David Brown, president and CEO of Owens Corning, and the Pink Panther watched a stock ticker on the floor of the New York Stock Exchange on Nov. 11, 2006, after the building-materials maker, just out of Chapter 11 bankruptcy, began trading again on the exchange after a four-year absence.
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There will be plenty of smiles this week at Owens Corning when the company celebrates its diamond anniversary.
But over the Toledo-based building materials company’s 75 years, the road it traveled was sometimes a rocky one that included a redeveloping U.S. economy, a hostile takeover bid, and a bankruptcy.
PHOTO GALLERY: Click here to see 75 years' worth of OC history
That OC persevered through those rough times is a testament to its underlying strength and the skill of its leadership over the decades. Still, on at least three occasions, company employees may have felt that Owens Corning’s future was in great peril.
The first hurdle the company had to overcome was its own success — growth achieved through a series of military contracts during World War II that expanded OC from sales of $3.8 million and 600 workers in 1939 to sales of $32 million and more than 6,000 workers in 1946.
When the war ended and lucrative contracts to produce fiber glass-reinforced building products such as “Navy Board” (used to insulate warships) disappeared, Owens Corning already was planning for peacetime and the development of new fiber glass-reinforced products.
“Even before the war was over they had started looking ahead. It was a busy time trying to find ways to use their materials,” said Bill Hamilton, who was the company’s spokesman for two decades.
Owens Corning began offering insulation for homes and industrial buildings; fiber glass-reinforced plastic parts for use in auto bodies, airplanes, and electric motors, and superfine fiber glass threads for textiles. And it gambled that the public and businesses would want those products, so it invested heavily in production facilities.
In 1946 the company bought two war-surplus manufacturing plants in Kansas City, Kan., and Huntingdon, Pa., to augment production and added a third plant in Sarnia, Ont. in 1948. In 1947 it began constructing a plant in Santa Clara, Calif. to serve OC’s expanding markets on the West Coast.
“It was a great time and a great opportunity for the company because engineers and designers of that day were more open to using new materials,” Mr. Hamilton said. “Nowadays, they tend to go with what they know — the tried and true and the proven.”
Perhaps the biggest threat to Owens Corning’s existence was in August, 1986, when the firm, operating in a business environment that favored deregulation, mergers, acquisitions, and corporate raiding, became the target of a $2 billion hostile takeover bid by Wickes Cos. Inc., a lumber and building supplies firm that had just emerged from bankruptcy.
California-based Wickes quietly had bought 8.5 percent of OC’s shares leading up to its takeover attempt — an unsolicited offer of $70 a share (and later $74) for all of OC’s stock.
“There was a lot of uncertainty. People wondered: ‘Was I going to be able to keep my job or would I lose my job?’ There was a lot of anxiety during that time, and a lot of people were let go or took early retirement,” Mr. Hamilton recalled.
Fortunately, two months before Wickes’ bid, OC’s board of directors had enacted an anti-takeover “poison pill” measure that doubled shareholders’ stock during a hostile takeover attempt. Wickes even asked a court to invalidate OC’s “poison pill” on the grounds that it hurt shareholders.
Eventually, OC Chairman and CEO William Boeschenstein and the board of directors rejected Wickes’ offer and asked shareholders to wait for a better offer from Owens Corning.
“In the context of American business, there were takeovers going on everywhere, and Toledo had more than its share. The takeover [attempt] of Owens Corning was a shock, but I guess it shouldn’t have been because it was happening elsewhere,” Mr. Hamilton recalled.
OC staved off Wickes by restructuring and offering shareholders a plan in which they got $52 in cash per share, plus $35 in a 20-year junk bond, and one share in the restructured company.
Owens Corning kept its independence. But thwarting Wickes was costly.
To finance its restructuring, Owens Corning took on $1.8 billion of new debt, sold several businesses, discontinued certain products, trimmed operating costs by $120 million a year, reduced its manufacturing capacity, and cut its Toledo headquarters work force by 650 jobs.
At the time of the takeover attempt, OC had $3.7 billion in sales, $567 million in debt, and more than 28,000 employees. Three years later, its sales were $3 billion, its debt $1.5 billion, and its work force was 18,300.
Mr. Hamilton’s corporate communications department was cut from 23 workers to just two.
“Fortunately, the time right after that was fairly good for the economy, and the company bounced back quickly,” Mr. Hamilton said. “Bill Boeschenstein was widely acclaimed as a hero for leading the company through that time, and they came up with a successful plan to outbid the corporate raider.
“As it turned out, the junk bond paid off for shareholders and the stock was richer, that is, until the bankruptcy came along,” Mr. Hamilton said.
Owens Corning’s descent into bankruptcy officially began in October, 2000. But really, it began almost 50 years earlier with a key decision that would come back to haunt OC in a big way.
In 1952, OC began distributing Kaylo — a high-temperature pipe insulation made with asbestos. Kaylo was made initially by Owens-Illinois Inc., but OC bought Kaylo production from O-I in 1958.
OC removed asbestos from Kaylo’s formula in 1972 but about that same time lawsuits began cropping up against nearly 20 firms that had made asbestos products, including Owens Corning.
By 1982, more than 20,000 asbestosis or mesothelioma-related lawsuits had been filed nationally and OC stated that it had paid $2.4 million to settle 140 cases. But that was just the start.
By 1998, asbestos-injury claims ballooned to 225,000 cases, so OC formed a voluntary national settlement program to pay out $2.5 billion to asbestosis victims. OC paid 100,000 claims under the program and settled 150,000 other claims.
But some victims — about 38,000 — opted to bypass the program to choose their own lawyers and file their own lawsuits. Compounding OC’s woes, in 1997 it had purchased Fibreboard Corp., one of the companies originally targeted by asbestos litigants, and it inherited tens of thousands more asbestos claims as a result of its acquisition.
“OC thought it had all the big law firms buttoned up and everyone participating in the settlement program. But the leaks around that program, they just kept continuing,” Mr. Hamilton said. “Although the big law firms signed on, other lawyers got into the business and continued filing separate lawsuits. [Former CEO] Glen Hiner and the OC board deserves credit for taking the company into bankruptcy when they did because too many other companies waited too long and didn’t survive.”
In June, 2000, OC stated in a preearnings report that its previously manageable costs for dealing with asbestos cases had risen to a whopping $1 billion. And the claims kept mounting.
When the company finally filed for Chapter 11 on Oct. 5, 2000, it already had been expelled from the S&P 500 index (after 43 years on the list), its stock price was down to $2 a share, and it officially became the 23rd firm nationwide to seek bankruptcy resulting from an overwhelming asbestos litigation load.
In its filing, OC noted that it already had settled more than 460,000 claims and paid out over $5 billion in court-ordered awards, settlements, legal fees, and claims processing.
“I’d been watching the asbestos situation for years,” Mr. Hamilton said. “I saw several attempts to overcome it, and as a company spokesman, it was kind of a depressing thing to talk about it all the time. So much money was going into lawsuits that there wasn’t a lot of money left to put into new products or development.”
After filing bankruptcy, it took three years for Owens Corning to submit a reorganization plan to deal with its creditors and asbestos-related claims. But that plan, filed in 2003, was subjected to three more years of wrangling and maneuvers that pushed the company’s stock down to just 12 cents a share.
While creditors and asbestos litigants fought over who would get what, OC finally was forced to submit a second plan in January, 2006. It took nine months for the plan to be approved.
But when it was, Owens Corning got certainty that it was going to survive.
“It took a lot longer to get through the process than they hoped — six years. But the company came out strong. They’ve really hunkered down and developed new products in their big three: insulation, roofing, and composites,” Mr. Hamilton said.
The final plan created a trust to absorb an estimated $9 billion in remaining asbestos claims, canceled OC’s existing stock, and distributed or sold 131 million newly issued shares to creditors who got up to 58 cents on the dollar on their debt.
In an important footnote, part of the bankruptcy exit plan negotiated by lawyers gave existing stockholders “warrants” — that is, the right to purchase new stock, at a preset price of $45.25 a share, for up to seven years.
Financial advisers in 2006 expected these new OC shares to initially trade at $30 on the New York Stock Exchange (actual opening price was $25.98). And the idea was that if OC shares rose above $45.25 anytime between their debut and 2013, stockholders could use their warrants to buy shares at the $45.25 price, sell them, and pocket the difference. The warrants gave each shareholder the right to buy one share of new stock for every seven shares of old stock.
Unfortunately, since Nov. 1, 2006, when OC issued its new stock, the share price has never gone higher than $44.95 a share.
Ironically, the warrants issued in 2006 will expire on Oct. 31, the date of OC’s 75th anniversary.
Contact Jon Chavez at: email@example.com or 419-724-6128.
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