Exide up for sale as North American business enters third Chapter 11

Exide up for sale as North American business enters third Chapter 11

Exide up for sale as North American business enters third Chapter 11 150 150 Energy Storage Journal

May 28, 2020: Exide Technologies announced on May 19 that it is to be split up. The North American business will be separated from its EMEA/Asia-Pacific operation and each are up for sale. Its North American business has entered Chapter 11 bankruptcy — for the third time in two decades — which the firm says will ‘facilitate the sale’, with the first insolvency hearing on May 21.

The split of the business and the sale of its EMEA/APAC operation — news of which our sister publication, Batteries International, broke in a special news bulletin a year ago  — has been in the pipeline for some time.

The ability to split the firm up was largely the construct of its then CEO Gordon Ulsh in 2005, who took over immediately after its first trip into Chapter 11 bankruptcy. He devised a common nomenclature across the firm’s operations. With that in place it became possible to devise common metrics for performance.

Those metrics 15 years later show that the EMEA/APAC operations are in a relatively healthy state — though hit by the Covid-19 pandemic — while the North American business was struggling.

Exide says the Covid-19 pandemic was the final straw for the North American business, which has been struggling to support 16 non-performing sites including the now defunct Vernon lead battery recycling site, as well as its profitable battery-making business.

“As it looks today, this is the end of Exide Technologies North America,” says global communications director Melissa Floyd. “But what we do and how we do it won’t change — it will have a new owner, we don’t know if the name will change, but the people are here, the plants are here, we will just be a company that has operating assets and not non-operating assets.”

The firm says the move is positive for both the EMEA/Asia and North American businesses. There will be plenty of opportunities for growth and profitability once the pressure from Covid and the obligations faced by the company have been sorted out, management say.

Exide chairman and CEO Tim Vargo and EMEA/Asia-Pac president Stefan Stübing commented exclusively to Batteries International.

Vargo said: “Thanks to the efforts of our dedicated employees, we have grown our business to include the leading battery distributors and retailers in both our North American transportation and industrial divisions. Our customers choose to do business with us because of the high-quality batteries we manufacture and the great relationships we have developed as a result of partnering with them and focusing on their success.

“We see a positive path forward, continuing to be the supplier of choice for our customers and with the additional support and investment of new ownership in North America.”

Stübing said: “Today’s announcement marks an important milestone in the company’s development for Exide in the EMEA and APAC region. In recent years, we have consistently responded to market developments and technological changes and are ready to offer the right energy management solutions and batteries for every need.

“We are pleased about the strong signal from our owners to invest in the company’s development, our innovations and the further development of our products. With the start of this new phase, we are now able to steer into a successful future as an independent company with excellent capitalization.”

Separation

The EMEA-APAC business will be acquired by the firm’s lenders, a conglomerate of companies who ‘intend to maintain continued employment of the company’s workforce in these regions’, the company says.

The agreement includes an option to sell in early July, although this will only happen at the right price.

“As our lenders have learned more about this business, they were impressed by the growth trajectory, loyal customer base and talented employees,” says Vargo. “Their increased support reflects their confidence in our capability to deliver consistent growth and profitability by bringing to market innovative technologies for energy storage across each business segment to benefit our customers.”

The lenders have already provided $75 million in additional liquidity to support the European business while it recovers from the impact of the Covid-19 crisis, but if the right offer is made, it will be sold on.

The European and North American businesses were naturally going their separate ways, says Floyd.

“For Europe, the business is different,” she says. “The customer mix is different, some of the product base is different and Europe has had opportunities for growth that were different. So we created a holding company for Exide that has the America side and the EMEA/APAC side as separate entities so that Europe could go and get its own investment. It gave them a lot more freedom.

“We were in the process of making that work a year ago, and it has taken a lot of time.”

North America

Exide has so far spent more than $250 million in North America propping up 16 so-called non-performing sites, such as Vernon, which has taken up $156 million of that.

“We have this burden of properties that’s an unsustainable cost structure and the reality is that if we can take the operating assets and have them under new ownership, on day one they would be profitable,” says Floyd.

“But how it sells will be up for the bankruptcy court to decide. We do have strong interest from buyers for our company as a whole entity — recycling, transportation and industrial altogether — we just don’t know what people will be willing to pay for and whether the sum of the parts is greater than the whole.

“We are far along with the marketing process with interested parties and there are definitely companies who want those assets but it’s not a yard sale. Whoever comes up with the best deal will be the new owners.

“We want to sell the profitable operating assets to a new owner and work with the court to facilitate an orderly sale and transfer of these non-operating properties. We had planned, pre-Covid, to find interested buyers for those but with Covid we have just run out of breathing room. People aren’t buying properties to redevelop right now.”

The company has debtor-in-possession financing of $40 million to support its operations while the sale process goes ahead.

“Given the continued, unsustainable impact on our cost structure resulting from legacy liabilities in North America, and in light of the global economic Covid-19 slowdown that has amplified these pressures, a sale of our North American operations through a court-supervised process provides the best opportunity to continue delivering high-quality energy storage solutions and service to our customers,” says Vargo.

“The EMEA and Asia-Pacific business entered the current crisis in good financial health, and we have acted prudently throughout and, in some cases, have drawn on the support mechanisms made available by governments to mitigate the impact of the crisis and associated lockdown.

“The additional funding provided as part of this agreement will ensure that this business will emerge from the current crisis even stronger.”