Decades-old Kaiser Aluminum Corp. is back.
Back from more than four years under the watchful eye of the bankruptcy court. Back from the obscurity of the over-the-counter exchange. And back from months of haggling with unions about benefits and lawyers involved in asbestos litigation.
Last week, the aluminum products maker’s shares graduated to Nasdaq, where they had a market value of about $800 million. And Chief Executive Jack Hockema is sounding more like an executive and less like a turnaround man. He’s talking up his new markets, an expanding production facility,and even acquisitions.
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CEO Hockema: “We may take 30 seconds and say, ‘Isn’t this great?’ and then move on” |
Getting through bankruptcy is a big step for Kaiser, which ranks among Orange County’s larger companies with yearly sales of $1 billion.
But Hockema said he’s not dwelling on the milestone.
“We may take 30 seconds and say, ‘Isn’t this great?’ and then move on,” he said just before the company emerged from bankruptcy.
Kaiser moved its headquarters from Houston to Foothill Ranch last year. Laguna Niguel already was home to Kaiser’s fabricated products division.
Hockema, who became Kaiser’s chief executive around the time of the bankruptcy in 2002, led the Laguna Niguel division and opted to move the company here.
Kaiser has had to slim down to get out of bankruptcy, and to compete again. Back in 2000, the company did about $2.2 billion in yearly sales.
Now Kaiser is going after markets with more profits.
The company used to make aluminum but now prefers to shape it into custom pieces for customers, which include Boeing Co., automakers and appliance companies. They use Kaiser’s parts in anti-lock brakes, water heaters and airplane wings.
So good, so far.
In the first quarter, Kaiser’s net income rose 360% from a year earlier to $38.4 million. Revenue grew nearly 20% to $336 million.
Kaiser had hoped to emerge from bankruptcy as early as late 2004. Then that got pushed back to the end of last year.
Talks to resolve pension and retiree benefits, among other issues, dragged on longer than expected, pushing Kaiser’s bankruptcy exit to now.
Much of the legwork,including approval by bankruptcy court and creditors for a plan of emergence,was wrapped up earlier this year.
But U.S. District Court also had to sign off on Kaiser’s plan because the bankruptcy involved asbestos, the fireproof substance that’s been the source of countless lawsuits over perceived health risks.
“If the courts had acted expeditiously,” Kaiser would have emerged around the start of the year,” Hockema said.
Even so, four years isn’t so bad, according to Hockema. Some of Kaiser’s manufacturing peers have spent more time dealing with asbestos litigation, he said.
Those include Chicago-based USG Corp., a maker of wallboard that’s been in bankruptcy since 2001, and Toledo, Ohio-based insulation company Owens Corning, which filed in 2000.
As part of the emergence from bankruptcy, Kaiser doled out stakes in the company to settle the asbestos issue and another sticking point, retiree benefits.
Owned by Union
The U.S. Steelworkers Union gets a majority holding in the company to pay off retiree medical benefits. A trust for asbestos litigation gets a stake of less than 10%.
“We had the asbestos, we had a powerful union and we had a bunch of powerful debt holders,” Hockema said. “We had some really big muscle constituents, all of which we had to negotiate with and divvy up the pie.”
Kaiser emerges lighter and leaner after selling off its aluminum smelting plants, except for a 49% stake in one plant in Wales.
The company has turned to the more profitable “fabricated aluminum products.” That’s where Kaiser takes raw aluminum and shapes it into rods, bars, plates and tubes for customers.
That got Kaiser out of the commodity aluminum business, where competition is fierce and profits are slim. Trying to compete in raw aluminum pushed Kaiser to bankruptcy years ago.
The business still has its ups and down, Hockema said. And Kaiser is at the whims of the airline industry, he said.
Aerospace has fueled much of Kaiser’s growth of late, with Boeing and Airbus SAS sucking up more aluminum in their commercial jet battle.
Kaiser is one of just a handful of companies that make specialized aerospace products. Boeing and others are willing to pay more for parts that are more apt to live up to the rigorous standards required in planes.
“We’ve been in the business for decades,” Hockema said. “This segment is not a commodity market. It’s very sophisticated. For the customers there are huge safety implications.”
Expanding Plant
Kaiser is spending about $75 million at a Trentwood, Wash., plant to expand its product lineup.
The expanded plant is set to pump out 8- and 10-inch thick pieces of aluminum, along with the traditional 4-inch plates.
The expansion should help Kaiser compete against Canada’s Alcan Inc. and New York-based Alcoa Inc., Hockema said.
Kaiser is looking beyond aerospace.
A growing emphasis on auto fuel efficiency could spur demand for aluminum, which is lighter than steel.
Many Japanese automakers have been aggressive in using aluminum, Hockema said.
And Kaiser could put its fresh balance sheet to work on acquisitions, according to Hockema. The company had nearly $40 million in cash at the end of the first quarter.
“We’re emerging with significant financial strength,” he said.
Could Kaiser be bought as the U.S. aluminum market consolidates?
Hockema said he doesn’t see it that way, as long as Kaiser continues to grow and the stock reflects that.
“That pressure comes when people perceive an undervalued asset,” he said. “We’ll be looking to get the proper valuation in the marketplace.”
