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Securities Company the Only Winner in Fruehauf Demise

May 10, 1989

DETROIT (AP) _ Overestimating future sales and the value of its assets when it went private led to the demise of Fruehauf Corp., which sold the last of its holdings to keep bill collectors at bay, analysts say.

The ultimate failure of the leveraged buyout attempted by the world’s largest maker of truck trailers could foreshadow trouble for other companies still trying to pay off debts incurred through restructuring, analysts said Tuesday.

In Fruehauf’s case, the leveraged buyout led to liquidation and the end of a 75-year-old company once among the top 200 manufacturing companies in the nation.

The projections on which Fruehauf based its leveraged buyout may have been fantasy, said Donald Ratajczak, director of economic forecasting at Georgia State University in Atlanta.

″When you’re dealing with the trucking industry, (projecting) five years without a downturn is absurd,″ Ratajczak said.

Fruehauf borrowed $1.5 billion to restructure itself in 1986 in the face of a hostile takeover attempt by investor Asher Edelman.

″The trailer business turned much too slow for them. They overpaid when they took it private,″ said Rolf W. Wagner, an analyst with Scott & Stringfellow in Richmond, Va.

The sale of Fruehauf’s Kelsey-Hayes division, which produces auto and truck wheels, will bring in $66 million in cash and $430 million in notes. Kelsey- Hayes is the company’s last significant asset.

Analysts at Roney & Co. in Detroit said it is doubtful Fruehauf management profited from the liquidation. However, Merrill Lynch, which handled the sale of various Fruehauf divisions and subsidiaries, received a windfall in fees and stock, said Tony Viscogliosi, a Roney analyst who has followed Fruehauf for the past 2 1/2 years.

″They’ve gotten six times their original investment in Class A shares″ by selling the company off piecemeal, he said.

Merrill Lynch spokesmen in New York did not return phone for comment.

Ratajczak said investment companies are calling the shots in the leveraged buyout game.

″The truth is, it’s being motivated out of downtown Manhattan. There’s a network of these firms out there trying to convince companies they’re worth more by restructuring. After the fees are through, these guys are out of there,″ he said.

Fruehauf’s peddling of assets began in 1987 with the sale of its fleet of 5,000 leased trailers. If the sale of Kelsey-Hayes to Varity of Toronto goes through, only Fruehauf’s nameplate on its trucks will remain.

Also in 1987, Fruehauf sold its international and domestic trailer rental operations, financial subsidiary, aerospace unit, heavy-duty auto group, 91 percent of its interest in Fruehauf of Canada, 60 percent of its European trailer operations.

Last year, it sold off the balance of its trailer manufacturing operations - its founding and main business segment - and its maritime operations, which included two ship yards, and its heavy crane manufacturing and heavy cargo handling equipment.

″It was clear that they were selling their businesses to pay down their debt to survive,″ Viscogliosi said.

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