United States Pipe and Foundry Company | Leveraged Buyout of the Parent Company in 1987
Leveraged Buyout of the Parent Company in 1987
By the late 1980s, parent company Jim Walter's interests included carpet manufacturing, paper, jewelry, industrial products and building materials, as well as home building and financing and pipe manufacturing. U.S. Pipe was the second-largest division of Jim Walters Corp. By the late 1980s, the piping division's sales were estimated at more than $400 million. Operating profits at the division were estimated at around $57 million, about half that of the company's homebuilding and financing division. By the mid-1980s, it was clear that Jim Walter was a candidate for takeover. A wave of mergers and acquisitions swept the country in the 1980s, fueled in part by Michael Milken's proselytizing of the junk bond from the California offices of Drexel Burnham Lambert. Public companies like Jim Walter were taken private in leveraged buyouts, meaning the new owners put up very little cash but raised financing from unrated or "junk" bonds. Prime targets of the takeover wars were manufacturing companies with good cash flow and lots of subsidiaries that could be sold off. Jim Walter Corp. fit the pattern, and in 1987 it was taken private by one of the best-known takeover groups, Kohlberg Kravis Roberts (KKR). The deal, valued at $2.4 billion, was a small one for KKR. The year before, it had raised $8.7 billion to buy out Beatrice Foods. In 1988, it made the record-breaking $25 billion buyout of RJR Nabisco, a deal so momentous it inspired not only a book but a movie, Barbarians at the Gate.
After the buyout, Jim Walter Corp. sold off assets, though the pipe division was not affected. Company documents claim Jim Walter Corp. was still a profitable company, but in 1989 it filed for bankruptcy, brought down by a huge class action lawsuit relating to the company's former Celotex subsidiary. At the time, this was the biggest financial collapse of a company taken private in a leveraged buyout. The U.S. Pipe division had its own legal problems. The city of Atlanta complained that U.S. Pipe and another Alabama pipe company had conspired to fix prices on municipal contracts dating back to 1972. A federal judge ruled in 1989 that the city could ask to recover payments it made to U.S. Pipe reaching back to the early 1970s.