380 Southpointe Boulevard
Company Perspectives
Ormet Corporation's mission is to produce superior quality alumina, aluminum and related products and services at competitive prices, supported by an unequaled level of customer services which results in lasting customer relations and optimizes profitability.
Ormet Corporation is a privately owned manufacturer of alumina and primary aluminum whose headquarters are located in Canonsburg, Pennsylvania. Ormet's specialty alumina materials are used in aluminum production as well as abrasives, refractories, ceramics, and electrical insulation as a fire retardant. Ormet maintains manufacturing operations in Burnside, Louisiana; Hannibal, Ohio; and Terre Haute, Indiana. The company also operates Bens Run Recycling Facility in Friendly, West Virginia, and the Burnside Bulk Marine Terminal in Darrow, Louisiana, which provides import and export services for such bulk commodities as coal, coke, ores, cement, fertilizers, and minerals.
Launched as Joint Venture: 1956
Because of the Korean War, the United States in 1950 offered an assistance program to encourage companies to become involved in primary aluminum production. Two companies interested in entering the field were Olin Mathieson Chemical Corporation and Revere Copper and Brass, Inc., (founded by Revolutionary War patriot Paul Revere in 1801). During World War II Olin had managed a government aluminum production plant, and Revere was an aluminum fabricator. Both companies ran into difficulties in financing their own primary aluminum operations, which were costly endeavors. Instead, they decided to join forces and in August 1956 established a joint venture called Orlin Revere Metals Corporation, which was later shortened to Ormet Corporation. The new company issued $16 million in common stock and raised another $15 million in 25-year bonds, split equally between Olin and Revere. A further $200 million in funding was borrowed from banks and insurance companies at rates approved by the corporate parents. According to the structure of the joint venture agreement, Ormet was confined to the production of primary aluminum as long as Revere and Olin were the sole shareholders. Moreover, Ormet was required to sell 66 percent of its production to Olin and 34 percent to Revere, and Olin and Revere were required to buy it.
In 1957 Ormet began construction on a mill and reduction plant in Hannibal, Ohio, and an aluminum plant in Burnside, Louisiana, both of which opened a year later. Also in 1958 Ormet opened the Burnside Bulk Marine Terminal Division. Ormet became the first company to join Alcoa, Kaiser, and Reynolds as producers of primary aluminum and more companies, spurred by government incentives, were to follow. Ormet proved to be a money-losing affair initially. The U.S. government had overestimated the amount of aluminum the country required, leading to a glut in production. On the military front, there was less need for aircraft that relied heavily on aluminum, superseded by missiles, which needed heat-resistant and more durable metals. The aluminum industry found new applications which helped to alleviate the situation, including the introduction of the aluminum can, aluminum foil for packaging, and use of aluminum in high-voltage wire, railroad boxcars, and mobile homes. Nevertheless, the aluminum industry was generally depressed through the 1960s.
By the mid-1960s, Ormet was able to produce about 360 million pounds of aluminum per year, but despite having opened only a few years earlier, the Hannibal plant was in need of upgrading to make it a more cost-effective producer. As a result, in December 1964 Olin and Revere forged a new agreement to create the Olin Revere Realty Company, the purpose of which was to provide land, buildings, and equipment for Ormet.
Olin Sells Stake: 1974
The Olin and Revere ownership arrangement remained intact until 1974 when Olin, displeased with Ormet's performance, sold its half interest to Consolidated Aluminum Corporation, a subsidiary of Swiss aluminum, chemicals, and packaging company Alusuisse Lonza Holding Ltd. Revere's ownership stake was reduced to 34 percent, in proportion to the amount of metal it received from Ormet. Ormet would become a millstone around the neck of Revere, along with other unprofitable units, and it could not cope with a recession in the early 1980s. In 1982 it filed for Chapter 11 bankruptcy protection, and emerged in 1985. A year later it was bought out by private investors, who began to sell off the assets. Not only did Revere want to cut its losses, Consolidated wanted to sell its share of Ormet, which was struggling to be competitive. At the close of 1985 the Burnside alumina plant was shuttered, putting more than 240 people out of work, because alumina could be bought cheaper elsewhere.
While Revere was working on its reorganization plan, Ormet hired a new president, E. Emmett Boyle. "The only way for Ormet to continue was for someone to buy it," he told Ceramic Industry in 1993. "So I commenced a leverage buyout in the fall of 1985." Born in 1937, Boyle was a seasoned veteran of the aluminum industry. After earning a mechanical engineering degree from Youngstown University and working as a design and development engineer at McDonnell Aircraft corporation, he went to work for Kaiser Aluminum and Chemical Company in 1965 and worked his way up through the ranks before coming to Ormet. He also earned a master's degree in industrial systems engineering from Ohio University in 1970.
Boyle, his management team, and a group of investors formed Ohio River Associates, Inc., to acquire Ormet. The deal was on the verge of completing the sale when the Hannibal plant was hit with a strike by 1,500 members of the United Steelworkers, delaying the transaction until September 1986. With the strike continuing, the Hannibal plant was run by a skeleton crew of less than 300 people, a number that included supervisors from the decommissioned Burnside plant. The strike finally ended in early 1989 with the steelworkers agreeing to much-needed concessions in wages and benefits. In return, Boyle pledged that every dollar the workers gave up the company would return in the form of preferred stock and profit sharing over the course of three years. The Hannibal plant was reopened, but because about half the smelting operation had been put out of commission, Boyle had to borrow nearly $14 million to restart the company.
Fortunately aluminum prices were on the rebound, allowing Boyle to begin making capital investments, mostly at the Hannibal facility. In addition the Burnside alumina production plant was reopened. In just the first 18 months after buying the company, Boyle and his group invested more in modernization and other improvements than Revere and Consolidated had done in 20 years. By 1993 Ormet invested more than $70 million in capital improvements, all drawn from profits rather than borrowed. In addition, the company had paid back $21 million to the workers when the agreed three-year period came to a close in 1992.
Consolidated Assets Acquired: 1994
Because of its strong turnaround, Ormet was able to pursue a long-term strategy of expanding beyond basic aluminum products to add value-added operations and promise greater profits. The company was able to achieve this objective in 1994 when it acquired several operations owned by its former corporate parent, Consolidated Aluminum. Ormet added the Bens Run Recycling facility located in Friendly, West Virginia, to recycle aluminum for the Hannibal plant or third parties; an aluminum coating and foil production operation in Jackson, Tennessee; a rolling mill in Hannibal; and a lamination plant in Iuka, Mississippi, that made aluminum backed with paper or plastic for use as gift wrap, food and drug packaging, and insulation material. These assets comprised subsidiary Ormet Aluminum Mill Products Corp. The company's other holdings formed Ormet Primary Aluminum Corp.
In 1995, Ormet took another step in adding value-added products when it began construction on the Velveflow Cast House, a $15 million plant to produce thixotropic billet, a semi-solid material that could be used in certain automobile components and was also used in the complex joints of such sporting equipment as mountain bikes, snowmobiles, and water craft. Another line of business added through acquisition was the 1997 purchase of Terre Haute, Indiana-based Specialty Blanks, Inc., maker of industrial aluminum alloy blanks used by cookware, lighting, and cylinder makers. The company also sold products to the automotive and aerospace markets for use in making wheels.
Ormet looked to increase its diversification by continuing to invest in capital improvements as well as external growth in the second half of the 1990s. At Burnside the company installed one of the largest cranes on the Mississippi River in 1996. That year also saw the advent of the Ormet Railroad Corporation, a shortline railroad formed when the company bought a 13-mile stretch of railroad track from the Hannibal rolling mill to Powhatan, Ohio. Ormet bought a majority interest in Formcast, Inc., in 1997. Formcast was a Denver, Colorado-base semi-solid metal caster, the addition of which complimented Ormet's Velvetflow billet business. Ormet also added to its recycling capabilities in 1997, acquiring SPL Recycling LLC and Vortex Corporation. In 1999 Ormet's Formcast unit acquired Buhler North American Casting Development Center from Buhler A.G,. a Swiss manufacturer of die casting machines. Other investments in the late 1990s included the start of a truck fleet to serve customers within 300 miles of the Jackson plant, which also added continuous casting to its operations. In addition, in 1999 Ormet launched a $30 million upgrade of the Burnside Alumina Plant.
A downturn in the economy led to poor business conditions in 2000, ushering in a period of tough times for Ormet. By the end of the year about 200 hourly employees were laid off at the Hannibal plant. Almost all were recalled a few weeks, but this proved to be put a brief respite for the company and its employees. Complicating matters were negotiations with the United Steelworkers union that became protracted after the labor contract at the Hannibal plant expired in May 1999. Ormet was not alone in feeling the pinch. The aluminum industry as a whole suffered from the poor economy, a slump in the manufacturing of aluminum goods, depressed metal prices, overseas competition, and high energy costs. Moreover, Ormet was hit hard by escalating health-care costs.
In late 2001 Ormet decided to once again shutter the Burnside Alumina plant, a move completed in February 2002, because it was again cheaper to buy alumina than to produce it. Several months later Ormet restructured its management ranks. One of those moves included the creation of a separate position of president, filled by Michael Williams, a former U.S. Steel Corp. manager who had been with Ormet since 1999. Williams assumed some of Boyle's responsibilities to allow the CEO and chairman to focus on long-term strategic decisions. In November 2002, Boyle told American Metal Market, "During my 40 years in the aluminum business, I have never seen the U.S. industry in more trying times." Indeed, a number of aluminum smelters had gone out of business, part of a longer-term trend. In 1978 there had been 34 U.S. companies involved in the business, but that number had since dwindled to 13.
Alumina prices rebounded in 2003, prompting Ormet to reopen the Burnside facility. The company also decided to focus on its primary aluminum and mill products businesses. As a result in November 2003, Ormet sold its laminaton division in Iuka to Packaging Dynamics Corp. and was in the market to divest other non-core assets. By the end of the year the company also decided to cut back on mill production at the Hannibal site because alumina prices were so high, electing instead to sell on the open market the alumina Burnside produced that Hannibal would have consumed in making the primary metal.
During this time Ormet was still trying to negotiate a new labor contract and meeting with lenders in an effort to crawl out from under $225 million in debt, which the company was hoping to convert to equity. When those talks broke down, Ormet elected in February 2004 to file for Chapter 11 bankruptcy protection.
Ormet submitted a reorganization plan with the bankruptcy court in September 2004. It called for the New York-based private equity fund MatlinPatterson Asset Management to support the plan with a $30 million infusion of cash, in the process making it the company's largest shareholder. A few weeks later, as the plan of reorganization was expected to receive court approval, Boyle resigned from the company, saying that the timing was right for such a move.
Ormet finally exited Chapter 11 bankruptcy protection in April 2005 with Michael Williams serving as CEO. While the company possessed a clean balance sheet and a new line of credit, its future remained uncertain. In July 2005 Ormet retained a financial advisor, Jefferies and Company, Inc., to consider any offers to buy the company or other strategic arrangements. While Ormet was not sold, in November 2005 it divested some assets, exiting the milled products business. What remained was the Burnside operations and the Hannibal Reduction plant. The restructuring of the company included a relocation of its corporate headquarters from Wheeling, West Virginia, to Canonsburg, Pennsylvania, in 2006.
More changes occurred in 2006. In April, Williams resigned, replaced as president and CEO by Ken Campbell, a former executive at ICF Kaiser as well as Railworks, and HQ Global. A short time later labor talks resumed with the United Steelworkers union, and in July 2006 a contract agreement was finally reached.
Principal Subsidiaries
Ormet Primary Aluminum Corporation.
Principal Competitors
Alcan Inc.; Alcoa Inc.; Norsk Hydro ASA.
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