Saturday, March 1, 2003
The steel processor failed to appease Wall Street's appetite for growth.
THE VINDICATOR
By DON SHILLING
VINDICATOR BUSINESS EDITOR
YOUNGSTOWN -- Becoming a public company enriched the former owners of Cold Metal Products but set the stage for the company's demise, former executives said.
The Boardman-based steel processor struggled since its 1994 stock sale because it was never able to satisfy Wall Street investors, said James Harpster, former president.
A private company could have better weathered the industry's ups and downs and perhaps still be operating today, said David Williams, former purchasing director.
As it is, Cold Metal -- once seen as a gritty survivor of the collapse of Mahoning County's steel industry -- is taking its last breath. After filing for bankruptcy six months ago, it is scheduled to sell its plants today in bankruptcy court.
Cold Metal Products was born in 1980 as other steel plants were dying off. Aarque Management Co. of Jamestown, N.Y., acquired Jones & amp; Laughlin's processing plants in Campbell and Indianapolis and operated them successfully for more than a decade. In 1994, Aarque decided to sell about half its ownership stake to the public at $10 a share.
"It was their way to cash out a significant amount of ownership," Harpster said. "But for the business itself, it was a mistake."
Heidi Nauleau, Cold Metal chairman and daughter of Aarque's founder, could not be reached.
What happened
The pressure of being a public company was evident right away, Harpster said. In its first year as a public company, Cold Metal posted record sales and profits, yet the stock sank to about $7 a share. Interest rates were rising, and Wall Street expected that to hurt Cold Metal the next year.
"They were right. We didn't have a good year," Harpster said.
The stock price never again moved over $7 a share and dropped to less than $1 a share last year before the bankruptcy filing.
Harpster, president from 1984 to 1998, said he argued against going public at board meetings because he knew the cyclical nature of steel businesses would not satisfy investors.
"When you want to buy a stock, you don't want a stock that has good years and bad years," he said.
He said private ownership could have waited out the lean years and made investment decisions based on the long-term future.
Cold Metal spent $22 million to create a rolling mill in Ottawa, Ohio, and bought steel service centers in Canada.
Harpster stands by the Ottawa decision. The union at the Campbell plant criticized the company in 1997 for the spending in Ottawa and reiterated that last year when the Campbell plant was closed.
Harpster said his plan was to upgrade both Ottawa and Campbell, but Ottawa had to be done first to satisfy Wall Street.
He added, however, that buying the Canadian plants didn't work. Steel markets deteriorated right after the sale, and Cold Metal was left with high-priced inventory that it couldn't sell.
Former executives
Harpster, who now is selling steel from his Canfield home for a Los Angeles company, said his departure was a mutual decision between him and Nauleau. He didn't like running a public company, and she wanted to bring in her own chief executive.
Harpster declined to comment on the company's struggles in recent years. Cold Metal made money through 1998 but lost money in four out of the last five years.
Company officials have put blame for their money-losing years on a sluggish national economy and steel tariffs, which raised the cost of steel the company bought.
Williams, one of Cold Metal's original employees, said the company also hurt itself by getting rid of executives like him. He said he was forced out after Harpster left but later was brought back as a consultant.
"They lost their institutional memory. They lost people who were there to say, 'We tried that and here's why it didn't work,'" he said.
Management also failed to settle on one philosophy, he said. Executives, for example, tried to push corporate functions such as purchasing and human resources to the plants in an effort to decentralize but later reversed that course, he said.
Duane Wycoff, vice president of human resources and communications, denied those charges. Executives did set a clear course and communicated that to employees, investors and the press, he said.
Turnaround strategies didn't work because of the recession and the company's inability to secure money to upgrade its operations, he said.
shilling@vindy.com