Morse was a tailor-made opportunity for someone like Lambert, who had spent most of his business career turning around businesses for such huge companies as White Consolidated Industries, Rockwell International, and, for a few years, with Gulf & Western. Now 51 years old, Lambert wanted to be entirely on his own, and Morse gave him that chance. For $10.7 million in a highly leveraged buyout, Lambert acquired Morse and another, much smaller, cutting-tool company also owned by Gulf & Western. The deal was financed by a note from Gulf & Western and a revolving credit agreement with Barclay's Bank PLC, both of which were secured by the assets of the company.
Shortly after the deal was signed, members of Morse's union felt confident enough to celebrate the company's salvation. They cordoned off a block-long length of Bedford Street between the union hall and the plant and cheered loudly as Lambert climbed onto the back of a pickup truck and received a key to the city from the mayor. Lambert talked of the great days to come, and as they listened, Carver and Poineau almost allowed themselves to think, "At last, it's over." But it wasn't quite. Lambert had met all of the union's requirements for a buyer but one -- his capital resources were very limited. "We were relieved and pleased by him," Carver remembers, "but we were never not worried."
During the next year, as Morse regained lost ground, Lambert bought one small cutting-tool company and started another, and folded them into his parent company, Lambert Consolidated Industries Inc., based in Troy, Mich. Lambert had gone ahead with the acquisitions expecting that Barclay's Bank would adjust his financing formula to free up another $1 million -- according to his calculations, the additional loan would have been just enough to support continuing operations until internal cash flow took over. But Barclay's turned him down, and, in retrospect, Lambert admits he blundered badly. "I should have nailed down the financing first before I bought the companies," he says. "But there I was -- operating four companies on a formula only designed for two."
The reprecussions of Lambert's error were quickly felt in New Bedford. In the fall of 1985, unable to pay for all the raw materials to meet his volume projections, Lambert was forced to cut back production at Morse Cutting Tool Division by roughly 40%. The cutback, he now estimates, cost the company nearly $400,000 in sales. But more important, it reversed the company's momentum, and Lambert found himself meeting with Carver and Poineau to warn them of the company's impending cash-flow problems. Once again, Morse faced a life-and-death struggle. And, once again, Carver and Poineau could not help but wonder, "How long can this go on?"
Jim Lambert, however, was not Gulf & Western, and the union men responded by asking Lambert how they could help. Within a matter of months, the union membership agreed to forgo, for one year, its three weeks of paid vacation time, two holidays, a scheduled 25?-per-hour wage increase, and certain incentive benefits -- for a total savings to the company of nearly $1.1 million. In return, Lambert agreed to give union members and salaried employees 12% of the stock in Lambert Consolidated Industries, plus a 15% stake in a profit-sharing plan. The arrangement sealed what has become an unusually cooperative bond between a labor union and a company's management. And it is an arrangement that has stood both parties well as they together have petitioned the state government for additional assistance.
Massachusetts, like many of the old industrial states of the Northeast and Midwest, has lost its share of industries over the decades, only to see others rise from the ashes. But the process of industrial reforestation is not without hardship -- hardship that has fallen disproportionately on particular areas of the state and on a particular class of older, unionized workers. For some years now, it has been a political rallying cry of organized labor to protect such regions and such workers with legislation making it more difficult or more expensive for companies simply to close down their plants. And these proposals have met with the fierce resistance of business interests. Several years ago, Massachusetts opted out of that bitter debate by adopting a pastiche of programs for troubled companies and their workers, among them the Economic Stabilization Trust, which could make loans to troubled companies unable to secure financing from conventional sources. From the state Treasury, the trust received an appropriation of $6 million.
Morse Tool would have appeared to be precisely the sort of company that the Economic Stablization Trust was designed to help. But as with every other chapter in this story, this one was peppered with moments of nerve-racking uncertinty. In the hopes of securing a loan, Lambert and Carver met with state officials in Boston no less than a dozen times over a five-month period in the spring of 1985, coming away from their bureaucratic encounters alternately hopeful and depressed. At the insistance of one state official, Lambert traveled to New York to ask Gulf & Western officials if they would exchange their note for preferred stock in Morse Tool. But Gulf & Western, in a response Lambert found wholly understandable, rejected the idea out of hand, pointing out that it would stand to lose its first call on Morse's collateralized assets should the company fail.
Finally, after all the avenues were explored with the staff of the program and all the necessary information was provided, the Morse application for a $1.5-million loan came before the full board of trustees. The trustees were not enthusiastic. They were concerned that $1.5 million was not enough to meet the company's cash-flow needs.At the same time, they complained that the assets at the New Bedford facility, already highly collateralized, did not provide enough extra collateral even for the $1.5-million loan that was requested. Things were not going well.
