Category Archives: Manufacturing

Houston blank check company makes big merger deal

Steve Jurvetson

Graf Industrial Corp, which went public in October 2018, has announced that it has entered into a reverse merger agreement with San Jose-based Velodyne Lidar. Velodyne makes radar-like sensors used in autonomous vehicles. In 2005 it invented a real time 3D Lidar ( Light Detection and Ranging).

Velodyne was founded by David Hall and is backed by Ford, Baidu, Nikon and Hyundai Mobis. They will continue to own 80% of the combined company after the deal closes in the third quarter.


The proforma enterprise value of the combined entity is $1.6 billion. Graf will issue $1.5 billion in new stock to existing Velodyne shareholders. Cash sitting on the Graf balance sheet ($117 million) and from the issuance of $150 million of new shares to institutional investors will be used to add $190 million of cash to Velodyne’s balance sheet and to pay $50 million to the existing Velodyne shareholders.

For 2018 through 2020, Velodyne has negative EBITDA of approximately $50 million each year. Its revenue of approximately $100 million in 2020 is projected to grow to $684 million.

Blank check company

Graf is based in NW Houston and was formed by blank check veteran James Graf. A blank check company is a company that goes public without any underlying business. Normally it has 18 months to make an acquisition, otherwise the money has to be returned. However, a company can ask its shareholders for an extension.

[Sentinel Energy, another Houston blank check company, went public in November 2017, failed to make an acquisition and returned funds to its shareholders two years later]. 

Purecycle deal falls through

Back in April, just before the proxy vote requesting an extension, Graf announced it was in negotiations to buy Purecycle, a PE-backed polypropylene recycling company in Ohio. Purecyle is developing technology (under license from Proctor and Gamble) that takes contaminated plastics and converts it into a reusable resin on a commercial scale. It’s not clear why this deal fell apart.

Earlier this week, the other Houston blank check, Landcadia Holdings II announced it would be buying Golden Nugget Online Gaming.

SEC Filing – Graf Velodyne reverse merger

Blue Bell Directors agree to $60 million settlement over listeria mismanagement claims

The directors of Blue Bell Creameries have agreed to a $60 million settlement resolving claims that their alleged mismanagement led to a deadly 2015 listeria outbreak. The deal has to be approved by the judge in the Delaware Court.

The Settlement

The Directors were part of the General Partnership (GP) that managed the ice cream manufacturer. They were sued by Mary Wenske, who owns a stake in Blue Bell’s controlling partnership. She alleged that the mismanagement caused a breach of the limited partnership agreement.

Blue Bell owes the GP $45 million in management fees and interest. As part of the settlement, this will be canceled. In addition the GP will pay Blue Bell $15 million in 8 installments by December 2021 (Technically, Blue Bell will pay the GP $15 million as a capital contribution which will then be returned back to the company as settlement proceeds).

Out of the $15 million, the lawyers in the transaction will be paid $9 million.

The Listeria outbreak

Blue Bell was formed in 1907 and is based in Brenham, TX.  The company has three production plants in Brenham, Broken Arrow (Oklahoma) and Sylacauga (Alabama).  Prior to to the listeria outbreak it had revenues of $850 million.

In February 2015, the South Carolina Department of Health and Environmental Control found listeria in a routine sample of products in a local distribution center that were manufactured in Brenham. The following month Kansas authorities identified 5 hospital patients with listeria who had eaten “Scoops” ice cream made in Brenham. They also found listeria in products made in Oklahoma.

In April 2015, Blue Bell voluntarily recalled all its products on the market. Ultimately, 3 people died from listeria. The plants were closed for a few months. Ultimately, Blue Bell paid a fine of $175,000 to the state of Texas.

In late 2015 it was reported that the Department of Justice was reportedly investigating the company but no charges have ever been filed.

The Aftermath

In July 2016, Texas billionaire, Sid Bass, agreed to lend the company $125 million. He also purchased a $100 million warrant to acquire 42% of Blue Bell.

More pertinently for the plaintiffs, after the shutdown, distributions to the limited partners were cut from $4,000 per unit, paid quarterly, to $0 per unit.

According to the lawsuit, Blue Bell had discovered listeria bacteria in its Oklahoma plant on 5 separate occasions in 2013 and 10 more occasions in 2014. They never conducted a root cause analysis, nor increased the frequency of testing. A lawsuit filed by a different stockholder alleged that the Board were never informed of the listeria cases and did not have a process to review food safety compliance in its board meetings.

Under the terms of the limited partnership agreement, the GP was vested with exclusive authority to manage Blue Bell’s business and affairs, in accordance with ‘sound business practices in the industry’. The controlling partnership alleged that the GP, by ignoring the listeria found in 2013 and 2014, breached the agreement.

Blue Bell Directors Reach $15 Million Listeria-Outbreak Deal – Bloomberg







Building Products company appoints new CFO

Quanex Building Products has appointed Scott Zuehlke as its new CFO. He became the interim CFO in June 2019 after previous CFO Brent Korb was let go.


Quanex has a market cap of $635 million and is based in the Galleria area. The company designs and produces energy-efficient windows and doors fenestration products in addition to kitchen and bath cabinet components.

Mr Zuehlke has been with the company since 2016. Prior to that, he was VP, Investor Relations at Halcon Resources. The company had been conducting an executive search but elected to promote from within instead. Mr Zuehlke will receive a base salary of $330,000.

The company also appointed Mark Livingston as its new Chief Accounting Officer. He joined the company in February 2019, having previously served as the CAO of Omega Protein Corporation until it was taken private in December 2017.

Quanex also made similar moves with its General Counsel. It promoted Paul Cornett from the Deputy Counsel role and terminated the employment of Kevin Delaney who had been in the role since 2005. Mr Delaney will get a severance of $562,500 (representing 18 months’ of salary) and a pro-rata bonus for 2019.

SEC filing – Quanex Building Products – new CFO

Former employee charged with $10 million fraud

James Camp has been charged with $10 million fraud from his former employer, Lubrizol Corporation, based in Deer Park.

The 10-count indictment for wire fraud was returned in the Southern District of Texas. The indictment remains under seal. Therefore many details of the scheme have not been released.

Lubrizol is a provider of specialty chemicals. It was a public company until it was acquired by Berkshire Hathaway in 2011. Its corporate head office is in Ohio.

Mr Camp allegedly defrauded the company of $9,256,713 between April 1998 and November 2017. Camp submitted fraudulent invoices for laboratory services from two companies he owned. He then allegedly caused Lubrizol to issue payments to those companies. The indictment further alleges that he used the fraudulently obtained payments for his own personal benefit.

If convicted, Camp faces up to 20 years imprisonment on each count as well as a possible $250,000 fine.



Houston company settles with SEC over allegations of reporting violations

Omega Protein Corporation has settled with the Securities and Exchange Commission (SEC) over allegations that it misrepresented that it was in compliance with covenants on its loan agreements.

The company has agreed to pay a penalty of $400,000. Omega settled without admitting or denying the findings in the SEC order

Business financed by federal loans

Omega, which had its head office in west Houston, was publicly traded until it was taken over by Cooke Inc, a private Canadian company, for $500 million in December 2017.

The company’s biggest business is the production of fish oil for use as a protein ingredient in animal feed. It has facilities in Virginia, Mississippi and Louisiana. Historically, a significant source of Omega’s external financing was the federal government, which provided loans as part of a broader program to support the national fishing and acquaculture industry.

Pollution offenses

Omega had been a repeat offender of the Clean Water Act. It had pleaded guilty to criminal charges in 2013 over pollution in Reedville, Virginia. The company paid a fine of $5.5 million. It also made a $2 million payment to the National Fish and Wildlife Foundation.

In January 2017, it again pleaded guilty to criminal counts of pollution through illegal discharges at its Abbeville, Louisiana facility. This time the fine was $1 million.

The pollution in Louisiana actually occurred in December 2014. A whistleblower called the company ethics hotline in March 2015. This was before the company filed its annual report. However senior management only became aware of it a month later. This was because the hotline system Omega had put in place failed to notify the appropriate executives.

Breach of Covenant

As part of its 2014 annual report, the senior management of the company certified that it was in compliance with all environmental obligations. That was a covenant put in place on the federal loans after the first guilty plea.

The subsequent quarterly reports for 2015 also falsely claimed that the company was in compliance. In fact the company would have had to pay accelerated interest on its $21 million federal debt, if a default had been declared.

To make matters worse, a default on the federal loans was grounds for a cross default on the company’s commercial credit facility. Instead, during 2015, the company increased its commercial credit facility and used that to pay off the federal loans.

Executive bonuses

To put the $400,000 penalty in context, the 5 senior executives of Omega received cash bonuses of $1.9 million for the 2015 fiscal year.

CFO out at Houston Building Products Company

Quanex Building Products has let go CFO Brent Korb with immediate effect. Scott Zuehlke, VP of Investor Relations and Treasury has been appointed interim CFO while the company conducts an executive search.

Quanex has a market cap of $558 million and is based in the Galleria area. The company designs and produces energy-efficient windows and doors fenestration products in addition to kitchen and bath cabinet components.

Mr Korb joined the company in 2001 and had been the CFO since August 2008. He will receive 18 months of severance ($627,000) and a pro-rated target bonus for 2019 (approx $160,000). He will also receive 18 months of benefit premiums ($29,000). Unlike most companies, upon termination, unvested stock options and restricted stock are forfeited and do not vest.

Mr Zuehlke has been with the company since 2016. Prior to that, he was VP, Investor Relations at Halcon Resources.

SEC filing

Woodlands Food company appoints new CFO

RiceBran Technologies (market cap $91 million), based in The Woodlands, has appointed Todd Mitchell, as its new CFO. He replaces Dennis Dykes, who has resigned.

RiceBran processes and markets value-added products derived from rice bran to food and animal nutrition manufacturers and retailers. A year ago, it moved its corporate head office from Sacramento to The Woodlands to be closer to Arkansas and Louisiana, the major rice-growing region of the US.

Mr Dykes had joined the company in 2014 and was appointed to the CFO position in October 2018. He replaced Brent Rystrom who was promoted to the CEO position. It’s not clear whether Mr Dykes will receive any severance.

Mr Mitchell joins from Park City Group, where he was the CFO. Park City is a publicly traded software-as-a-service provider, based in Salt Lake City. Prior to joining Park City in 2015, Mr Mitchell spent many years working as an analyst on Wall Street.

Park City issued a press release yesterday, stating that Mr Mitchell had resigned to accept another opportunity that will allow him to spend more time closer to home in New York. (Technically The Woodlands is closer to New York than Salt Lake City!)

Mr Mitchell will receive a base salary of $235,000. He was also granted 125,000 restricted stock awards. He also receives a $10,000 relocation allowance which suggests he is not permanently relocating to The Woodlands.

SEC filing



Houston chemical manufacturer appoints new CFO

Kraton Corporation (market cap $1.2 billion), a chemical manufacturer with its head office near George Bush Intercontinental Airport, has appointed Atanas Atanasov as its new CFO.

Mr Atanasov joins from Empire Petroleum Partners in Dallas where he had been CFO since February 2016. Prior to that he was the CFO at NGL Energy Partners in Tulsa and spent 9 years at GE Capital.

Atanasov financial package

He will receive a base salary of $475,000 and a one-time cash signing bonus of $350,000. Mr Atanasov will also receive grants of restricted stock units (‘RSU’);

    • $350,000 vesting on the first anniversary
    • $250,000 vesting over 3 years
    • performance-based RSU’s worth $500,000 that vest on the third anniversary.

Mr Atanasov replaces Steve Tremblay, who left in November 2018 after 10 years as the CFO. Mr Tremblay received a severance payment of $0.8 million.

After Mr Tremblay left, Chris Russell, the Chief Accounting Officer, was appointed as the interim CFO. With Mr Atanasov’s arrival, he will revert to his previous role.

Kraton – high debt load

Kraton has been suffering from a high debt load ($1.5 billion) following its January 2016 acquisition of Arizona Chemical for $1.3 billion in cash. The acquired business hasn’t performed as well as expected.

In February Kraton announced it is considering selling its Cariflex business (revenues $180 million) which makes a synthetic alternative to natural rubber latex.

Class action lawsuit

There is currently a class action lawsuit against the current CEO and former CFO. It alleges that, in 2015 they told investors that they would save $70 million annually by completely overhauling the manufacturing process for Cariflex. This would involve a new proprietary technology that would allow production to be streamlined at a plant in Brazil. The lawsuit alleges that the CEO and former CFO didn’t tell investors about production problems in the manufacturing process. while selling $11 million of stock for personal gain.

SEC filing

Houston company planning IPO sold for $1.2 billion

Ipsco Tubulars, a pipe maker that was planning an Initial Public Offering, has instead been sold to Tenaris, which has its head office in Luxembourg, for $1.2 billion.

Ipsco has its head office in NW Houston and is subsidiary of PAO TMK, a Russian company. TMK bought the assets of IPSCO for $1.7 billion through a two-part transaction in 2008 and 2009.

IPO postponed in Feb 2018

Ipsco originally filed for an IPO in January 2018. It had planned to raise $500 million by offering 23.3 million shares at a price range of $20 to $23. That would have valued the company at $1.3 billion. Unfortunately, on the day they were due to price in February 2018, the Dow fell 1,000 points and they postponed the IPO.

In December 2018, they updated their prospectus with the aim of trying again. They hadn’t yet filed revised terms before the announcement by Tenaris.

Acquisition by Tenaris

Tenaris was virtually no presence in Texas until it bought St Louis-based Maverick Tube for $2.4 billion in 2006 and Houston-based Hydril for $2.1 billion the following year.

For the nine months ended September 30, 2018, Ipsco had revenues of $1.1 billion and adjusted EBITDA of $124 million. Both of those numbers are up 50% on the corresponding period in the previous year.

Tariffs and local competition changed the dynamics

The 25% tariffs imposed by President Trump on imported steel enabled Ipsco to raise prices to its customers. Its primary material input for its seamless steel pipe is steel scrap. Prices for scrap were not significantly affected by the tariffs, allowing Ipsco to expand margins. However, the tariffs caused Ipsco to reduce imports sourced from its Russian parent.

Tenaris recently completed a new $1.8 billion pipe mill in Bay City and thus increased its local competition to Ipsco. For these reasons, it appears the parent company decided they were better off selling Ipsco than going through with the IPO.


Building products company relocates HQ to North Carolina after merger

NCI Building Products (market cap $730 million) has completed its stock-for-stock merger with North Carolina-based Ply Gem. The deal was originally announced in July. NCI manufactures building products for commercial construction whereas Ply Gem does the same for residential.

The corporate office will relocate from NW Houston to Cary, North Carolina.

NCI shareholders own 53% of the combined company. NCI Chairman, James Metcalf, has become the Chairman and CEO of the combined company. Shawn Poe, current CFO of Ply Gem, has been appointed overall CFO. Interim CFO, Brad Little, has stepped down. He became acting CFO after previous CFO Mark Johnson left in June 2018.

(UPDATE 1-7-2019 : NCI announced that Shawn Poe is stepping down as CFO, effective May 2019. The company has launched a search for his successor).

Clayton, Dubilier & Rice, a PE firm based in New York, owned 34% of NCI. They originally gained a 68% stake in NCI in 2009 as part of a financial restructuring and gradually reduced their stake since then, through various means. In April 2018  CDR acquired Ply Gem and concurrently merged it with Atrium Windows and Doors. After the merger, they now own just under 50% of the combined business.

The stock price of NCI was $20.70 at the time the deal was announced. It is now trading at $11.19. That means that the enterprise value of Ply Gem has dropped from $3.7 billion at acquisition to $3.2 billion at closing.

SEC filing – Closing of transaction