Breed Technologies Inc. says AlliedSignal Inc. is the prime cause of its bankruptcy.
Two years ago, AlliedSignal sold its safety restraints business to Breed for $710 million
Shortly before Breed sought Chapter 11 protection from creditors last week, it sued AlliedSignal of Morristown, N.J., for $325 million in damages.
In its lawsuit, Breed claims AlliedSignal painted a deceptively rosy picture of the profits of its seat-belt unit.
In documents filed in Florida's 10th Circuit Court in Polk County, Breed claimed that many contracts it inherited from Allied-Signal two years ago were bid at prices below the cost of raw materials.
For example, Breed expects to lose $30 million on its contract to supply seat belts to General Motors for its hot-selling full-sized pickups and sport-utilities.
Yet, the deal seemed like a good idea at the time. The purchase gave Breed of Lakeland, Fla., the ability to produce seat belts along with airbags, sensors and inflators. Breed could offer one-stop shopping to its customers.
But Breed was undone by its mountain of debt. With no plausible way to repay $675 million in loans that come due Oct. 12, the company finally threw in the towel.
In a written statement, Breed CEO Johnnie Breed said the bankruptcy will enable the company to preserve value for creditors. The company listed assets of $1.3 billion and liabilities of $1.7 billion.
Breed never recovered from its acquisition binge of the mid-1990s, when it spent $1 billion to acquire 11 companies. During the past two years, it has posted seven straight quarterly losses.
ON THE AUCTION BLOCK
If Breed cannot reverse course and reach agreements with creditors, its automotive operations will go on the auction block.
In 1997, Breed's acquisition of the AlliedSignal business doubled Breed's annual sales to $1.4 billion and made the company a contender in the global safety systems business.
But problems with the division emerged shortly after it was acquired. Breed executives told analysts last year that AlliedSignal had underbid or 'mis-priced' contracts. In June, Breed took a special charge against earnings of $22 million, according to its financial statements.
Breed also acknowledged that it was losing money on a number of undisclosed contracts in Europe. Breed spokeswoman Gina McLean declined comment.
AlliedSignal spokesman Tom Crane said the allegations are without merit. Breed researched the operation before purchasing it, he said. Moreover, the deal was cleared by Breed's bankers, its advisers and its national accounting firm.
Two weeks ago, in response to Breed's suit, AlliedSignal filed suit in New York State Supreme Court to force arbitration of Breed's claim that it overpaid.
Breed's suit contends that AlliedSignal said its automotive safety unit would earn $105 million last year before interest, taxes and amortization. The actual figure was $39 million, the suit claims.
That cash-flow calculation was critical for Breed, which financed the deal with bank loans and bonds. By contrast, other suppliers typically issue stock to finance such acquisitions. That enables them to keep their debt at more manageable levels.
When Breed's cash flow dried up following the acquisition, it did not have the money to cover its debt payments. The company blames its cash-flow crisis on AlliedSignal's supposedly unprofitable contracts.