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The eBearing News
May 11, 2004
General Bearing Management
Revives Buyout Plan
copyright © 2004 eBearing Inc.
The managing shareholders of General Bearing Corp. (USA) revealed they have revived
plans to take the company private. The group had pursued going private in 2000-2001,
but the economic downturn, particularly across the manufacturing sector, forced them to abandon the effort.
Via GBC Acquisition Corp., the management team is once again considering a tender offer, priced
at $3.50 per share,
for the publicly-traded shares it does not already own. The offer price represents an approximate
14% premium over the average closing price since January 2, 2004
Collectively, the buyout group already owns a commanding 66% of General Bearing's outstanding
shares. That group consists of founder and Chairman, Seymour Gussack, CEO David Gussack, Director
Robert Baruc and Director Nina Gussack.
The group said its offer has several key contingencies. First, that the majority of outstanding
shares be tendered. Second, that sufficient shares are tendered to ensure the group at least
90% ownership. Third, obtaining not less than $6 million in outside financing.
General Bearing's previous management-led buyout effort was in 2000-2001.
During the dotcom and electronic technology boom of the late 1990's, most traditional manufacturers
found themselves on the outside looking in, left far behind in terms of business valuation and
stock price appreciation. While favored-sector stocks commonly traded at earnings multiples of 30 or more,
traditional manufacturers usually struggled to top 7.
In mid-2000, at what later turned out to be the tail end of that dotcom boom, and with its stock apparently
significantly undervalued, General Bearing's key management team revealed its intention to acquire all outstanding
shares and take the company private.
• click for the August 24, 2000 article
But funding tightened as the economy began to flatten out, even more so in the manufacturing
sector, which soured quickly. On August 24, 2000, the tender offer was extended to December 1.
• click for the August 24, 2000 article
At the December 1 deadline, it was extended to March 1, 2001.
• click for the December 1, 2000 article
Finally, on January 23, 2001, General Bearing signed a formal agreement to be acquired by the management
team for $6.50 per share cash, subject to financing availability.
• click for the January 23, 2001 article
In mid-April 2001, management suddenly rescinded its offer, abandoning the entire plan. The group
noted a key financing commitment had expired March 31, the lender citing rapidly declining
economic markets worldwide, impacting manufacturing in particular.
• click for the April 17, 2001 article
A major financial advantage came from their willingness and financial ability to wait out the
economic downturn. As the economy soured, General Bearing's stock price dropped along with the market in general.
By waiting out the downturn, the group now enjoys a significantly more favorable financial picture.
With the 2000-2001 tender offer pinned at $6.50 per share, this new $3.50 tender offer represents a 46%
savings for the group.
The driving forces behind these buyout efforts also changed dramatically during the intervening four years.
Where the dotcom-era management buyouts were generally driven by frustration with undervalued stocks
and fueled by easy access to capital, today's crop of management buyouts often reflect a pragmatic
approach to the burden of new corporate governance regulations.
Taking a company private not only controls the bureaucratic compliance cost burdens of doing business
as a publicly-traded company, but also frees management to operate far more autonomously.
But rapidly escalating direct and indirect costs of reporting and compliance -- Sarbanes-Oxley and board of director
requirements key among them -- are what have made going private financially and operationally viable again.
And those costs are high; General Electric (USA) recently reported it is now spending in excess of
$30 million just for the internal controls needed to satisfy Sarbanes-Oxley alone.
The downsides -- less public exposure, higher costs of capital, and less access to funding options -- are often
less important considerations for smaller, financially and operationally stable companies.
General Bearing management, in a letter to is board of directors outlining the decision, outlined a number
of key points, beyond reporting and compliance issues, behind its decision:
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With increasingly intense pricing competition in the bearing market, the costs of being public directly
reduce the company's competitiveness in the market.
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The stock's low price and liquidity mean it can't be used to make acquisitions and precludes its
use in employee compensation plans.
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The low market capitalization gives others, particularly customers, improperly perceive General Bearing
as insubstantial or lacking resources -- resulting in lost orders and restricted sales growth.
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Reporting requirements for public companies mean General Bearing has to disclose information that would
otherwise be kept confidential. Beyond sales and profits, this information can include the identities
of key customers, strategies, and the business' strengths and weaknesses. This information is therefore freely
available to General Bearing's competitors but the same information is not available about those competitors.
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The direct and indirect costs of compliance with Sarbanes/Oxley and other legislation are increasing,
and they significantly detract from management time available to focus on the business itself.
The company concluded, "In sum, due to these various factors, not only do we believe that the Company is not
realizing any of the benefits of being a public company, but, in fact, the Company is substantially inhibited
in its growth and development. We believe that the Company is, and will be, increasingly adversely affected
going forward by the costs and other burdens of continuing to be publicly held."
eBearing contacted General Bearing for comment about the management buyout, but the company's senior
management declined, citing common sense and SEC regulations.
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- by Bruce A. Carr
from individual research,
tips and commercial sources.
Unauthorized reproduction is prohibited.
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eBearing.com ... for everything that moves™
Entire contents Copyright 1999-2008, eBearing Inc. All rights reserved.
eBearing.com and "... for everything that moves" are registered
trademarks of eBearing Inc.
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eBearing.com ... for everything that moves™
Entire contents Copyright © 1999-2008, eBearing Inc. All rights reserved.
eBearing.com and "... for everything that moves" are registered trademarks of eBearing Inc.
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