R.D. Hubbard : AFG Founder Flexes Takeover Muscles on Own Company
He is a man for whom “winning is everything,” a self-made millionaire whose first job was hauling blocks of ice and whose most recent is heading up the second-largest flat-glass manufacturer in the nation: AFG Industries, formerly of Irvine.
Formerly, because R.D. Hubbard, 52, decided about eight weeks ago to take AFG private and then surprised the Orange County business world by announcing that he would move the firm’s headquarters to Ft. Worth.
A management group led by Hubbard, AFG’s founder and chairman, has offered to acquire all of the company’s common stock for $33 per share in a $940-million buyout transaction. The group’s tender offer ends today at 5 p.m. EDT. Although many investors and analysts thought the purchase price was too low, others applauded Hubbard’s decision, calling it both clever and gutsy.
Those are terms that Hubbard might apply to himself. His businesses prosper, his race horses win and his confidence level is very high .
By taking his company private, Hubbard is flexing takeover muscles that he has exercised in the past. In late 1987, AFG acquired a Ford Motor Co. auto glass subsidiary for an undisclosed price estimated by analysts at $100 million to $150 million. In March, 1986, the company bought two small chains of auto glass installers, and from 1982 to 1986, AFG bought an additional 10 glass companies in six states.
But Hubbard’s best-known takeover attempts in recent years were unsuccessful: a $2.2-billion bid for GenCorp, an Ohio-based conglomerate, in 1987, and a $1.5-billion bid for Lear Siegler, a Santa Monica-based aerospace and manufacturing firm, in 1986.
Hubbard has already sold his waterfront home in Newport Beach and has severed nearly all ties with Southern California. He spoke with Times staff writer Maria L. La Ganga hours before leaving Orange County. Two days later, the AFG office closed. Its new Ft. Worth office opened just days ago.
Q: How do you characterize yourself as a businessman?
A: To me, winning is everything. Whether it’s in horse racing or in business, whatever you’re in, to finish second is not where it’s at. I’ve got to say that I think that I’m a tough competitor, but I am not a foolish competitor. I guess you’d say I believe in taking risk, but I don’t believe in gambling. To me there’s a difference. An entrepreneur is going to take a risk, but the difference between being a risk taker and being a gambler is that when you take the risk, it’s a calculated risk and you know pretty well you’re going to win. Just to shoot craps is not where it’s at.
Q: Your company was founded in 1979, with its headquarters back East. When did you move west, and why Orange County?
A: We came to California in 1984. We were going to expand into the western half of the country with the Victorville plant, and we were looking to move our headquarters out of Tennessee. We wanted to move to a financial community where we had more connections with banking and also investor relations. We looked at the Dallas-Ft. Worth area and California, and we decided that, since we were going to be expanding out here, we’d go ahead and come out here. We’ve been extremely happy with the move from that standpoint. It really opened up a lot of avenues for us for financing as well as public relations and analyst research.
Q: On Feb. 25, you announced that you were taking your company private, and shortly after that, you decided to leave for Ft. Worth. Why leave?
A: Since we’re going private, we feel that we would be better off being centrally located. Our plants now are not only nationwide but also in Canada, as you know. And so our growth over the last four years has been rather substantial, and we’ve opened a lot of new facilities in that period of time. I’d say that we’ve got at least 30 different locations since we’ve been out here--additional locations--here and in different parts of the country. So when you look at the flying time, when we go back East from here, we’ve got a 5- to 6- hour trip coming back. I travel at least 50% of the time, and it gets tiresome after a while.
Q: What gave rise to the buyout?
A: We’d looked at lots of alternatives over the last two or three years. Everything changes from time to time. We felt that from the standpoint of the stockholders, the price of the stock was not reacting to what we felt the value was. We had put out our projections based on what we thought we were going to do this year, which I thought were outstanding. We said our sales would be up around 35% to 45% and earnings would at least equal that. The marketplace really didn’t react. We thought that a way to maximize the shareholders’ value was to take it private.
Q: Meaning that they would be better served if you bought it out?
A: Well, the price of the stock was around $23 a couple weeks before the buyout. So we came in at $33, which is almost 50% premium over what it had been trading at.
Q: Some people we had talked to--investors and analysts--thought that $33-per-share offer was low. Didn’t Forstmann Little make a higher bid?
A: Forstmann Little never made a bid. They came in and said that they would entertain making a bid. They wanted to look at some confidential information, which was presented to them. After they had that information, they made the statement that they didn’t feel that it fit their acquisition criteria. Which would indicate to me that they felt that our offer was fully valued.
Q: So it wasn’t anything they saw in your books that was negative? Rather it was that your bid was viable?
A: I can’t speak for Forstmann Little. I’ll just say that they did a very thorough due diligence and were very honorable in what they did in talking with management and everything. All I know is what their press release said--that AFG didn’t fit their acquisition criteria.
Q: Were you intending from the beginning to take AFG private, or were you merely putting the company on the market and inviting offers?
A: The only thing we thought about doing was taking it private. We didn’t look at anything else. We knew when we made the offer that we were inviting other people in. The way it turned out, Forstmann Little was the only one that showed any interest. They declined to bid, so that was the extent of it.
Q: Were you sorry to see them not bid? Would you have invited a substantially larger bid?
A: Well, since I was the largest stockholder, I would have welcomed a larger bid.
Q: Was it all due to the fact that the market didn’t respond to the worth of your company?
A: That was the main reason. We also felt that sometime down the line we were going to be vulnerable for a takeover, and I would rather--on behalf of the employees and everything--sort of set our own destiny and know who was going to be running the company, than have somebody else. It was a combination of those two things.
Q: You’ve been on one side of takeover attempts and you didn’t want to be on the other?
A: No, not necessarily. Under the right scenario, I’d have probably welcomed it. But where you don’t have control over what that scenario is, that’s the problem.
Q: You could have thought this up six months ago or six months down the line. Why now?
A: Well, I think market conditions are the reason for the timing. The analysts didn’t seem to be very happy with the fact that we made the company over $40 million in the last two years after taxes. They were concerned about us expanding or making acquisitions outside of the glass industry. And so if we weren’t going to be doing that--which I told them I wouldn’t do for the next year or two--and we knew pretty much what our cash flow and everything were going to be, we felt that we needed to put that money somewhere. What better investment than the one company that we know more about than any other company? So we’re investing the money in our own company.
Q: Why in past years did you stray from the fold? You were heading up a highly successful company and you decided to instigate the takeover moves for GenCorp and Lear Siegler. What makes a person decide to do that?
A: First of all, I don’t think I strayed from the fold. I thought I was doing what was in the best interests of the shareholders, and I think that the money we made definitely turned out to be that way.
Q: You made about $9.25 million when you aborted your efforts to take over GenCorp and $18 million when your Lear Siegler efforts ended?
A: And we made another $10 million to $12 million or so on an investment in (an Arizona savings bank called) MeraBank that we had. But over the two years I think it amounted to $40 million. That’s after taxes. Anyway, the Lear Siegler deal had really to do with the auto glass division. It was a way for us to enter the auto glass division, which we were not in. They were No. 1 in the United States. It’s a company I was very familiar with, that I worked for for a number of years, over 10 years. And so it was a natural, a very natural acquisition for us. We would very much have liked to have completed that acquisition.
Q: Some people, on the one hand, contend that takeovers are misallocation of resources. They say that the money spent to take over a company could be spent building something new or reinvesting it in your original company.
A: Well, I think each case is a separate deal. What we look for is undervalued assets, a company that’s not maximizing the return on their assets. I think that with both LSI (Lear Siegler Industries) and GenCorp that proved to definitely be the case. I can’t remember when we started buying the LSI stock, but it was in the high $40s, I think. The company was bought out at $92 a share, which means that the stockholders were sure not getting the value on their investment. The same happened in GenCorp. We started buying the stock there at around $50 a share, and it was ultimately sold for $118 a share. So I think we enhanced the shareholders’ value tremendously. The shareholders take that money and reinvest in other companies, which keeps the economy moving. I’m very positive from the standpoint of takeovers--whether it’s friendly or unfriendly.
Q: So you think that they benefit everyone in the long run under almost all circumstances?
A: I certainly do, in almost all circumstances.
Q: Under what circumstance do they not benefit all parties?
A: You’d have to tell me.
Q: It didn’t hurt Lear Siegler at all? When they were not taken over by you they ended up being taken over by Forstmann Little and lost all corporate identity.
A: I think you’ll find that Lear Siegler still has a corporate identity and is still in existence. What’s happened is that the corporate office has been closed. Those people have been reduced. But the other plants and employees are still working and expanding.
Q: Why did you decide to stop your takeover efforts--at least temporarily?
A: With the expansion we had going on at AFG--the Victorville plant, a new plant in Kansas City that we have under construction and then the acquisition of Ford Glass in Canada--we thought that we had enough to keep us busy for a year or two.
Q: Are you going to start over again?
A: I have no idea. I’ve got my hands full now by taking this private.
Q: In the time that AFG has called Irvine home, how have you seen Orange County change?
A: You can see Orange County changing every day. Look out the window. Last week, that whole piece of ground was completely covered with a building. Today, it’s gone. It’s amazing what they do. It was some big manufacturing plant. It was one story and covered that whole lot, that whole piece of bare ground. They come in last week and started ripping her down, and in a week’s time they had her leveled. Now they’re building something else.
Q: How do you rate Orange County in terms of business conditions?
A: I think it’s extremely good. It’s amazing to me that in a very short time we were accepted in the community very well, and I think the University of California at Irvine, for example, is a very strong addition to the area. The people there are very aggressive in giving the business leaders assistance. They have been very helpful to us in providing us faculty and things. If we had specific things we were interested in, they would work with our people. We like the area.
Q: Is it becoming more or less attractive an area in which to do business?
A: Oh, I think it’s going to become more and more attractive for the next several years. I guess the big drawback of course is the freeways, the traffic, but I don’t think that’s any more so here than in other parts, other cities.
Q: Why isn’t it attractive enough to keep you?
A: Well, I think, basically, if we were still going to be a public company, we would definitely stay here. Because, from that standpoint, there’s just a lot of pluses. But since we’re going to be a private company, we’re not interested in the investment banking community like we were before. The advantages of being centrally located versus being out here, in my opinion, are great.
Q: Compared to today, do you think the Orange County economy will be expanding or contracting by the end of this year?
A: Expanding. There’s just too much going on. In other words, I think the Orange County economy is going to continue to expand for the next several years, myself, even if there’s a slowdown in some of the rest of the area. I think Orange County is pretty well positioned to keep growing for the next several years. I won’t say it’s recession-proof, but it’s more recession-proof than a lot of other areas of the country.
Q: What do you consider the most and least attractive features of doing business in this area?
A: I don’t know that this has to do with doing business, but as far as having a company here, the cost of housing is least attractive. It makes it very tough to try and move people into the area, say, from our part of the country back in Tennessee. The advantage, though, is that everybody wants to live in Southern California. So one sort of offsets the other. They’re willing to maybe sacrifice a little in housing to be here.
