Wilbur Ross: Crazy Like a Fox

The boom times in America keep on rolling.

Everywhere, it would seem, but the Motor City. Michigan’s unemployment rate exceeds Mississippi’s, and with the automobile industry on the ropes a quick fix is unlikely.  Although Larry Page’s father was a professor at Michigan State University, and Larry spent his formative years there, the old economy trumps the Google economy in Michigan.

The state’s business leaders spent too many years locked in combat as the UAW and other unions battled management at the Big Three over unemployment, medical and retirement packages. And forget about a marketing orientation or connection with the ultimate consumers of automobiles. The bigwigs were too busy fighting over a shrinking pie.

And it is time for the state’s residents to take their medicine. They are on a collision course with Private Equity. Maybe Wilbur Ross and company are Michigan’s only hope.

Ross, 68, has made a fortune for investors and for himself by buying broken-down companies in distressed industries like steel and textiles, slimming them down, trimming them up and putting them back on sale.
“My wife accuses me of trying to reinvent the 19th century,” Ross says. The payoff from his bottom-fishing strategy smacks of the 19th century too -Rockefeller and Carnegie. Ross’s first fund has returned an average of 40 percent annually since it was started in 1997, and his next one, started in 2002, has doubled in value every year.

Ross has earned a reputation for farsightedness, smarts and diligence. Says Delphi CEO Steve Miller, who sold bankrupt Bethlehem Steel to Ross in 2003: “In negotiations, it was clear he knew all the details. He knew more about my company than I did.” Ross later packaged Bethlehem with some other steel companies and sold them for a $2.5 billion profit. Fortune

Wilbur is not crazy, nor is he the Motor City Madman. But Wilbur and the Private Equity gang might be the only hope to get the state rocking again.

Hanging on the wall of Wilbur Ross’s office high above Midtown Manhattan’s concrete canyons is a framed copy of a BusinessWeek cover story from 2003. The headline: “Is Wilbur Ross Crazy?” “That’s what everyone is still asking,” Ross quips with a thin smile.

His efforts are part of a high-stakes transformation of the American car industry, the business that for years defined the country’s economic muscle. The current bottom-feeding of Chrysler, the DaimlerChrysler unit so troubled that the board recently moved to drop the second half of its name, is only the most public. Private-equity firms, most notably Steve Feinberg’s Cerberus Capital Management, which is attempting to build a vertically integrated presence via such moves as its expected $1 billion acquisition of bankrupt parts maker Tower Automotive, are flooding so many billions into the auto industry — parts suppliers, rental-car agencies, retailers, financing arms — that former Merrill Lynch star auto analyst John A. Casesa terms the frenzy of activity the “recapitalization of Detroit.” Dealmakerdaily

Can Private Equity (and Wilbur Ross) Save Detroit?
Dealmaker (free sub req’d)

Michigan: Turn Out the Lights
May 31, 2007

Bankruptcy raider moves in on auto-parts
Fortune Magazine 12/04/06

--------------------------------------------------------------------------------------------------------------
The content contained represents the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author. No position in securities mentioned

Comments:

<< Back to main