Marquardt: Once-Bright Future Has Splintered : Litigation: The once-thriving Van Nuys weapons maker has broken up into three firms. One, in bankruptcy court, is suing its former parent company.
Four years ago, the Marquardt Co., a Van Nuys-based weapons maker, had more than $100 million in defense contracts, 1,100 workers and what looked like a rosy future.
Today the company has been broken up into three businesses. One of them is in bankruptcy court and is also suing its former parent company in a dispute over assets, including the rights to what could be a lucrative tank-bomb business.
It’s a complicated, messy case with the parties battling each other in Superior Court in Van Nuys and the Federal Bankruptcy Court in Los Angeles.
The breakup started when Britain’s struggling Ferranti International PLC began to liquidate the old Marquardt Co. In August, 1991, Marquardt Co. sold one of its main businesses, making parts for the tank bombs--called Rockeyes--and other weapons in a leveraged buyout to a group led by Leonard D. Kristal, a former investment banker who lives in San Francisco, and Ronald Spire, a Los Angeles investor.
The group formed a new company called Marquardt Manufacturing Inc. (MMI), which is still in Van Nuys.
In December, 1991, Marquardt Co. then sold its other main business, a rocket-propulsion division, to privately owned Kaiser Aerospace & Electronics Corp. in Foster City, Calif. Now called Kaiser Marquardt, and still based in Van Nuys, it makes propulsion systems used on the space shuttle and satellite rocket-thrusters.
The sales of Marquardt Co.’s former businesses within four months created confusion over which buyer was getting which assets, said Kristal, MMI’s chairman and chief executive. The conflict escalated when Marquardt Co. and MMI clashed over the terms of an agreement allowing Marquardt Co. to repurchase some assets.
The dispute heated up in July, when MMI sued Marquardt Co. and Ferranti in Superior Court in Van Nuys. MMI alleged, among other things, that Marquardt Co. retained “several million dollars” in government-contract checks that belonged to MMI and withheld equipment, including machine tools for the Rockeye tank bombs that Marquardt Co. had agreed to deliver to MMI.
“We haven’t done anything improper to MMI,” said James P. Shinehouse, president of Ferranti’s U. S. subsidiary, Lancaster, Pa.-based Ferranti International Inc., in an interview.
Marquardt Co. largely financed the MMI transaction by accepting a note from the investors for $3.7 million. The MMI buyers also assumed $1.6 million of Marquardt’s liabilities.
Because of the current dispute, Kristal said, MMI has stopped making payments to Marquardt on its $3.7-million note.
In one sense, the Rockeye bomb business is a key part of the dispute. Before the MMI buyout, Marquardt made parts for the Rockeye bomb. According to Kristal, the Rockeye business brought in an average of $60 million a year between 1981 and 1991 from sales to the U. S. government and other countries.
Now, MMI doesn’t just want to make Rockeye parts, it also wants to assemble and sell the bombs, said Spire, MMI’s president. A type of cluster bomb, the Rockeye is designed to knock out tanks and other heavily armored vehicles. It is released from an airplane in a one-piece canister, which splits in flight, scattering hundreds of dart-like “bomblets” that cause explosions. The Rockeye was used in the Persian Gulf War.
“The Rockeye is a highly profitable business,” MMI’s Spire said. “The overriding issue here may be Marquardt (Co.) wanting to get MMI back entirely so it can be in the Rockeye bomb business.”
Not true, said Shinehouse. “We have no desire to have that business back. That’s why we sold it in the first place. We just want to be paid for the business we sold.” Marquardt Co.’s parent Ferranti makes and sells Rockeyes through Ferranti International Inc., another subsidiary in Lancaster, Pa. Shinehouse said.
In February, after MMI had stopped paying on the $3.7-million note, Marquardt Co. declared MMI in default and tried to sell “substantially all of MMI’s assets,” according to MMI in a court document.
MMI responded by asking Superior Court to block the sale, which would have put MMI out of business, Kristal said. When the state court didn’t act immediately to prevent the sale, MMI then filed Chapter 11 in March to protect itself.
Three days later, a Superior Court judge agreed that the sale shouldn’t proceed and ordered MMI and Marquardt to meet with a court-appointed receiver to try and resolve their differences.
Now, MMI has asked the bankruptcy court to let the company out of Chapter 11. The judge supervising its bankruptcy is scheduled to consider the request in a hearing tomorrow.
Kristal contends that MMI is financially healthy. “I see no reason why we wouldn’t be allowed out” of bankruptcy, he said. In court documents, MMI estimates both its assets and liabilities at less than $10 million. The company is down to 40 workers, about half the number it had in early April.
The original Marquardt Co. is basically now a landlord. It owns 56 acres and several buildings, including the company’s headquarters, near Van Nuys Airport.
Meanwhile, MMI is fighting hard to hang onto Marquardt’s old bomb business. So far, MMI has only continued to make Rockeye parts. But MMI recently submitted proposals to “a variety of other countries,” Spire said, who are interested in buying as much as $18 million of the Rockeye bombs. According to Spire, they include Turkey, Korea, Taiwan and Malaysia.
Spire has some experience with small, troubled defense companies. Between 1984 and 1986, he and two aerospace executives acquired Advance Machine Inc., Purkey Co. and Tectron Casting, all in Los Angeles and involved in metal fabricating and investment casting. Spire said all three companies were liquidated by 1987.
Spire said the companies didn’t fail because of anything he did, but because his partners came under investigation by the Defense Department for “acts that occurred in the late 1970s and the 1980s. I put everything I had into those companies to try and save them,” he said.
Kristal said that even if MMI doesn’t get out of Chapter 11, MMI will continue to operate because it has $7.1 million of backlog left that it acquired from Marquardt Co. The orders are for bomb parts and subassembly work to be done over the next two years. He added that MMI also inherited programs from Marquardt Co. that may lead to work on the C130 and C141 cargo planes.
However, Kristal said the litigation against Marquardt Co. “in state court will continue even if we don’t come out of Chapter 11.” The buyout mess is another chapter in Marquardt’s tangled history. The company was started in 1944 by former USC instructor Roy Marquardt as an aviation concern. By the 1980s, weapons had become a major focus and although small by industry standards, Marquardt was a subcontractor to at least a dozen of the nation’s largest defense concerns.
Marquardt Co. was acquired in 1983 by International Signal & Control Group, a $600-million electronics concern based in Lancaster, Pa. Ferranti International got Marquardt when it merged with International Signal in 1987.
Ferranti split up Marquardt Co. as part of a restructuring of the $2.5-billion British company after the discovery of a huge defense-contract fraud at International Signal in 1989.
The $1-billion fraud was masterminded by Ferranti’s former deputy chairman, James Guerin, who carried it out through International Signal, a company he founded.
Guerin pleaded guilty in 1992 to fraud and arms smuggling, and received a 15-year prison sentence.
Marquardt’s History Marquardt Co. was started in 1944 as an aviation concern, but became best known for making weapons systems such as the Rockeye cluster bomb. In 1991, two parts of the business were sold off: Marquardt Manufacturing Inc. (MMI) and Kaiser Marquardt. All three companies are still based in Van Nuys. Now Marquardt Co. and MMI are engaged in a bitter legal battle over assets. Marquardt Co. in Van Nuys is now owned by Britain’s Ferranti International PLC, a struggling electronics and defense concern. Marquardt Manufacturing Inc. (MMI) was bought in 1991 by an investor group led by MMI’s current chairman, Leonard D. Kristal. The company produces bombs and related munitions equipment. Kaiser Marquardt was sold to Kaiser Aerospace & Electronics Corp. It makes rocket-propulsion systems used on the space shuttle and satellites.
