Lear Siegler, Inc.

views updated

Lear Siegler, Inc.

220 South Orange Avenue
Livingston, New Jersey 07039
(201) 535-9522

Wholly-owned subsidiary of F.L. Industries
December 21, 1950 as Siegler Heating Co.
Employees: 29,725
Sales: $2.3 billion

Lear Siegler does not produce the fancy, executive jets that bear the Lear name. Rather, the companys products range from car seats and brakes to weapons control gear for military fighter planes. Its more than $2 billion-a-year annual sales comes from three major areas: aerospace-technology, automotive parts, and industrial-commercial. The company, however, is basically anonymous since its products are either unmarked or bear only the label LSI. But Lear Siegler, which went private in 1987, is an influential part of the manufacturing industry in the United States.

The company was incorporated in December 1950 as Siegler Heating Company. Originally a maker of climate control equipment, the company changed its name to Siegler Corporation after merging with Siegler Enamel Range Company Inc. in 1954. In that year, John G. Brooks, a flamboyant entrepreneur, and nine other associates bought the Siegler Corporation of Centralia, Illinois, for $3.3 million - $3.2 million of this money was borrowed for 24 hours at a cost of $60,000. Over the next decade and a half Brooks, who became Sieglers first president, established a reputation for supervising numerous startling acquisitions.

In June 1955, seven months after the merger, Hallamore Manufacturing Company, an electronics firm, became Sieglers first acquisition. During the 1960s, the company expanded rapidly. In 1962 Siegler merged with Lear Inc, an aerospace electronics firm, and changed its name to Lear Siegler Incorporated. The deal, which cost Siegler five shares for each seven Lear shares, nearly doubled the companys sales - from $96.2 million in 1961 to $190.8 million by the end of 1962.

In 1965 LSI (the short form of the companys name) acquired all assets of Hypro Engineering Inc (today operated as the Hypro Division) in exchange for more than 120,000 common shares. In 1966 it purchased American Metal Products Corporation, an automobile seating and furniture parts manufacturer, and Home Furnace Company (which today operates as a division of the company). In 1968 LSI purchased National Broach & Machine, a gear machine manufacturer.

LSI acquired Cuckler Steel Span Company (today operated as Cuckler Building Systems Division) in 1970. The purchase of the Haas Corporation (currently the companys plastics division) and American Industrial Manufacturing Company, a manufacturer of thermo, plastic, and fiberglass safety helmets, represented LSIs entry into plastics manufacturing.

In the early 1970s, LSIs luck changed for the worse. In 1971 the company, then a major subcontractor for the Lockheed L-1011 commercial jet programs, saw its earnings plunge when the project was suspended because of problems with the jets engine supplier, Rolls-Royce. Delays in other government projects, steep start-up costs at a modular housing factory in Hawaii, and a strike at General Motors also damaged the companys profits. By the end of the year Lear found itself involved in a major reorganization which involved consolidating five of its divisions and selling five others.

In January 1971, following a business dinner in Detroit, John G. Brooks had a fatal stroke at the age of 58. He had personally presided over more than three dozen acquisitions of mismatched, marginally profitable businesses which took the company into many different areas. Robert Campion, then company Secretary, followed Brooks as Lear Sieglers president and chief executive officer. Campions low-key approach permitted the company to fade into relative obscurity.

Campion had come to what was then the Siegler Corporation from Alexander Grant & Company, the companys accounting firm in Chicago in 1957. Campion, a staunch believer in corporate planning, became one of the most successful practitioners of growth through acquisitions and diverstiture. By the time he took charge of the company, however, LSI had acquired the reputation of being overstaffed and under-controlled. One of Campions goals for the company was to rebuild it, partially through diverse acquisitions and partly by extending its product lines. Campion believed that as an industry reached the end of its natural life cycle, it should be discarded. LSI, as a conglomerate, should periodically shed components that failed to meet productivity and/or profitability standards to prevent the company from stagnating and keep it growth-oriented. Campion wanted $2 back in sales for every $1 of total assets, on which he wanted to net 4 to 5 cents in profits.

Another of Campion goals was to improve LSIs management by re-educating the managers who were specialists in their field to be generalists sensitive to the needs of the whole corporation and concerned with long-range objectives. He took away their numbers and asked for long-range strategies in return.

By the mid-1970s Lear had acquired full ownership of the formerly 50%-owned American Avitron Inc, as well as Central Foam Corporation (now a unit of Foam Products Division). In 1977 and 1978 Lear sold four divisions. Campion anticipated that the troubled automotive industry would pass on their profit losses to their suppliers and divested many holdings in this area. By late 1979 Campion had removed the company from the axle-housing business and had started selling parts of the division that manufactured seats for cars and trucks. By this time, only 8% of LSIs automotive business resulted from the sale of original parts; the rest came from the safer automotive after-market or from selling specialized machine tools. As automakers began restructuring their assembly lines for the production of small vehicles for the 1980s, this machinery became increasingly popular.

In February 1984 LSI paid $282 million for the Bangor Punta Corporation, known primarily for its Piper Aircraft, Smith & Wesson law enforcement equipment, and Starcraft powerboats, camping trailers, and Cal and ODay sailboats. Starcraft, the largest U.S. manufacturer of aluminum boats, represented Lears entrance into the recreation industry.

LSIs Automotive Division, whose two major products were replacement glass and brake products, showed record sales in 1984. The Aerospace Division did (and still does) most of its business in the military sector. By 1979 the company had such a backlog of military orders that it seemed invincible to the impending recession. LSI provided digital fly-by-wire flight control systems for both Israels Lavi fighter aircraft and Swedens multi-role JAS-39 aircraft. The company expanded its military capabilities even further with the purchase of Developmental Sciences Inc., designer and manufacturer of small remotely piloted vehicles. Most of the companys military business, however, involved retrofitting older aircraft.

In 1984 LSI and ITTs cockpit voice recognizers were flown in Phase I of developmental testing in General Dynamics Advanced Fighter Technology Integration F-16 fighter plane. Budget limitations, however, forced the replacement of ITTs equipment with Texas Instruments for Phase II of testing. Both systems were considered for communications, navigation, weapons system status reports, and aircraft systems cautions control, which used computer-generated speech fed to the pilots earphones.

In early 1985 Lear bid on a $5.3 million contract for F-18 fuel tanks. The company, however, learned in February that Israel Military Industries would be awarded the contract. The company protested to the Pentagon, using the argument that the Buy American rules should have applied. When the Navy announced it would proceed with the purchase, LSI filed a suit in United States District Court in Los Angeles to block the Navys actions until the protest had been resolved.

LSIs lawsuit was the first to challenge the administrations decision to disregard the section of the 1984 Competition in Contracting Act that suspends action on a bid award that is under protest. The law - part of an industry-backed effort - was originally designed to increase competition for the lucrative military business by putting impartiality back in the bid process and makes the 25-day deadline on agency response to bid protest investigations a requirement. Both President Reagan and then attorney general William Smith, however, declared this section of the law an unconstitutional breach of the division of powers between the White House and Congress and ordered purchasing agents to disregard the law. The Navy agreed informally to delay the purchase pending more litigation

By mid-1985 LSIs main contribution to the automotive parts industry was metal seat frames. Lear built a plant within 15 minutes of a major General Motors plant in Michigan to meet the auto industrys growing need for rapid finish car seats that can be delivered within hours of an order. The location allows American automakers to operate with a smaller inventory and to design specifications like their counterparts in Japan.

In June 1986 the Zentec Corporation agreed to purchase LSIs Data Products division, once the leading supplier of low-end dumb terminals. LSIs decision to abandon the market came after its 17% market share in 1980 diminished to about 2 percent in 1985. Pressure from personal computer manufacturers and inexpensive overseas suppliers forced the company initially to shift designing, producing, and packaging of the equipment offshore, and then, finally, to sell.

Also in 1986, St. Clair Industries Inc. (a holding company comprised of four managers at the company) completed a leveraged buyout of National Broach & Machine Company, a gear machine and cutting tools manufacturer and engine builder that primarily served the defense and aerospace industries. Additionally, Nortek Inc. bought Lears Climco unit, the companys climate control operations.

Since purchasing Piper Aircraft in 1984 as part of the Bangor Punta deal, LSI has had to battle the general depression in the aviation industry. The glut of used planes, low demand, and high product liability insurance forced Piper to close two of its three plants in 1985. Piper was forced to pay over $50 million to cover the increase in its product liability insurance which cut into the companys already shrinking profits. By the end of 1986, LSI, faced with a possible takeover, made plans to sell Piper.

In mid-October the company announced talks with Drexel Burnham Lambert on a massive restructuring plan. In early October, LSIs shares inexplicably increased from the mid-50s to the high-60s. Some analysts speculated that several large traders scattered rumors of a hostile takeover bid to scare irregular trading in the companys stocks and to cause LSI to do something that could net quick profits. Other analysts believe that the sharp rise in stock prices, occurring just 13 days before LSI publicly announced restructuring plans, had a hint of impropriety. (In early 1987, Drexel Burnham Lambert was involved in a massive insider trading scandal, in what was referred to by some as a game of stocks and robbers. Several traders involved with Drexel pleaded guilty to the charges that they profited from early disclosures on restructuring and takeover.)

Analysts had for months prior to the disclosure, however, recommended LSIs shares as a possible restructuring or buyout candidate. By October Drexel indicated that LSI might consider recapitalization along the same lines as Colt Industries Inc., which had earlier in the year accumulated debt and reduced its equity in what was called a public leveraged buyout. LSI had been restructuring on its own since early 1985 by divesting all undesired divisions. By the beginning of November 1986, however, LSIs chief, Norman A. Barkley, doubted that the company could avoid a takeover.

As a means of protection against hostile bidders, LSI, along with more than ten other industrial conglomerates, reinstated the poison pill provision into their by-laws. The clause, designed to discourage raiders from making a hostile takeover bid, gave shareholders in the company the option to buy additional stock or sell their shares at a better than usual market price, thus making the takeover extremely unprofitable. The Securities and Exchanges Commission condemned the measure as not being in the best interest of the stockholder because it often reduced the value of the stock.

In November 1986 Wickes Inc, a clothing, furniture, and bedding manufacturer, made a friendly bid of $93 per share for LSI after AFG had offered $85 per share in late October. Wickes, who had agreed to purchase Collins & Aikman Corporation for $1.16 billion the week before, could not find adequate financing for the deal, and was finally forced to withdraw its bid in December. In that same month, Forstmann Little & Company (part of F.L. Industries), a New York investment partnership, launched a leveraged buyout of LSI. Forstmanns offer of $92 per share, or $2.1 billion, was better than AFG by $7 per share and was only $1 less per share than Wickes offer. Forstmanns advantage over its competitors, however, was its ability to obtain financing and not because its bid was the highest. The funds came from cash pre-committed by institutional investors.

Lear Siegler has seen more than 40 acquisitions and divestitures in its relatively short lifespan. Shaped by John Brooks and Robert Campion, the company grew from a maker of heating equipment to a manufacturer of auto and plane parts, and expanded from serving rural communities into a major subcontractor for the military. Talk of possible break-up plans and management changes are not encouraging for the company that was once thought of as an innovative member of the manufacturing industry.

Principal Subsidiaries

Aviquipo of Britain Ltd.; Aviquipo of Canada Ltd.; Aviquipo Holland B.V.; Aviquipo de Portugal, S.A.; Lear Siegler International Ltd.; Lear Siegler Industries Ltd.; Lear Siegler Properties Inc.; No-Sag Drahtfedern GmbH; No-Sag Spring Company Ltd.; Arroyo Insurance Company.; Brake Specialty Inc.; Bangor Punta Corporation; Bangor Punta International Capital Corporation; Bangor Punta Overseas S.A.; Société Jeanneau Constructions Nautiques S.A.; Producers Cotton Oil Company; South Lake Farms; Starcraft Recreational Products Ltd.; Certified Brake Ltd. (U.K.); Data Products Ltd.; Developmental Sciences Inc.; Developmental Sciences International Corporation; Lear Siegler International Corporation (FSC); Lear Siegler International GmbH; Lear Siegler International Italiana S.r.l.; M.H.E. Contracting Inc.; M.H.E. Contracting Ltd.; Rapistan-Industria e Commercio Ltd. (94% owned); Rapistan Lande GmbH; Rapistan Lande N.V.; Rapistan Lande S.A. (88% owned); Rapistan S.A. de C.V. (70% owned); Rapistan S.A. (89% owned); Rapistan Systems Ltd.; Rapistan van der Lande B.V. (90% owned); Société No-Sag Française (56% owned); Central de Industrias S.A. (40% owned); No-Sag Drahtfedern Spitzer & Company (50% owned); Rapistan Lande S.A. (Spain) (49% owned); LSI Avionic Systems Corporation.

Further Reading

Planning for Growth and Profit: The Success Story of Lear Siegler, Inc. by John G. Brooks, New York, Newcomen Society, 1970.