Cimco Agrees to Be Purchased by Cleveland Firm : Acquisition: Its core plastics molding business will be sold back to company founder Russell Gilbert as part of the deal.

By JAMES S. GRANELLI

Nov. 9, 1995 12 AM PT

TIMES STAFF WRITER

COSTA MESA —

Plastics maker Cimco Inc., which was planning to peddle its most profitable unit to pay off debts and return to financial health, said Wednesday that it has agreed instead to sell its entire operation to a Cleveland company for at least $31 million.

The tentative agreement would turn over Cimco’s operations to M.A. Hanna Co., an international specialty chemicals company with $1.7 billion in revenue last year.

Separately, Hanna would sell Cimco’s plastics molding business back to Cimco founder Russell T. Gilbert for an undisclosed price. Hanna would keep the fast-growing Compounding Technology Inc. subsidiary, which makes plastic filler that can be adapted to provide such qualities as strength and fire resistance.

Hanna agreed to pay $10.50 a share for Cimco. Wall Street responded by boosting Cimco’s stock to a 12-month high of $10.25 a share during Wednesday’s trading. The stock closed at $9.625, a gain of $1.25 a share on the Nasdaq market system.

The total value of the cash transaction is expected to rise to as much as $34 million once options and other securities are included, said Hanna spokesman Andy Opila.

As part of the buyback deal, Gilbert would also retain the Cimco name and operate the company privately. An investment partner and an employee stock option plan would be the only other shareholders.

“Going this route, there will be a minimum disruption either on our Compounding’s or Molding’s customers, and the same management and employees will stay intact,” Gilbert said.

Few of the 428 employees at Cimco’s Costa Mesa facilities or 161 other workers at foreign and domestic plants are expected to lose their jobs, Gilbert said. The new Cimco private company probably won’t need as many corporate employees, however, because public reporting requirements will be greatly reduced.

As a result of the transactions, money-losing Cimco would be cleansed of $20 million in debts, which Hanna would assume, and Gilbert would keep the core of the company that he founded 36 years ago. Gilbert said the deals also would provide the highest price for shareholders and the least corporate tax.

With a new structure, greatly reduced expenses and several new contracts, Cimco would be reborn as a profitable enterprise, Gilbert said. It had lost a total of $2.8 million in its last two fiscal years, and its auditors questioned whether the company would be able to remain a going concern.

The CTI unit, with 95 employees, has been the jewel in Cimco’s otherwise troubled business. CTI’s operating profit rose 45% to nearly $2 million for its last fiscal year, which ended April 30. The unit’s annual revenue grew 24% to $44.1 million.

Hanna, which had started looking to Asia this year as its next area of growth, will get CTI’s Singapore plant as well as a new one about to open in Lyons, France. CTI also has plants in Corona and Charlotte, N.C.

“This is perfect fit, a classic fit,” said Hanna spokesman Opila. “We get great technologies and our first plant in Asia and we add to the seven plants we already have in Europe.”

Gilbert said he hopes to sign a definitive agreement for the sale of Cimco by the end of the week and then negotiate a similar agreement for the purchase of the molding business by the end of next week. The transactions, subject to stockholder and government approvals, could be completed by the end of the year or early next year.

Gilbert, 65, who owns 21% of Cimco, sparked a boardroom disagreement recently when he reneged on a previous announcement to retire. Two directors, who thought he was taking too long to turn the company around, wanted a new chief executive. When other directors and major shareholders stood behind Gilbert, though, the two directors quit.

“I was thinking about retiring before because of the frustration,” Gilbert said. “Now, that’s all water under bridge. I don’t plan to retire any time soon. I plan to work at least another five years.”

He said he expects to use much of his $6.5 million in gains from the Cimco sale to repurchase the moldings operation. He said he would own 51% of the private company while the employee stock option plan would own 9% and an undisclosed investment partner would own the rest.

When he does retire, he plans to turn the company over to the employees through the ESOP. “They’re the people who built this company,” he said.

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Cimco at a Glance

* Headquarters: Costa Mesa

* Business: Plastic compounds and components

* Employees: 589, including 428 in Orange County

* Founder and president: Russell T. Gilbert

* Exchange: Nasdaq

* 52-week high: $10.25

* 52-week low: $3.38

* Wednesday’s close: $9.63

* Purchaser: M.A. Hanna Co. of Cleveland, which plans to sell a division of the company back to Gilbert