Word: fruehauf
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Like the giant truck-trailers that carry its name across U.S. highways, Fruehauf Corp. was once an American institution. But to escape a corporate raider, Fruehauf in 1986 went private in a leveraged buyout that sent the company into a skid from which it never recovered. After borrowing $1.5 billion to repurchase its stock from shareholders, the Detroit company frantically sold one division after another to lighten its debt burden. To no avail: when it completes the sale of a subsidiary that makes wheels and brakes later this summer, Fruehauf, which had 1986 revenues of $2.7 billion and ranked among...
...demise of Fruehauf dramatizes the problems that could befall a growing number of leveraged buyouts as the U.S. economy softens. Touted as one of the hottest financial plays of the go-go 1980s, LBOs zoomed in annual volume from about $250 million in 1980 to nearly $45 billion last year. The buyouts included household names like R.H. Macy, Beatrice, TWA and Safeway Stores. In such deals an investor group, often headed by a company's own executives, uses bank loans and high-interest junk bonds to buy a firm and take it private. Almost without exception, the group immediately slashes...
...FRUEHAUF. The company's troubles began after takeover artist Asher Edelman launched a $1 billion hostile bid. Following the advice of Merrill Lynch, Fruehauf acquired Edelman's 10% stake at a profit to the raider of $120 million. Some 70 Fruehauf executives then joined forces in a leveraged buyout. But when the trailer division slumped in 1987 as cost-conscious truckers cut back on new orders, Fruehauf had to strain to meet interest payments, which had climbed to $101 million a year. As other divisions faltered, Fruehauf embarked on desperate cost-cutting moves and fire sales that have hollowed...
Victims of the collapse included Ronald Yoder, 37, who lost his job as a crane operator when Fruehauf shuttered its Fort Wayne, Ind., trailer plant in 1987. Yoder, who is married with a 17-month-old son, now earns about a third less than the $11.47 hourly wage he was paid at Fruehauf and receives no health insurance from his present employer. Says he: "Sure, I got another job, but I can't save a dime. We wanted to have another baby, but we can't afford it. I didn't know what an LBO was until a couple...
...Ryder decided to start up another firm to rival his own. Using $5 million of his own money and a fleet of trucks assembled on credit from Ford, Chrysler and Fruehauf, he launched Jartran (an acronym for James A. Ryder Transportation) in Coral Gables, Fla., under the noses of his former colleagues...