture is subject to approval by the Securities and Exchange Commission and a vote of GreenMan shareholders, which Jensen said he hoped would take place in late October. The GreenMan board of directors has unanimously pledged its support to the divestiture, he said.
Purchasing GreenMan's Iowa and Minnesota assets doesn't add anything different to Liberty Tire Recycling's operations, but it does expand the company's reach, according to CEO Jeffrey Kendall.
“The deal brings us some great people and operations, and it gives us a much greater presence in Iowa and Minnesota,” Kendall said. “It's also a nice overlap with our operations in Illinois and Indiana.”
With 14 facilities in Pennsylvania, Ohio, North Carolina, South Carolina, Georgia, Illinois, Indiana and Texas, Liberty Tire claims to collect and process nearly 25 percent of the scrap tires generated annually in the U.S. It provides finely ground crumb rubber for a wide range of recycled rubber product markets, as well as tire-derived fuel, according to its Web site.
GreenMan plans shortly to ship feedstock to China to evaluate the possibility of processing tire shreds into diesel fuel and electric power, Jensen said.