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FASTENER HISTORY
1991 FIN – SPS Technologies Restructures, Announces Sale of Operations-Investor Group Offers Analysis

June 4, 1991 FIN – SPS Technologies, Newton, Pennsylvania, has announced a strategic restructuring plan intended to enhance shareholder value, improve profitability and focus the company on markets in which it enjoys a strong leadership position.
As part of the plan, SPS Technologies intends to divest certain real estate assets, all of its industrial fastener manufacturing and distribution operations in Europe and the Far East, and its Cleveland, Ohio, automotive fastener business.
Combined 1990 sales for these operations, according to SPS were $105 million, or 24% of the company’s total 1990 sales of $441 million.
The company expects that the divestitures will generate significant cash flow without requiring a restructuring provision.
SPS Technologies is a leading producer of high-strength aerospace fasteners and industrial socket screws, and a major producer of super alloys, magnetic materials, computer-controlled tightening equipment and assembly machines.
SPS Technologies has also appointed Eric M. Ruttenberg, a principal of Tinicum Enterprises, Inc. to its board of directors, effective immediately, pursuant to an agreement entered into with a group of investors including Tinicum. The investors own, in the aggregate, 7.3% of the company’s common stock. Ruttenberg will serve as a member of the class of directors whose term will expire at the 1993 annual meeting.
Under the agreement, the investors have agreed for a period of two years ending at the 1993 annual meeting, among other things, that none of such persons will solicit proxies or votes with respect to the common stock or, except in certain limited circumstances, make any offer or proposal to acquire the securities or assets of SPS or propose any transactions with the Company resulting in a change in control or a recapitalization or other extraordinary transaction.
FIN is running the following report on SPS, with some minor deletions because of space limitations, with the permission of Ellen Horing, vice president of research of Gabelli & Co., Inc. Gabelli Funds, Inc., an its various affiliated entities, to give you an idea of their involvement with SPS, own on behalf of themselves or their clients 29.34% of the outstanding stock of SPS Technologies.
The Gabelli group, which has been the subject of past articles in FIN, also has significant interests in RB&W; Federal-Mogul (the parent company of Huck Mfg); and Hi-Shear Industries.
Here’s the report:
SPS Technologies-Restructuring Again
On May 3, 1991, SPS announced another restructuring of its business. The company has decided to sell most of its non-U.S. fastener operations which generated sales of $105 million in 1990.
As a result of the restructuring, the fortunes of the company will be closely tied to the aerospace industry and the domestic machinery market. The visibility of earnings power from the company’s role in the aerospace industry has been enhanced. We expect earnings per share to double from a disappointing $2.25 in 1991 to $5.50-$6.00 in 1995.
What’s for Sale?
• World-wide industrial fasteners which include automotive, farm equipment, truck and other original equipment manufacturers.
• European industrial fasteners as well as Unbrako socket screws.
• All distribution businesses in Southwest Asia.
• Total sales for this group in 1990 approximates $105 million. Although the company has not disclosed financial data, we believe that operating margins are in the 5% area. The sales price has also not been disclosed. We estimate it to be about $50 million which should be approximate book value.
• Because of geographic and customer differences, it is possible that the businesses will be sold separately.
What’s Left?                                
Estimated ’90 Sales (millions)
*World-wide aerospace fastener mfg.            -$155
*Unbrako socket screws-domestic mfg.         -$65
*Assembly systems                         -$15
*Australian fasteners                       -$12
*Materials-Arnold & Cannon-Muskegon        -$89
TOTAL  $336
The criteria used to determine what would be retained were both quantitative and quallitative: The business must have the potential to realize operating margins of 15%; a return-capital employed of 15%; and working capital turns 5 times. In addition, the operation must have a strong leadership position.
The use of proceeds has not been disclosed. Initially, we expect the company to increase financial flexibility by decreasing debt. Another option may be to buyback shares (from family members?)
Implications
As a result of the restructuring, SPS will become more focused on the growing commercial aerospace industry. Boeing’s backlog at then end of the first quarter was 1791 airplanes. Deliveries in 1991 are expected to be 438 versus 385 in 1990 and will increase to 455 in 1992. In addition, the new 777 will begin flying in 1995.
Selling at a discount to its $36 per share book value and half of its private market value, we believe the stock will be helped by asset sales at book value (a level anticipated by the company). As these low profit businesses are sold, the earnings power of the remaining businesses will be recognized. Ongoing cash flow will be reinvested in more profitable businesses. We expect earnings per share to grow from $2.25 in 1991 to $3.50 in 1992 and $4.50 in 1993 and approximate $5.50-$6.00 in 1995.
Peace for Seats?
We would be remiss in not commenting on the May 2 announcement that Eric Ruttenberg has been appointed to the board of directors. Mr. Ruttenberg is part of an investor group, Tinicum Enterprises, which filed an initial 13-D on January 14, 1991 stating their intention to review alternatives to increase shareholder value including an acquisition of the company. In exchange for the board seat, the group has agreed to a two-year standstill agreement. It appears that SPS is trading peace for seats and going about it in such a way as to circumvent a shareholder vote. While we like Mr. Ruttenberg and believe that he will be a positive influence, we think this is simply a different shade of greenmail.

–END OF REPORT—

Fastener Industry News contacted SPS Technologies and spoke with Arthur Belden, chief financial officer, who responded to some questions posed by FIN. Belden wouldn’t comment on any of the speculation or estimates by Gabelli or comment on the section “Peace for Seats”, but he did say that the information about what is for sale and what is left is factual, except for the omission of SPS’s affiliated operations in Brazil and India, which SPS plans to retain.
Belden also responded as follows: 1) Regarding the Gabelli report’s statement about SPS’s use of the proceeds from the sale of operations, Belden told FIN that all options are open and that we would no be incorrect in assuming that after the pay down of debt, future acquisitions might be considered as an option. 2) Under the “Implications” section, Gabelli said that “as a result of the restructuring, SPS will become more focused on the growing commercial aerospace industry.” SPS said that it is already well focused on that industry. ©1991/2013 Fastener Industry News
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