Category Archives: Manufacturing

Chemical manufacturer to be sold for $2.5 billion

Kraton Corporation Logo (PRNewsFoto/)

Kraton Corporation, a chemical manufacturer with its head office near George Bush Intercontinental Airport, is to acquired by DL Chemical for $2.5 billion.



About 50 years ago, Kraton invented styrenic block coploymers, a type of synthetic rubber that is strong, durable and flexible. The products are used in products as diverse as asphalt, roofing and diapers. The company was originally a unit of Shell, before being sold to a private-equity firm in 2001. It completed its IPO (initial public offering) in December 2009.

Its main manufacturing location is in Belpre, Ohio, though it also has major facilities in France, Germany and Sweden. The company also has joint ventures in Taiwan and Japan.

In 2016, the company acquired Arizona Chemical for $1.3 billion. In doing so, it pushed its leverage to almost 5x EBITDA. With hindsight, that turned out to be a poor move as the company was hit by the US-China trade war. In 2020 it ended up writing off $400 million of the $771 million goodwill from that acquisition. Margins in its legacy business also declined.

In early July, the company announced that it had hired JP Morgan to explore a potential sale. At the time, the share price was around $32 per share. DL Chemical, which is based in Korea, will pay $46.50 per share. Last year, DL Chemical acquired the Cariflex business from Kraton for $530 million.

The management team are in line for some large severance payments. Kevin Fogarty, CEO since 2008, will get a cash severance of three times base salary plus three times target bonus, or $6 million in total. All options and restricted awards will also vest. That could be worth around $20 million to Mr. Fogarty.

Atanas Atanasov, CFO since 2019, will get three times base and bonus, or $1.7 million. His restricted awards will also vest (I estimate this to be over $4 million).

The deal is expected to close in the first half of 2022.

SEC filing – Kraton sale

Cameroon man sentenced to wire fraud conspiracy

Frankline Bate Okpu, a Cameroon man illegally residing in Houston, has been sentenced to 36 months in prison for his role in stealing $726,000 from a South Korean company.

Okpu managed a team of eight. Seven have previously pleaded guilty. One man, a Cameron native and formerly residing in Dallas, is a fugitive at large.



The South Korean company involved was Daesang Corporation, a leading producer of consumer foods and food additives. Also involved was JY Globalfoods Company (JY), a Korean trading company that acts as a bridge for international companies looking for Korean products or introduces foreign products to the Korean market.

Fake website

Okpu set up a fraudulent entity and fake website called Trinity Food Inc. This was a knock-off of a legitimate business called Trinity Foods Inc, based in San Diego.

Daesang wanted to import chicken and pork products into Korea to meet the demands from the Korean Moon festival holiday, held each year in the fall.  In June 2017, JY found the fake Trinity Food online and started communicating with ‘Juliet Vaquez”, “Ray Morgan” and “Albert”, purportedly employees of Trinity Food. In fact, these were false names created by the conspirators.

JY brokered the purchase of foodstuffs for Daesang and the conspirators sent two proforma invoices to Daesang for $128,250 and $598,400. In September 2017, Daesang paid the amounts into a Bank of America account in Houston in the name of Trinity Food, prior to the supposed shipment.

Money transferred to other accounts

That money was then withdrawn by the conspirators and was deposited into other bank accounts in Houston (at Regions Bank and First Convenience Bank). Some of the money was cashed through cashier’s checks in Los Angeles, Miami and Maryland.

Daesang never received the product they paid for and sought help from the US authorities.

After serving time, Okpu will be subject to 36 months supervised release and will have to pay restitution of $350,939.21. Sentencing has not yet occurred for the others that pled guilty.

https://www.justice.gov/usao-sdtx/pr/cameroon-man-sentenced-wire-fraud-conspiracy

 

 

 

Huntsman CFO resigns to take senior position with LDS Church

Sean Douglas, the CFO of Huntsman Corporation, has announced he is resigning to take a senior leadership position with The Church of Jesus Christ of Latter-day Saints. His last day will be July 1, 2021.

Huntsman, a chemicals company with revenues of $6 billion, is based in The Woodlands. However, it was founded in 1970 in Utah by Jon Huntsman, Sr. The Huntsman family is Mormon and just last month, it was announced that James Huntsman, his son (but not an employee of the company), was suing the church, accusing it of spending members’ tithes meant for charity on commercial purposes.

Mr. Douglas has been the CFO since January 2017. He joined the company in 1990, though he left the company between 2012-2015 to perform charitable services for the Church.

The company has initiated a search for a new CFO and is evaluating both internal and external candidates. The company expects to appoint a new CFO before July.

SEC filing – Huntsman CFO resigns

 

Houston SPAC to take space technology company public

Credit: Made in Space (a Redwire company)

Genesis Park, a Houston-based Special Purpose Acquisition Company (SPAC), has agreed to take Redwire, a space technology company, public.



Genesis Park went public in November 2020 in a $150 million IPO.

Redwire, is based in Jacksonville, FL and manufactures space-capable robotics, solar arrays and antennas, and other equipment used in space. It plans to manufacture and assemble components in-space using 3D printing. The company was formed in June 2020 from the merger of two companies, with backing from AE Industrial Partners. Since then, it has made five more acquisitions.

Redwire becomes the seventh space venture in the past year to announce a SPAC deal. It had revenues of $120 million in 2020 and is currently cash flow positive. By 2025, it expects to grow to $1.4 billion. The transaction values the company at $615 million enterprise value.

Its CEO, Peter Cannito, was previously the CEO of Polaris Alpha, a high-tech solutions provider that developed systems for the Department of Defense. He’s also spent 12 years working for PE-backed companies in the defense, technology and government services market.

Jonathan Baliff, the CFO of Genesis and former CFO at Bristow Group, will join the Board of Redwire as a non-executive director.

The deal is expected to close by June 2021.

Investor Presentation – Genesis Park Redwire

Third and Fourth James Graf blank check companies file for IPOs

Not to be outdone by Tilman Fertitta, James Graf has also filed initial public offerings for his third and fourth SPAC (also known as a blank check company). The second ($225 million) filed to go public two weeks ago.



Graf Acquisition Corp III will be a $300 million IPO, while Graf Acquisition IV will be a $150 million IPO. All three will have the same management teams and objectives and be based in The Woodlands.

Graf Acquisition Corp I ($244 million IPO Oct 2018) completed its initial business combination with Velodyne Lidar in September 2020 for $1.5 billion.

Mr. Graf has also been involved in several other SPACs

  • Platinum Eagle Acquisition Corp ($325m IPO Jan 2018) – reverse takeover of Houston-based Target Hospitality for $1.3 billion in Mar 2019.
  • Double Eagle Acquisition Corp ($500m IPO Sept 2015) – combined with William Scotsman for $1.1 billion in Nov 2017.
  • Silver Eagle Acquisition Corp ($325m IPO July 2013) – combined with Videocon d2h for $273 million in March 2015.
  • Global Eagle Acquisition Corp ($190m IPO May 2011) – combined with Global Eagle Entertainment in Jan 2013.

S-1 filing Graf Acquisition III

S-1 filing Graf Acquisition IV

Two more Houston blank check companies file for IPOs

On Friday 12 February, a record 28 blank check companies filed for Initial Public Offerings (IPO), including two old favorites in Houston. Tilman Fertitta filed for his 4th blank check company, Landcadia Holdings IV, while Graf Acquisition Corp filed their 2nd.



In case you are wondering why Friday was so popular it’s because it was the last day a company with a calendar year-end can file for an IPO using a September 2020 balance sheet.

Landcadia and Graf History

Landcadia Holdings IV filed for a $500 million IPO. As before, the shareholders are Tilman Fertitta and Jefferies. As before, they are seeking companies that operate in the consumer, dining, hospitality, entertainment and gaming industries.

  • Landcadia III just went public in October 2020 and raised $500 million in its IPO. Last month it agreed to buy The Hillman Group for $2.64 billion in a reverse takeover.
  • Landcadia II raised $275 million in May 2019 and acquired Golden Nugget Online Gaming (a Fertitta company) in December 2020.
  • Landcadia I raised $250 million in June 2016 and acquired Waitr in November 2018.

Graf Acquisition Corp II filed for a $225 million IPO, same as the first Graf IPO that was completed in October 2018. The CEO is James Graf. Graf I completed its reverse takeover of Velodyne Lidar in September 2020.

Popularity of SPACs

Special Purpose Acquisition Companies (SPACs) or blank check companies as they are also known, have really taken off in the past couple of years, mainly because of the disadvantages in the traditional IPO route where the process is long (6-7 months) and the valuation (i.e. price) at completion is uncertain.

Furthermore, the investment bankers like their IPOs to be heavily oversubscribed and for the share price to ‘pop’ on the first day of trading. But that means that the selling shareholders have effectively given up part of their returns to the new shareholders.

In contrast, a blank check company can go public in 2-3 months and then spend the next few months negotiating a deal in secret with a potential target company. In this way, both the original sponsor and the shareholders of the target can generate a better return.

S-1 Landcadia Holdings IV

S-1 Graf Acquisition Corp II

Houston Blank check company files for $150m IPO – but with a twist

Good Works Acquisition Corp has filed for a $150 million Initial Public Offering (IPO). It is a Special Purpose Acquisition Company (SPAC) or blank check company. It has its head office in the Galleria area.



The company doesn’t have any commercial operations. It is focused on finding a business that has experienced financial distress or has recently emerged from a financial restructuring. It is particularly interested in finding a business that has been hard hit by COVID-19 but has good prospects for a rebound. The company is looking for a business with an enterprise value of between $400 million and $600 million.

Management

Fred Zeidmann is the Chairman and CEO. He has served as Chairman of Gordian Group LLC, a U.S. investment bank specializing in board level advice in complex financial matters since December 2014.

Douglas Wurth is Co-Chairman and worked for JP Morgan for over 20 years. During his time there he served as the CEO of the Alternative Investments business and the CEO of the International Private Bank.

The third co-founder is Cary Grossman.  He co-founded Shoreline Capital Advisors, an investment banking firm focused on financial advisory services and middle market corporate finance transactions.

Donation to Non-Profits

Zeidman, Wurth and David Pauker, an non-exec director, have agreed to make available 750,000 founder shares (5% of the initial allotment) to be contributed to non-profit organizations, including those involved in the arts, human rights and the advancement of life sciences. These shares will be donated within six months of the IPO closing.

A spate of SPACs

Nationwide there have been a spate of blank check companies seeking to go public. According to the Wall Street Journal, so far, in 2020 there have been 75 new SPACs, raising $30 billion. This is more than double the amount raised in 2019.

In Houston

SEC filing – S-1 Good Works Acquisition

CEO resigns from specialty ingredient company after poor results

Brent Rystrom has resigned from his position as CEO of RiceBran Technologies after poor second quarter results. The company also announced that it had hired BMO Capital Markets to review strategic alternatives.



RiceBran is a manufacturer and marketer of products derived from rice bran. These are sold to food and animal nutrition manufacturers and retailers. The company moved its head office from Sacramento to The Woodlands in June 2018 so that it could be nearer the supply of rice in Arkansas and Louisiana. The company has revenues and a market capitalization of around $25 million.

Mr Rystrom became the CEO in October 2018. He joined the company as CFO in March 2017. He will receive a severance package of 90 days of base salary. Mr Rystrom will provide consulting services through the end of the year.

Peter Bradley, who joined the Board of Directors in July 2019, has been appointed Chairman and Chief Executive.

In the second quarter, the business had a negative gross profit margin of 20% as it got squeezed at both ends in the pandemic. Surging consumer demand for rice resulted in both large price increases and shortages for rough rice (a raw material input). As a result, the company had trouble maintaining output at its Arkansas mill. Customer development also slowed.

Houston blank check company makes big merger deal

Steve Jurvetson

[UPDATE 9-30-20 – Deal has been completed – Head office moved to San Jose]

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.



Valuation

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