Ladish Co., Inc.
Ladish Co., Inc.
Sales: $226.77 million (1998)
Stock Exchanges: NASDAQ
Ticker Symbol: LDSH
NAIC: 332116 Metal Stamping; 336412 Jet Propulsion & Internal Combustion Engines & Parts, Aircraft, Manufacturing
Ladish Co., Inc. is a supplier of high-strength forgings for jet engines and other aerospace and industrial applications. The aerospace market accounts for about 90 percent of sales; jet engine forgings alone account for 70 percent. The company’s sales are concentrated in just a few major customers, such as Rolls-Royce, United Technologies (Pratt & Whitney), and General Electric.
According to the Ladish Co., Inc.’s official timeline, in 1905 Herman W. Ladish bought a steam hammer, setting himself on the track of becoming “Axle Forger to the Industry.” Expansion, both in facilities and in product offerings, continued through the 1930s, when Ladish spent $1 million upgrading its plant and began doing its own machining. New products included aircraft brake drums.
During the war years, components for critical U.S. aircraft originated at Ladish’s forge, including struts for B-26 bombers and propeller shafts for P-51 Mustangs. The company also supplied engine crankcases. In addition, it developed advanced, high-strength alloys and installed new hammers for forging them.
The company’s patented D6 tool steel found its way into early rocket motors. By the end of the 1950s, Ladish had installed the world’s largest counterblow hammer. The company was employing about 7,000 people in four plants.
A new plant was added in Kentucky in 1966, as the company continued to supply the space program. Ladish built a factory in Arkansas in 1975 to make industrial supplies. It continued to upgrade its Cudahy forging operation, making it larger and hotter. It produced steel-alloy forgings for use in nuclear equipment and oil wells.
Ladish was forced to contend with a strike in April 1979. While Ladish used alternate employees to keep its production lines moving, its clients such as General Electric searched for alternate sources. At the same time, two critical metals, titanium and cobalt, were in short supply. The strikes at Ladish and at Fafnir Bearing Co., another engine parts supplier, were settled in September.
Changing Hands in the 1980s
In July 1981, Armco Inc. of Middletown, Ohio, announced that it was buying a 53 percent interest in privately owned Ladish after highly secret negotiations. The stock acquisition agreement was originally worth $221 million, later upped to $286 million after ACF Industries of New York made its own offer. ACF already had purchased a five percent interest in Ladish in June. ACF increased its bid to $324 million in cash and stock in August. In preparation for the deal, the rather secretive Ladish revealed that it had sales of $486.3 million in 1980, surprising many analysts. Its earnings were $11.5 million.
This bidding war came at a slow period for the U.S. forging industry. Italy, West Germany, and Japan were beginning to develop considerable competition abroad. At home, Ladish was edged out of the leading independent producer slot by Wyman-Gordon of Worcester, Massachusetts, which posted 1980 sales of $550 million. Like the companies vying for control of Ladish, Wyman-Gordon was also bullish, however, investing $12.5 million in new tooling.
In November 1981, Armco received government approval for its takeover bid, then valued at $286 million worth of stock. Ladish’s forging operation tied in nicely with Armco’s alloy steel production and promised opportunities for further expansion. But it could not keep its prize acquisition for long. Struggling financially after years of losses in steel, oil-field equipment, and specialty materials, Armco sold Ladish to Owens Corning Corporation in 1985, along with Armco’s other aerospace subsidiaries, Hitco (reinforced composites) and Oregon Metallurgical Corp. (titanium), in which Armco had an 80 percent share. The total purchase price was $415 million.
Although the Hitco expertise that initially attracted Owens Corning seemed like a good fit, some analysts wondered how well the other acquisitions, such as Ladish, would work with Owens Coming’s existing businesses, centered around the stagnant construction industry. The new businesses gave Owens Corning an entry into the aerospace market, but also exposed it to the vagaries of defense spending.
Within two years, Owens Corning sold Ladish as it came under threat of a hostile takeover. Owens Corning, in fact, divested its entire Aerospace and Strategic Materials Group. An investment group, including members of Ladish management, then bought the company for $236 million. Investment bankers Gibbons, Green and van Amerongen and Salomon Brothers Inc. financed the deal.
Crisis in the 1990s
The early 1990s were catastrophic for the aviation industry. The Persian Gulf War stifled world tourism and a global recession compounded difficulties. Privately owned Ladish experienced its worst losses ever and was losing market share rapidly. In 1992 Ladish closed its Los Angeles forging operation as a result, eliminating 188 jobs. The closing left the company with three facilities, in Wisconsin, Kentucky, and Arkansas.
Payments on the buyback debt ($110 million in junk bonds) forced Ladish into bankruptcy in 1993. It emerged from bankruptcy protection in April. Although just two months in Chapter 11, Ladish suffered a lasting stigma, given the industry’s preference for long-term contracts.
Ladish lost between $15 million and $20 million a year in 1994 and 1995, on sales of $122 million and $115 million, respectively. Lagging a few years behind its larger competitors, the company embarked upon a massive competitiveness campaign. After turning to outside consultants for guidance, it initiated many of the employee empowerment measures popular at the time. Ladish kept employees notified of financial and marketing information via e-mail memos and periodic staff meetings. It also started an incentive payment plan.
The company employed “synchronous manufacturing” techniques of controlling work flow throughout its plants. Process improvements included reducing batch sizes. “Process mapping” involved input from all levels of production workers with the aim of removing unnecessary steps. Speaking to Aviation Week and Space Technology, a company executive characterized “the speed issue” as the key to improving costs as well as performance. Ladish also attempted to coordinate such improvements across the whole supply chain, from vendors to customers.
Ladish teamed with Paramount, California-based Weber to enter new markets. Weber’s 35,000-ton hydraulic press was more than twice the size of any of Ladish’s. Weber aimed to capitalize upon Ladish’s position in the jet engine forging market. Although in this instance another company brought a unique piece of equipment to the deal, Ladish was already the sole source for several products, such as certain massive rocket engine parts. Ladish had some of the industry’s largest presses and hammers.
Kerry L. Woody was named president in 1996. The company employed 1,075 at the time. Annual sales were $162 million, with profits of $2.1 million. During the year, Ladish sold its industrial products division to Trinity Industries for $36.5 million to better focus on its core business. The company bought Stowe Machine Co., Inc. in Windsor, Connecticut, for $9.5 million. That site employed 40, making jet engine components. Rival Wyman-Gordon bought Cameron Forged Products from Cooper Industries, reducing the number of competitors, but making Wyman, already the industry leader, an even larger player. Shortly after Ladish’s Kentucky plant flooded in March 1997, the company announced that it was selling its pipe fittings division, which also included a plant in Arkansas.
As a result of Ladish’s competitiveness regimen, by 1997 the company was acting like a lean, world-class supplier. Lead times and on-time deliveries improved drastically, and the company handled its raw materials inventories more efficiently as well. In addition, the aircraft industry as a whole was facing a boom time. A thousand employees enjoyed profit-sharing bonuses averaging $2,000 as a result of the improvements. The workforce had been cut in half during Ladish’s retooling.
In late 1997, the company announced plans to sell some of its stock on the market to raise capital and to enhance shareholder liquidity. Some shares, given to creditors in its bankruptcy settlement, already had been trading over the counter. The IPO was initially planned for $60 million worth of shares, later increased to $115 million.
The $86 million IPO in March 1998 raised $29 million. Ladish President Kerry Woody told the Business Journal of Milwaukee that the company had finally “arrived.” A couple of months later, however, one of the major investing groups disbanded, sending share prices tumbling.
Ladish is a leading producer of highly engineered, technically advanced components for the jet engine, aerospace and general industrial markets. The Company is a market leader in manufacturing large, complex forged components.
Ladish spent $1.6 million to upgrade its 15,000-ton hydraulic forging press in May 1998. By August it was planning a stock buyback and looking for other machining and forging companies to acquire to increase its product line and make its stock more attractive. At this time, the company was practically debt-free and aiming for 40 percent growth by 2000, mostly through acquisitions. Although the Asian financial crisis had begun to affect sales at Boeing and Airbus, sales of helicopters and business and regional jets were increasing. The company also had a steady business in replacement parts.
The booming commercial aviation market in the late 1990s kept suppliers working at full capacity. This led many to focus on improving on-time performance rather than worry about market share, according to a Ladish market survey. Manufacturers also chose to enter longer agreements with fewer vendors.
Ladish announced that it was cooperating with the Chinese aviation industry in 1998. It arranged to buy 1,200 tons of titanium ingot from Sino-Titanium. In July 1998, Ladish teamed with Falk Corp. to build a 30-ton gear for an Army Corps of Engineers hydroelectric power facility.
Concerned the company was being undervalued in the stock market, Ladish management announced that the company was buying back more shares in August 1998, further increased by 50 percent the following May. The company also instituted a poison pill plan in September 1998 to ward off potential takeover attempts.
On December 2, 1998, Boeing announced that it was cutting production 25 percent and laying off 48,000 workers. The worse-than-expected news worried suppliers on all levels of the still recovering aviation industry. To further compound Ladish’s difficulties, the firm’s 10,000-ton thermal press broke down later that month. The press was down for nearly three months, costing several million dollars in repairs and millions more in lost revenues. Afterward, Ladish was able to boast higher efficiency from the repaired equipment. The company also suffered the loss of partner Weber Metal’s huge 38,000-ton press, however, which was down due to a cracked cylinder. The joint venture had just begun to show results, accounting for four percent of Ladish’s total 1998 revenue.
Ladish posted profits of about $24 million a year in 1997 and 1998. Annual sales had climbed past $200 million. By early 1999, Ladish was reporting drastically reduced earnings, in part due to its press failure. Earnings continued to fall into the second quarter. As business slowed, Ladish offered its aging workforce retirement incentives. It then brought back apprenticeship programs to deal with a generational shortage of skilled labor. Despite all this, Ladish continued to invest for the future, buying precision machiner Adco Manufacturing of South Windsor, Connecticut. Adco employed about 30 people and was to be folded into Stowe.
Stowe Machine Co., Inc.
Principal Operating Units
Advanced Materials and Process Technology Group.
“Aerospace Purchasers Take Broad, Long-Term View,” Purchasing, October 9, 1997.
Camia, Catalina, and Dale D. Buss, “Owens-Corning to Buy Armco Business in Aerospace Materials for $415 Million,” Wall Street Journal, August 19, 1985, p. 1.
Gallun, Alby, “Area Aircraft Suppliers Hold Breath for Boeing Cuts,” Business Journal of Milwaukee, December 14, 1998.
_____, “Bucyrus, Ladish Emerge from Chapter 11 Shadow,” Business Journal of Milwaukee, March 10, 1997.
_____, “Firms Face Mass Retirements As Work Force Ages,” Business Journal of Milwaukee, March 1, 1999.
_____, “Ladish Files to Become Public Company,” Business Journal of Milwaukee, December 29, 1997.
_____, “Stock Buyback Plans: Investment Tools or Smoke Screens?,” Business Journal of Milwaukee, September 14, 1998.
_____, “Stock Offering Helps Ladish Take Off,” Business Journal of Milwaukee, April 13, 1998.
“Ladish Forges Ahead As Aerospace Rallies,” Milwaukee Journal Sentinel, December 2, 1996.
“Ladish Seeks Close Ties with Rocket Designers,” Space News, June 2, 1997.
Lank, Avrum, “Stock Sale Could Net Ladish Co. of Cudahy, Wis., $35 Million,” Milwaukee Journal Sentinel, December 24, 1997.
Mullins, Robert, “Ladish to Sell Fittings Division,” Business Journal of Milwaukee, March 24, 1997.
Rohan, Thomas M., “A Hush-Hush Deal for a Secretive Company,” Industry Week, July 27, 1981, p. 17.
Savage, Mark, “Cudahy, Wis.-Based Jet Engine Parts Maker Ladish Co. Plans Stock Buyback,” Milwaukee Journal Sentinel, August 26, 1998.
Schlesinger, Jacob M., “Owens-Corning to Sell Ladish Unit for $236 Million,” Wall Street Journal, January 21, 1987, p. 1.
“‘Strategic Buyers’ Having Hard Time Finding Good Deals,” Business Journal-Milwaukee, April 24, 1998.
Velocci, Anthony L., Jr., “Aerospace Suppliers Preoccupied with Possible Cyclical Downturn,” Aviation Week and Space Technology, May 31, 1999, p. 64.
_____, “Ladish Turnaround: Lesson for Industry,” Aviation Week and Space Technology, June 9, 1997, pp. 70–71.
_____, “Survey Highlights Conflicting Priorities Among Suppliers,” Aviation Week and Space Technology, August 10, 1998, p. 66.
Wetmore, Warren C, “Supplier Strikes Worry Engine Makers,” Aviation Week and Space Technology, July 23, 1979, p. 22.
—Frederick C. Ingram