Cement maker Lone Star Industries, facing continued losses amid a building recession and tough foreign competition, filed for reorganization Monday under Chapter 11 of the U.S. Bankruptcy Code.
The Stamford, Conn.-based company, for many years the largest U.S. cement maker, said it had considered two buyout proposals from foreign buyers, but after weighing them and “other alternatives, concluded that shareholders would be better off if the company availed itself of Chapter 11.”
Lone Star said it intended to remain open for business as it sells assets and tries to complete a year-old program of restructuring around core operations.
The company, which lost $13 million on sales of $338 million last year, filed along with several subsidiaries in U.S. Bankruptcy Court in White Plains, N.Y. In its papers, Lone Star said that as of Oct. 31, its assets came to $1.066 billion and its liabilities totaled $703 million.
The company didn’t elaborate on the acquisition offers or the other alternatives it considered. A spokesman, James A. Powers, did not return repeated calls.
Lone Star stock fell $2.125 a share to $2.625 in New York Stock Exchange trading, suggesting that the market may have been taken by surprise by the filing.
In its statement, Lone Star sought to blame foreign competition, noting that the U.S. government recently found Mexican manufacturers guilty of selling cement below cost in the United States to gain market share. “Unfortunately, this ruling is several years too late,” the statement said.
However, some analysts say at least some of the blame lies in Lone Star’s strategy of selling off assets to raise cash, allowing it to pay a dividend that would keep its stock price high. Over the course of several years, the plan has forced the company to part with key assets, leaving it with weaker ones, critics contend.
“All through the ‘80s, they systematically sold or joint-ventured their best assets,” said Jonathan Goldfarb, analyst with Merrill Lynch & Co. in New York. While foreign imports and the building slowdown have hurt, “Lone Star has been very poorly managed,” Goldfarb said.
Among other assets, Lone Star sold all or parts of companies in Hawaii, California, Maryland and the Pacific Northwest, the analysts noted. In California, for example, Lone Star spent aggressively to expand its operations but then, in the past two years, sold about half of those assets, said Michael J. London, who resigned as Lone Star’s public relations chief last July.
“They’ve ended up holding the weaker assets,” said London, who operates a public relations agency in Trumbull, Conn.
Other events have hurt Lone Star’s credibility. Last year, it introduced a product called polymer-granite stone, then had to abruptly close down the production plant when it appeared that the manufacturing process didn’t work, said London.
In addition, Lone Star has been criticized for the alleged heavy expense-account spending of its chairman and chief executive, James E. Stewart. Business Week magazine cited internal documents showing that Stewart had spent $2.9 million in 1989 on an airplane, helicopter and lodging when his company faced deep difficulties.