7733 Forsyth Boulevard
"Our commitment is: To meet the needs of our customers with the highest standards of value, service, integrity and ethics; to provide our employees with a safe and healthy work place where each has an equal opportunity to succeed; to operate our facilities in such a manner as to protect the environment around us; to aim for a consistent and superior return on equity for all shareholders."
Spartech Corporation is everywhere. This company is the largest extruder of rigid plastic sheet and rollstock in the United States, and, with strategic partner and shareholder British Vita PLC, the largest rigid plastic sheet producer in the world. Spartech's 13 manufacturing facilities in the United States and Canada provide the plastic stock for such products as McDonald's golden arches, Shell service station signs, vehicle parts such as running boards, interiors and exteriors for recreational and other vehicles, spas, showers, bathtubs, burial vault liners, boats, refrigerators, and food and medical packaging. Sales of extruded sheet and rollstock account for approximately three-quarters of Spartech's revenues and capture more than one-third of this $1 billion domestic market. Spartech is also growing in two complementary plastics areas. The company's color and specialty compounds unit operates five plants in the United States and Canada and produces custom designed plastic alloys, compounds, color concentrates, and calendered film for footwear, lawn and garden equipment, cosmetics and medical product packaging, automotive equipment, loose-leaf binders, toys, fences, computer and computer cable housing, and many other products. Spartech's third and youngest operating division is its Molded Products group, which, with four plants in the United States and Canada, brings Spartech into thin-walled plastic food packaging, such as yogurt containers and plastic lids, and industrial containers; thermoplastic tires and wheels for lawn and garden equipment, refuse containers, and toys; and a line of tableware and houseware products.
Since 1991, Spartech has been led by President and Chief Executive Officer Bradley B. Buechler, who previously served as controller and chief operating officer for the company. In September 1996, Spartech made a second public offering (its first since 1968) of six million shares. Revenues of $391 million for that year generated a net income of $18.3 million.
A Bumpy Road to Success Since the 1960s
Spartech originated as Permaneer Corporation in St. Louis, Missouri in 1960. Founded by Allen Portnoy, Permaneer manufactured doors, paneling, furniture, and other wood products. The company was successful through the decade, and it went public in 1968. Portnoy took Permaneer on an expansion spree in the early 1970s, borrowing heavily. By the mid-1970s, the company was collapsing under its debt load, and in 1975 Permaneer's creditors forced Portnoy's resignation. One year later, Permaneer declared bankruptcy.
Portnoy was not ready to give up, however. In 1977, Portnoy joined with Lawrence Powers, a Wall Street securities lawyer with a background in public offerings and acquisitions, to form Spartan Manufacturing Corporation. Spartan won bankruptcy court approval to take over Portnoy's former company. Portnoy took the titles of president and chief executive officer, Powers was named chairman, and, together with general counsel Martin Green, they controlled some 80 percent of Spartan's stock. The partners, determined to avoid Permaneer's fate, attempted to protect Spartan by taking it on the then-popular diversification route. Over the next several years, Spartan built itself into a conglomerate of nine separate businesses, ranging from plastics to computer equipment to oil well pipe couplings, and including store fixtures, precision machines, copper tubing, and a computer lease brokerage business. These acquisitions took the form of leveraged buyouts or were arranged through secured financing. In its initial years, Spartan enjoyed the tax breaks brought by Permaneer's financial problems, helping reduce the income tax on Spartan's earnings. An early, yet troubled, centerpiece of the company was a plastic extrusion plant in Union, Missouri, a business that predated Spartan's formation. In 1980, the company acquired Alchem Plastics, with a plant in Los Angeles producing extruded custom sheet plastic, and a second plastics company, Koenig Plastics Co., a plastic scrap reprocessor, and bundled its plastics businesses under the Alchem name.
Spartan grew quickly. Starting with about $2 million in sales in 1977, Powers and Portnoy built annual revenues to $20 million in 1978, $56 million in 1979, and $79 million in 1980. And in those early years, Spartan's earnings appeared to keep pace, rising from $467,000 in 1978 to $1.5 million in 1979 and $1 million in 1980. Many of Spartan's businesses were already bleeding, however, when the company ran head on into the recession of the early 1980s. By 1982, Spartan was losing money--posting a loss of $4 million for the year despite sales topping $100 million--and Portnoy and Powers were besieged once again by creditors. Spartan began divesting its businesses as the company's fortunes continued to slide. Powers and Portnoy reorganized the company, renaming it Spartech, around its plastics and computer business. In 1983, the company posted a loss of $10 million. Relations between Portnoy and Powers also cooled. As Powers told the St. Louis Post-Dispatch, "I lost confidence in [Portnoy's] management of Spartech and he lost confidence in my willingness to follow his lead as we lurched from one dispute with creditors to another in 1982-83."
Portnoy and Powers agreed to split in 1983. Spartech, led by Powers, would keep its plastics business, while Portnoy would take control of the company's computer equipment business, spun off as Digitech. That company worked on technology that would allow computer speech recognition. But Digitech proved to be a money pit. Portnoy poured his personal savings and stock into the company to keep it afloat, but it finally went bankrupt in 1990.
Deja Vu in the 1980s
Powers, meanwhile, had been training as a manager, attending Harvard Business School's executive management program from 1982 to 1983. It was there that Powers hit upon the idea of restructuring Spartech around its plastics business to restore the company to profitability. Joined by Buechler, who took charge of the Alchem Plastics division, Spartech completed its divestiture of unrelated businesses and concentrated on rebuilding itself as a plastics manufacturer. The company started with negative assets of some $2 million, with sales of $24.5 million and a net loss of nearly $11 million. By 1985, however, the company had turned itself around, raising revenues to nearly $33 million and posting a profit of nearly $1.3 million.
Buechler oversaw the day-to-day management of the company at its Missouri headquarters while Powers, working out of his New York office, led Spartech on a new buying spree (and into renewed losses by the end of the decade). During the mid-1980s, however, Spartech grew strongly, retaining its focus on the plastics industry. In May 1985 the company made its first new acquisition, of Southwest Converting for $2.5 million in cash and notes, adding that company's $7.5 million revenues. But Spartech was already preparing two more acquisitions that would double the company's size. The first acquisition, of Adams Industries, with revenues of $25 million, extended Spartech into a new area of plastics, polyethylene film manufacturing. The second acquisition followed in January 1986, adding the $30 million Franklin Plastics, a specialty plastics compounder, as a third Spartech division. At the same time, the company began paying attention to its internal growth, stepping up its capital expenditures. By 1986, the company's revenues had climbed to $70.6 million, providing a net income of $1.5 million. Spartech's stock, which had traded as low as 50 cents per share, was beginning to rise. Yet Spartech was only starting on its newest acquisition drive.
By 1988, Spartech had added seven more acquisitions, including rigid sheet producers Atlas Plastics and Eagle Plastics; specialty alloy and compounder The Resin Exchange; polyethylene film maker Favorite Plastics, for $18 million; the Burlington South compounding plant from Occidental Chemical Corp., for $6.2 million; and Koro Corp., a Boston-based rigid plastic sheet producer. The acquisitions helped boost Spartech's revenues to $138.4 million by 1987 and to $221.8 million in 1988 and gave Spartech the lead in the rigid sheet plastic market. The company was also profitable, generating $9.4 million in 1987. Financing for this activity came in part with a $12 million dollar investment by Trust Co. of the West subsidiary TCW Capital in 1986, which also helped to head off a hostile takeover attempt, followed by $40 million raised through a $25 million debenture offering and a $15 million subordinated financing agreement, the latter arranged through TCW Capital.
By 1988, however, Spartech's profits were beginning to slip beneath the weight of its debt load, which, at $100 million, had reached an 11 to 1 debt-to-equity ratio. Profits fell to $3.3 million for the year. The Koro unit was failing (the company sold it less than a year after its acquisition), as was its Favorite Plastics acquisition, leading Spartech to charge that company with inflating its revenues prior to its acquisition by Spartech. The company looked to selling its profitable Atlas-Alchem division to help maintain its profits. Instead, however, the company agreed to sell 28 percent of Spartech's stock to British Vita PLC, the largest rigid sheet plastic producer in Europe, which had seven plants to complement Spartech's six U.S. rigid sheet plants.
By 1989, Spartech was again seeing red, in the amount of $12.7 million on $185 million. The loss included the closing of Spartech's failing polyethylene film division, the disposition of which was completed only in 1991. Spartech's losses continued, reaching $17.7 million for 1991, which included a charge for $12 million against the closing of its polyethylene film plants. Under pressure from Spartech's major shareholders, British Vita and TCW, Powers resigned from the company in October 1991. He was replaced as chief executive by Buechler.
Third Time's the Charm in the 1990s
Under Buechler's leadership, Spartech again regrouped, now around its rigid sheet and rollstock division and its compound group. With the polyethylene unit's losses gone, and the company's overhead reduced (Spartech closed Powers's New York office and consolidated its headquarters in Clayton, after paying Powers a parachute of some $2.5 million) Spartech again returned to profitability, posting $4.2 million on 1982's $168.8 million in revenues. Buechler next turned to reducing the company's $75 million in debt. In April 1993, he reached agreement with the company's creditors to convert $30 million of subordinated debt into new shares of common and preferred stock, reducing the company's debt-to-equity ration to 1.2 to 1.
Meanwhile, Spartech returned to expansion through acquisition. In January 1993, the company purchased plastic custom extrusion equipment and related business from Penda Corp., adding $15 million to company sales. That purchase was followed in March of the next year by the $8 million acquisition of Product Components, Inc., adding two new manufacturing plants and extending Spartech's plastic sheet line. In September 1994, Spartech, which had been looking to expand its Midwest operations, bought up the extrusion and color concentrates units of Wichita, Kansas-based Pawnee Industries, Inc. These acquisitions helped Spartech boost its share of the rigid sheet market to 28 percent, while expanding its compounding capacity as well. The company's revenues rose to $256.6 million in 1994, for net earnings of nearly $11 million.
To prepare for further acquisitions as well as a second public offering, Spartech raised $50 million in a private share placement and arranged an unsecured credit line of $40 million. By January 1996, Spartech moved to grow again, purchasing Wisconsin-based Portage Industries Corp. for $16 million and adding that company's $35 million in sales and two sheet extrusion and light-gauge thermoforming plants. The Portage acquisition boosted Spartech's total production capacity to 450 million pounds per year.
Having entered the thin-wall thermoforming business with the Portage acquisition, Spartech moved to consolidate that capability, and also to enter a new market, injection molding. In June 1996, Spartech acquired Montreal-based Hamelin Group, Inc., and its sheet extrusion, color concentrate, and injection molding units. The purchase, for $55 million, brought Spartech into Canada for the first time and added some $80 million to Spartech's revenues, while boosting the company's production to 550 million pounds. The acquisition of Hamelin's injection molding business was also seen as a strategic move for the company, bringing it into the consumer market, which offered less volatility during economic downturns.
Spartech's sales continued to gain strongly due to its acquisition, rising from $352 million in 1995 to $391 million in 1996. The Hamelin addition was expected to swell Spartech's revenues to more than $475 million in its 1997 fiscal year. The company also reported continued strength in its earnings, with income of $14.5 million in 1995 and $18.3 million in 1996. In September 1996, Spartech posted a second public offering of six million shares. With its stock, which had slipped below $1 per share in the early 1990s, trading at $9.50 per share, Spartech finally appeared to have found its course.
Principal Divisions: Extruded Sheet & Rollstock (Spartech Plastics; GM-Plastics); Color & Specialty Compounds (Spartech Compounding; Korlin Concentrates; Spartech Vy-Cal Plastics); Molded Products (GenPak; Hamelin Industries; Hamelin Enterprises).