Public or Private, NI Industries Seeks Long-Term Growth : Metalworking Firm Courts Change

In a sweep of change dizzying enough to befuddle the shrewdest financier, NI Industries has gone private, then public and private again since 1981.

“It’s been too confusing for a lot of people,” said H. J. Meany, chairman and chief executive of the Long Beach-based metalworking company, which makes everything from sink fixtures to door locks to missile casings. “A lot of ‘em just walk out of my office shaking their head.”

At a time when leveraged buy-outs and takeovers are gaining scrutiny and criticism from regulators and shareholders alike, NI has donned a succession of corporate hats, with apparently equal success and little public controversy.

The reason, Meany said in a recent interview, is that the company’s seemingly breathless changes have been dictated by “economic necessity” and orchestrated “in the clear light of day by reasonable people making reasonable decisions.”

“But most important, we’ve been well managed and successful,” said the 40-year veteran of the corporation.

“With those conditions, we didn’t have anyone on our back. None of this was done in the mode of the Carl Icahns or the T. Boone Pickens you read about these days,” he said, referring to investors whose names are often in the news for their hostile takeover bids for oil companies.

With a brush of the hand, Meany dismisses accusations “from the media” that the changes in corporate structure have been nothing more than “fancy financial footwork” that have damaged the company. Each change, he said, has benefited the company’s shareholders and customers and, most importantly, the company’s “prospect for long-term growth.”

Even though the machinations left many heads spinning, Wall Street always understood the purpose of the changes, he said. “But, then, people always understand it when they make money. That’s a universal language.”

Meany insists that NI always paid full attention to its operations throughout any surface turmoil, and the numbers seem to bear him out. Analysts at Kidder, Peabody & Co. in New York, for example, say that NI has given its stockholders a total return of 16% a year compounded from 1955 to 1980, a performance exceeded by only nine of the Fortune 500 companies.

Last year, NI’s net income rose 54% to $58.6 million on a 13% increase in sales--to $817 million--over 1983. Analysts predict that the company, though private, will have similar gains in 1985.

NI first went public in 1950, when it was known as Norris Industries, and became listed on the New York Stock Exchange in 1960. During the next decade, the Vietnam War boosted the company’s military sales to 85% of its revenue, so it decided to diversify by broadening its commercial operations through acquisitions and capital improvements.

But, between 1969 and 1972, two of the company’s key founders died, and, within five years, the surviving Norris family members decided that they wanted sell their 25% stake in the company. With the company’s stock selling in the $25 range on the open market, Meany said, “they weren’t successful in finding a buyer who would pay the price everyone felt the company was worth.”

Unexciting Products

Securities analysts who have followed the company agree that, although it is usually first or second in its markets, its products have never dazzled Wall Street.

“Who could get excited about such cyclical products as . . . equipment auto parts, hardware and defense (products)?” wondered one Kidder Peabody analyst, concluding that the company’s stock often has been undervalued as a result.

Enter Goldman, Sachs & Co., the company’s investment banker. Goldman, Sachs, in turn, brought in Kohlberg, Kravis, Roberts & Co., a merchant banking firm in New York, which arranged a leveraged buy-out for $430 million, or $43.05 a share, in December, 1981, and changed the company’s name from Norris Industries to NI Industries.

To raise money for the buy-out, NI borrowed $340 million “on our good name,” Meany said. It raised another $47 million by selling 17 million shares of newly issued equity to 12 institutions and 20 NI officers, including Meany, who paid $2.75 a share. Among the participating institutions were Kohlberg, Kravis as well as the Oregon state pension fund, Meany said.

The deal gave the Norris family members the price that they wanted, but NI now faced the Herculean task of reducing a debt that overnight had boosted its debt-to-equity ratio to a staggering 8 to 1.

The company was able to reduce its debt by $300 million by January, 1985, but there was “a kicker,” as Meany put it: The sum included $66 million from the October, 1983, sale of 6 million shares that, in one step, took the company public and put it back on the Big Board.

Analysts say that NI took “extraordinary” steps to modernize and strengthen its position during the 21 months that it was a private company. At the same time, however, disagreement grew between the 12 institutional owners and the 20 management owners.

“The institutions were more interested in a short-term payoff on their investment,” Meany said. “We were interested in a long-term growth for the company.”

Merger Offer

The difference of opinion never got nasty, he said, even after the company became public again. Instead, NI hammered out a deal to satisfy both sides: The company would go private, only this time not with a merchant banker and not with a leveraged buy-out.

The company’s savior, Meany said, was Masco Corp. of Taylor, Mich., and its affiliate, Masco Industries, companies that make metalworking and hardware products like NI’s. Masco wanted to merge NI into its operations and approached NI with the suggestion after hearing “through the grapevine” that NI’s owners were divided on how to run the company.

In January, when NI’s stock was trading in the $16-to-$18 range, Masco made a tender offer, paying $22 a share in the open market and $20 a share to the 32 equity owners involved in the leveraged buy-out, increasing their original $2.75-per-share investment more than seven times. By February, Masco had more than 94% of NI’s stock, and it expects to get the remaining 6% within a few months, Meany said.

Meany jokes that, to direct its many changes in legal status, NI’s “lawyers have sometimes outnumbered the production workers.” In truth, the company employs only three full-time lawyers, but its legal costs haven’t been cheap: In times of change it relies on the legal muscle of giant law firms like Davis Polk & Wardwell in New York and Covington & Burling in Washington.

“I suppose if I had my choice of any structure, I would prefer a private company whose owners were growth oriented,” Meany said. “The next best would be a public company with a wide diversity of shareholders, so no small group could control things.

“But the fact is, none of this really changed my life very much. No matter how the company’s run, you have to concentrate on day-to-day operations,” he said. “The fact is, we now have a very strong company that our customers can count on. That’s the bottom line.”