Freedom Plastics successor confident of future
Hit hard by a depressed construction economy and mounting debt, Freedom entered last spring’s receivership sale with hopes that a buyer could be found for its assets in Janesville, Florida and Idaho.
Ultimately, a Rock County judge approved the sale of Freedom’s assets for a combined $11.5 million.
Westlake Chemical of Houston, the parent company of North American Pipe Co., bought Freedom’s pipe manufacturing division in Janesville for $6.3 million.
At the time, North American had nine PVC pipe plants in the United States and was familiar with Freedom. Its parent company sold resin to the Janesville company.
“We looked at the assets in Janesville and saw a value play,” said Michael Powell, North American’s general manager. “We had just built a new plant in Arizona, so we knew what the economics of that was.
“It was a fair price and a good value for Westlake.”
Similar to Freedom, North American produces PVC pipe for the municipal water and sewer, residential plumbing, irrigation, agricultural and the do-it-yourself markets. It is the second-largest producer in the country.
The Janesville plant gives North American easier access to Minnesota, the Dakotas and Montana, said Powell, who was in Janesville last week on an annual tour of North American facilities.
It was good timing, as the local plant had just hit its high water mark for pipe production since North American’s acquisition.
The receivership sale split Freedom’s local assets in two. While Westlake bought the pipe division, the Virgina-based Harrington Corp. paid about $1 million for Freedom’s local fabrication division. The two companies now operate independently of each other on Arch Street.
Powell said North American has 52 employees in Janesville to support an operation that had 55 Freedom employees at the time of the sale.
Many of those are former Freedom workers, he said.
The company is running eight of the 14 extrusion lines around the clock. Ultimately, Powell would like to see nearly all of them in operation.
But that will take time as North American awaits an economic recovery, particularly in the construction sectors.
“Municipal and state budgets are under incredible pressure right now, and sewer and water infrastructure is pretty far down the priority list,” Powell said, noting that help from federal stimulus programs provided only a short-term boost in business.
For example, he said, Indianapolis traditionally replaces about 200 miles of its sewer and water lines each year. Budget pressures have reduced the program to replacing only those that break.
Housing starts are still anemic, Powell said, and there’s a big inventory of developed lots sitting idle around the country.
“We’re not convinced we’ve seen the heaviest of the foreclosures, either, and we expect that could move next into the commercial properties that aren’t generating enough income to pay mortgages,” Powell said.
Material costs remain a major issue. Higher oil prices have resulted in cost pressures on the raw materials that go into the manufacturing cycle for PVC pipe.
“Given that demand remains weakened overall, you have a situation where raw material prices are trending up in a market where demand is far less than capacity,” he said. “That’s a classic example of a cost squeeze that is difficult to pass on to the customer base.”
Powell agrees that the picture is not rosy, at least in the short term. But he and others are betting on an economic turnaround and positioning the company to meet expected demand.
“The long-term prognostics are all good,” he said. “The sewer and water infrastructure in this country is generally in poor shape, and at some point it will need to be addressed.
“The key question, however, is where the funds are going to come from to replace it.”
Powell has high expectations for the Janesville plant, which Freedom founded in 1976.
Shortly after acquiring the Janesville operation, North American closed a plant in Indiana and moved its production to Janesville, where Powell said the equipment is newer and the facility is laid out better.
Since acquiring the operation, North American has invested $1.3 million in equipment and safety upgrades and plans to spend another $400,000 this year.
“We’re very excited about the Janesville facility, and we plan to continue to grow volume here,” Powell said. “It has great assets and a terrific workforce.
“The attitude and effort here have been fabulous; people show up on time and work hard. The only thing this plant needs is for the economy to keep recovering.”