They are ripe for the picking.
Walbro Corp. has always seen itself as a fiercely independent and innovative company, its entrepreneurial roots sunk deep amidst the barns and beet fields of rural Michigan. The company was formed in 1950 by Walter Walpole, whose formal education ended with a severe illness his freshman year in college. He rose from messenger in a Chicago bank to secretary-treasurer of the carburetor division at Borg-Warner Corp. After the war, Walpole left Borg-Warner and set out to live the dream he had privately nurtured for years.
That dream partook of the larger American one: the postwar growth of suburban, leisure-time affluence. Power lawn mowers, garden tractors, outboard motors, and chain saws, Walpole believed, would become as ubiquitous as cars and radios. He would make the fuel systems for the engines powering these devices. Walpole was 45, had five children, had cashed in his pension, and had taken out a second mortgage on his house.
Cass City in the early 1950s was a rural town drifting into eclipse, its local merchants desperate to bring in some industry. When they heard of Walpole's venture, they invited him to make a presentation. The meeting's mood turned tense when the town's leading banker interrupted Walpole in mid-speech, announcing to the assembled, "This man's bankrupt, and he doesn't even know it."
The banker stalked out of the room, never again to speak to the merchant who had introduced Walpole to the group. Walbro, however, did come to Cass City in 1954, after an insurance company loaned Walpole money for a one-story cinder-block building. To raise working capital, he went around town and sold $25,000 worth of stock in the fledgling company, which eventually made some local folks rich. A $1,000 investment in 1954, excluding dividends, is worth $150,000 today.
In 1957 the company moved into the automotive aftermarket, and in 1972, with sales at only $10 million, Walpole went for broke and took Walbro international, setting up a joint venture in Japan. Today Walbro, its joint ventures, and its subsidiaries supply such established auto manufacturers as Hyundai, Saab, Jaguar, and Detroit's Big Three. Walbro supplies Ford Motor Co. with 45% of its fuel pumps, Chrysler Corp. with 75%. In the early '80s automotive carburetors gave way to electronic fuel injection, but the company had seen it coming and was ready. Walbro has since taken away market share in electric fuel pumps from the century-old European titan and fuel-injection pioneer, Bosch. The company has also been chosen to design the fuel system in a major international joint venture to produce the Orbital two-stroke engine, an efficient power plant widely considered the prototype internal-combustion engine of the twenty-first century.
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Sitting in his 26th-floor office, high above the throb and pulse of midtown Manhattan, John Sheldon oozes self-assurance. The baritone timbre of his voice matches his assertive style of dress: dark-blue suit and brilliant-yellow tie offset by a pale-blue shirt. Sheldon, now 34, was the vice-president at Goldman Sachs who led the defense of Walbro in its fight against UIS. "More Walbros will happen in the future. Small companies will be more active takeover candidates than in the past," he says with conviction.
Why?
"Buyers are focusing more and more on acquisitions that will give them a competitive edge." Small companies, Sheldon says, tend to fit that bill. "Small companies tend to have features that are more attractive to an acquirer. They're cleaner; they're better run; they have lower overhead; they're more focused." Walbro, Sheldon argues, is one such "franchise." Its products, considered unique, are sought by established customers.
Sheldon proceeds to offer a more subtle assessment regarding small-company vulnerability. "Smaller companies tend to have extraordinary events in their lives that affect them profoundly because they are the creatures of their founder's being. The founder gets fired; the founder gets divorced; the founder dies. This is a dynamic that you pay attention to."
On January 1, 1987, Walter Walpole died, and UIS's Andrew Pietrini paid attention. "When the family took the stock over, we thought it would be to the benefit of everyone if we talked," he recalls. UIS's strength was manufacturing; Walbro's long suit was engineering. Between the two companies, Pietrini saw "a good fit." In May 1987 UIS began buying Walbro stock through its investment banker.
A good fit to Andrew Pietrini looked like craven opportunism to Bert Althaver -- who, in addition to being CEO, was Walter Walpole's son-in-law. He figured UIS was after Walbro's technology and markets, which his company had spent 15 not always lucrative years developing. And he wasn't going to stand by and see the fruit of that investment taken away. Specifically, UIS makes aftermarket mechanical fuel pumps, rapidly being replaced by electric fuel pumps -- Walbro's niche. In addition, Walbro has global exposure and supplies the OEM (original equipment manufacturer) market, advantages that UIS lacked.
When the 13D filing hit Althaver's desk, Walbro managers scrambled to find out what they could about UIS. They might as well have been sparring with a ghost. UIS was privately held. When the tender-offer filing arrived 10 days later, finally providing some financial information on Walbro's suitor, Althaver stiffened in his resolve not to sell the company.
To him, UIS appeared to be in the business of buying and selling companies. It lacked a focus. It owned 14 companies in businesses as diverse as candy making and electrical supply. Walbro treasurer Gary Vollmar noted that UIS, three times larger than Walbro, invested only 50% more per year in capital spending. For Walbro, heavily committed to R&D, this was a dark omen. Pietrini dismisses that fear, citing one factory UIS completely retooled when it just as easily could have shut it down. "We spend money where we need to spend it," he says.
