DETROIT -- Metaldyne Corp., one of North America's largest suppliers of automotive forgings, is preparing to exit the business.
According to several sources familiar with the plan, Metaldyne wants to sell the forgings division, which generated $346 million in sales last year.
Metaldyne has hired investment firm Goldman Sachs to explore a sale. Metaldyne CEO Tim Leuliette confirmed the plan last week.
"The divestiture of our noncore North American forging business would further strengthen our balance sheet and prepare Metaldyne for additional core business expansion," he said in a written statement.
Metaldyne is owned by a small group of investors that includes Heartland Industrial Partners.
Not enough profit
Leuliette no longer considers Metaldyne's forging business to be key to the company's growth. Instead, he wants to focus on more profitable products, such as balance shaft modules, differential assemblies, clutch modules and connecting rod assemblies.
The Plymouth, Mich., supplier also needs cash. A sale could help Metaldyne raise enough cash to acquire other suppliers and introduce more profitable products.
Forging is the forming of metal parts under great heat and pressure. Suppliers in this sector have been hurt by rising scrap steel prices, competition from China and cutthroat pricing by the automakers. Industry experts say the sector consists of many small players and is ripe for consolidation.
At a conference of forging executives last year in Detroit, Leuliette hinted at his company's possible exit from the forgings business. "The trembling you feel below your feet is called a shakeout," he said.
One possible buyer is KPS Special Situations Fund LP of New York, according to sources. One of their executives is George Thanopoulos, who was president of Metaldyne's Engine Group. He left Metaldyne last year.
Thanopoulos declined to comment.
In September, Thanopoulos and KPS acquired assets of Jernberg Industries Inc., a Chicago forging company. Jernberg had been in bankruptcy. Its customers include General Motors, Ford Motor Co. and the Chrysler group.
KPS appears to be acquiring companies in a bid to gain pricing power. Late last month, KPS announced the acquisition of the North American automotive plastics business of Sarna Kunststoff Holding AG.
Metaldyne has delayed the sale of its forging business because of heightened interest among possible buyers. Sources say the offering has attracted other forging companies as well as financial buyers, such as Cerberus Capital Management LP of New York.
In 2000, forgings generated 55 percent of sales at Metaldyne's predecessor, MascoTech Inc. This year, Metaldyne expects forgings will generate just 14 percent of its sales, according to a September corporate presentation to Wall Street analysts.
American Axle & Manufacturing Holdings Inc. is the other major North American forging company. American Axle uses most of its own forgings. Metaldyne does not.
Metaldyne ranks No. 67 on the Automotive News list of the top 100 global suppliers with worldwide original-equipment automotive parts sales of $1.97 billion in 2004. The company employs more than 7,500 workers at 45 facilities in 14 countries.
You may e-mail Robert Sherefkin at [email protected]