RE: FMO
DJ Federal-Mogul's Miller -4: Six-Part Plan To Restore Co
25 Oct 19:09
In the meantime, Chief Executive Miller said Federal-Mogul has hired an
econometrics firm to ascertain the size of the liability and how best to deal
with it.
"We think it's prudent," Miller said. "Once we get the results in, everyone
can feel a lot more comfortable. We can deal with almost anything if we know
what it is."
Miller has also said he has six initiatives to put the company back in good
health. They include reorganizing the company's replacement parts businesses,
consolidating North American distribution and institutionalizing an investment
strategy.
Analysts haven't been nearly as optimistic about the initiatives, saying that
many of the ideas were around before. Miller contends, however, that the
initiatives weren't broadly used throughout the company and that he will work
to apply them everywhere this time around.
For instance, he said lean manufacturing practices were used at some plants
and but not all of them..
Miller said he'll also work to have better communications with investors. One
of the reasons the stock is so low is that Federal-Mogul didn't deliver on many
of its promises -- quarter after quarter earnings came in below analysts'
expectations, Miller said.
"My theory is to promise less and deliver more," Miller said. "We are going
to give a lot less forward guidance and go on a track record of delivering
results."
Federal-Mogul went on a buying spree in 1998 and is now suffering from
acquisition indigestion. The company spent $4.9 billion to buy companies such
as Cooper Industries Inc.'s (CBE) replacement auto-parts unit and T&N PLC.
About a year later the company issued a profit warning citing a declining
replacement parts market. Observers say it was a mistake to invest heavily in
the replacement parts market just as cars and trucks began lasting longer.
Analysts say Federal-Mogul didn't getthe return on the deals that they
expected.
Several disappointing quarters followed and last month Richard Snell resigned
as chief executive, resigned. Miller, who has been on Federal-Mogul's board
since 1993, became the interim chief executive.
"Dick (Snell) was the right person for the time that we hired him," Miller
said. "But things didn't work so well when he got to the integration stage of
managing the acquisitions."
Miller said the company is looking both "inside and outside" the company for
chief executive candidates and he said that Federal-Mogul is looking for
someone with a good operations background.
Despite speculation that it may be hard for the company to find a chief
executive given the bankruptcy controversy, Miller said the company has
"choices to make," and could hire a chief executive by Christmas.
It's likely that Federal-Mogul won't see a turnaround until 2002, said
Miller. He has already said he expects the fourth quarter to be rough, and 2001
won't be a "glorious year" because the company will begin bearing the costs of
the initiatives.
He didn't elaborate on what those costs would be.
Miller said the company is not looking to do more acquisitions and he
reiterated that the company is not looking for a buyer.
It's likely that there will be some plant consolidation in the quarters
ahead, but he said the company is not looking at any mass layoffs. A lot of the
job cuts will be made through attrition, he said.
Some analysts say they are supportive of Miller's plans to reverse the
company's condition, but remain wary about its future.
"I lean in his (Miller's) direction," said Charles Brady, an analyst with
Credit Lyonnais Securities. "In terms of the covenant violations, it's not a
non-issue, but I agree that a good relationship with the bank group can allow
the covenants to be reworked or adjusted."
Deutsche Banc's Blaschke said Federal-Mogul has a "reasonable shot" at
amending the covenants, but the company still may not be able to dodge
bankruptcy.
"My sense is that even if they do renegotiate, they'll have to sell
significant assets to pay down debt," Blaschke said. "Then there's a
possibility of an economic downturn before 2004. So we remain concerned about
bankruptcy."
-Jocelyn Parker, Dow Jones Newswires; 313-963-7800
(END) DOW JONES NEWS 10-25-00
07:09 PM |
