NEW YORK - Canada's Bank of Nova Scotia last week reluctantly acquired a 21 percent stake in UnitedAuto Group and 24.4 percent of supplier Foamex International Inc.
The acquisition was done through the forced liquidation of Trace International Holdings Inc., the holding company for UnitedAuto founder Marshall Cogan.
UnitedAuto is the nation's third-largest dealer group; Foamex is ranked 108 on the Automotive News list of the 150 biggest parts suppliers to North America.
The Toronto bank said Foamex and its subsidiaries had owed it more than $167 million, secured by the Trace assets. Trace agreed to hand over the shares in UnitedAuto and Foamex in a settlement reached Oct. 31, according to documents UnitedAuto filed with the Securities and Exchange Commission on Wednesday, Nov. 8.
A spokesperson for the bank declined to comment on its plans for the two equity stakes. But in the SEC filing, the bank suggested it was prepared to sell them.
Trace, of New York, filed for Chapter 11 reorganization and protection from creditors in July 1999. The case was converted to Chapter 7 liquidation in January 2000, according to SEC documents.
PENSKE IS A PROSPECT
One likely prospect for the UnitedAuto stake is Chairman Roger Penske, who could consolidate his hold on the company at a bargain-basement price. At UnitedAuto's current share price, a 21 percent stake would cost an indicated $30.5 million.
Presumably, though, the Canadian bank would be motivated to sell at an even more attractive price.
In April 1999, in contrast, Penske paid $145.5 million for 38 percent of the company. Through Penske Capital Partners LLC, Penske is UnitedAuto's biggest shareholder with a 43.2 percent stake.
UnitedAuto spokesman Phil Hartz declined comment.
Penske's automotive subsidiaries include truck leasing, auto service centers and several large dealerships separate from UnitedAuto. DaimlerChrysler last month bought another Penske subsidiary, Detroit Diesel Corp., for about $402 million. Penske Corp. owned 48 percent of Detroit Diesel, and Penske controls 57 percent of Penske Corp., according to SEC records.
Cogan and Trace controlled a 29 percent share of Foamex as of July 31, according to SEC records. Cogan, who is chairman of Foamex, could not be reached for comment and a Foamex spokesperson did not return a phone call.
PUNISHED BY WALL STREET
Foamex, of Linwood, Pa., makes flexible polyurethane and polymer foam products. Automotive applications include seat foam, headliners, door panels and carpets. Foamex, which is listed on the Nasdaq exchange, reported net income of $9.8 million on revenue of $645 million in the first half of this year.
UnitedAuto operates 128 franchises in 17 states, plus sites in Puerto Rico and Brazil. It earned $12.7 million in the first half on $2.3 billion in revenue.
Cogan founded UnitedAuto in 1992 as Emco Motor Holdings after acquiring the DiFeo Automotive Group, which was then 29 franchises in New York, New Jersey and Connecticut. The company went public on the New York Stock Exchange in October 1996, hitting a high of $34.88 per share, which it has not achieved since.
The stock closed Friday, Nov. 10, at $7.44, up from a 52-week low of $6.75, which it hit last month.