What's Next for OMC? Part 2 by Mr. Wizard

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Ficht and Orbital Technologies

In Dec 98 OMC filed a lawsuit against Orbital in an attempt to receive a judgement the Ficht engines did not infringe on Orbital patents, but it backfired and an agreement was reached requiring them to make payments to Orbital, but allowing them to continue making the Ficht engines. The series of agreements made at that time are not transferable.

OMC has issued some Ficht licenses to others (Deere, Arctic Cat, Bombardier) and the agreement with Orbital said they would not pursue them for infringement. Per the Court records, OMC currently owns a 51% interest in Ficht. It is part of the auction block, but Orbital is saying certain Ficht applications require Orbital technology as well.

The specific technology in question is a dual fluid, air-assisted direct in-cylinder injection system.

Sounds like the two technologies are a bit interwoven, especially in certain engines.

Please do not take the full response above as fact, is just how I interpret what Orbital is saying.

Dealer Legal Action

"We have been referred to Mr. Paul Harris who is an attorney with Gadsby & Hannah LLP in Boston. We were sent this direction by Boating Trades Association of Texas after they contacted Phil Keeter, president of the MRAA. According to Mr. Harris the more dealers that are involved the more say so they will have in the court proceedings. Mr. Harris says they are working out the details and should have an information packet available early next week. Mr. Harris can be contacted at 617-345-7042."

We sent a note to Mr. Harris last night and received a reply from him today (Jan 9) saying OMC is attempting to sell the businesses free and clear of any debts/liens, etc. A committee of unsecured creditors is being formed. He feels the dealers need to get on the list now or they will be left out. Even if they do participate, dealers will be unsecured and may still receive nothing (no money left over after the secured creditors are paid) or fail to obtain funds from the sale of the "old OMC". But if they do not try, they will have no chance. Although the proceeding are in the early stages, dealers need to get on the list by joining his group or filing similar claims with another law firm to assure they are represented. He also notes, the more dealers that participate, the larger and louder their voice will be heard and points out those joining his group will benefit from economies of scale.

We (RBBI, Gary & Mr. Wizard) are NOT qualified to offer any legal advice in this situation, but suggest those wishing more information contact your own legal professionals or Gadsby & Hannah LLP in Boston. Mr. Harris can be reached by email at pharris@ghlaw.com. Please tell him Mr. Wizard sent you.

If you contact another firm, we suggest you point them to our OMC bankruptcy page.

Jan 17th Boating Industry International published an article titled, U.S. Dealers get legal help in OMC bankruptcy case on the effort with Mr. Harris.

WARN Act 60 Day Notice Required for Plant Closing

Many have asked about the WARN (Worker Adjustment and Restraining Notification) Act, 29 USC 2101, the federal law requiring employees to give 60 day notice prior to plant closings and massive layoffs.

The state of Illinois has a web site devoted to the WARN Act which also discusses a RAPID RESPONSE unit for mass layoffs that may be of help to those of you in that state.

An excellent review of the WARN Act is in the Lectric Law Library. The exception for faltering companies is discussed about midway through the article in the NOTIFICATION PERIOD section. Mr. Wizard is obviously not qualified to provide official legal opinions, but he suspects that route will be take by OMC to avoid the severe penalties of the WARN Act. The Act does say the circumstances have to be not reasonably foreseeable, Their could certainly be some disagreement on foreseeability, but its hard to squeeze blood out of a turnip.

The text of the WARN Act can be viewed on-line in the federal code.

Mr. Wizard also points out several states have additional plant closing laws of their own. These would have to be locally interpreted based on the situation in that state. If you want to try to find info on your state, the site for your state can be found on the WashLaw State Laws Page.

by Mr. Wizard
3 Jan. 2001

RBBI have been approached by at least 8 firms wishing to hire large numbers of ex-OMC employees. Imagine what an organized OMC effort with some assistance from state and local agencies could accomplish!

Some think OMC is not making the effort because they are money grubbing low-lifes afraid to meet the employees eye to eye or have anything to do with them. It is an easy way out for them, just bar the doors and go home, they don't have to deal with it. However it may be deeper than that.

Many have said a firm's employees are its greatest asset. OMC is trying to sell the firm and the more employees around for potential re-employment by the new owner(s) at the time of sale, the higher the value of OMC. This could actually work partially in the favor of ex-OMC employees. If the sale takes place soon and many ex-employees are available for re-employment, the buyer(s) may have to pay more for the firm because part of what they are buying is the expertise and knowledge of any ex-employees left around they can re-employ. High bids for OMC will rule out liquidators or other firms without enough capital to help whats left of OMC make it over the hump to profitability. Doing anything in their ex-employees long term interest at this time may not be in the forefront of OMCs mind right now, but what is being viewed as greed may actually work in favor of their ex-employees from this point forward (it certainly has not up to this point).

I am not saying all ex-employees will be re-hired by new owners, but I suspect hundreds if not thousands will. Anybody taking over an ongoing concern(s) needs many people who know their way around the operation, where everything is and how it works. This would not be true in the case of a liquidator (someone who bought OMC just to sell the equipment and land at auction) or by someone just buying it for the future use of the tradenames.

Percent Employees Available for Re-Hire As this chart shows, if OMC can delay access to re-employment services, most of the ex-employees will still be available for some period of time (Time A) for possible re-hire by the new owners. Then as time goes on more ex-employees begin to give up on the possibility of OMC being rapidly sold to new owners and being re-employed by them (Time B), they begin to find their own new jobs. As time moves on further (Time C) most will have worked their way back into the employment system, retired, died or somehow been removed from the work force, leaving only a small percentage (near the local unemployment rate) still unemployed.

The value of the ex-employees to OMC right now, is proportional to the number of them available for re-hiring by the new owner(s). This means the curve representing the value of the ex-employees to OMC looks just like the curve above (higher value right now decreasing to almost no value over time). This means two things.

1. OMC is worth more the faster they can sell it
2. It is in OMC's best financial interest to delay their ex-employees from finding new jobs

Percent Employees Available for Re-Hire With Assistance This chart compares the number of ex-employees available for re-hire with and without job relocation assistance from OMC. It shows that if OMC just opened its doors to some of the relocation assistance provided by others, the ex-employees would be finding work much more rapidly than when they are. More ex-employees would be relocated at each point in time (Time A, Time B, Time C) reducing the number of ex-employees that would be still around for re-hiring by a new owner(s), thus reducing the amount of money potential new owners would be willing to pay for OMC.

These graphs were hand sketched to provide an aid in the discussion of this topic and in no way represent factual data. We have NO confirmation OMC is taking this route for this purpose, it just being advanced here for discussion. However; I think most will agree with the basic premise, the more ex-employees available for potential hiring by the new owner(s) at the time of sale, the more money OMC will bring on the open market.

If you have any comments on this topic, please drop us a line. We will remove your name and any company affiliation information before posting them. If you request your comments not be posted at all, we will honor your request.

Until next time!

Mr. Wizard

Plant Site EPA Ground Pollution Problems

by Gary Polson, RBBI
5 Jan 2001

Many OMC sites have been identified as having major toxic waste problems in the soils. These problems will make selling the facilities more complicated as the new buyers will not want to acquire any future liabilities (fines or remediation costs) associated with these problems The Waukegan location is an EPA superfund site, creating another level of difficulty in selling the already hard to sell engine and drive portion of the business. New owners might opt to just take the name and equipment and run, not assuming ownership of the property and leaving it with the current OMC owners. Some have already mentioned the development potential of this choice land around the lake. Developers might be able to avoid the pollution problems or obtain government assistance in reclaiming the land?

The EPA has a special page covering the restoration of the Waukegan site and another page page devoted to it as part of their list of National Priority sites.

A 23 February 1999 EPA press release discusses attempts for cleanup of another OMC EPA superfund site called the Coke Plant which is a subpart of the other superfund site. From 1893 to 1972, a number of industrial companies operated at the site, including a creosote wood treater and a manufactured gas plant. From 1972 to 1989, Outboard Marine used the property for fire training, snowmobile testing, and other activities.

A 15 Dec 1997 EPA press release discusses a 5 year review of the OMC superfund site and says another one will be scheduled in 2001 (not exactly what a prospective buyer wants to hear!)

An 8 page Adobe Acrobat (.pdf) EPA document Proposed Plan for Cleanup at the Outboard Marine Co./Waukegan Coke Plant Superfund Site discusses the alternatives proposed for remediation. Each alternative costs many millions of dollars.

RBBI Boater Warranty Comments

First we are not qualified to offer any professional advice in this area, but here are our thoughts.

Our understanding is OMC has told dealers they will no longer accept any warranty claims.

Warranty issues remain to be sorted out by the courts, dealers, suppliers and any new OMC division owners.

I suspect warranty is kaput unless courts force those involved in sale of OLD OMC to somehow put money in a fund for NEW OMC warranty coverage OR new owners of the specific division over your product decide to go ahead and include future warranty costs as part of their basic package in deciding to purchase the company . If they are willing to pay $50 million for the specific division building your product, they only bid $42 million and sit the other $8 million aside for covering warranty of existing units after their purchase. These may not be the correct numbers, but they illustrate the concept. Some statements have been made, the divisions of OMC may not go to the highest bidder. Some concern will be given to the best interests of others involved. This might encourage the warranty bidding practice discussed above, or at least bidding it as an option.

It is possible some warranties or extended warranties were actually purchased through a third party and might still be alive. I assume this would not be true of the major/main drive and boat warranties, but might apply to some special items.

When the dust settles, different types of warranty may be handled differently (the basic warranty package vs any special extra or extended warranty you bought at time of purchase.

Actual coverage provided in the future might be fractional:

1. Dealers or new owners may give some break on labor or parts
2. Warranty time length might be shortened
3. Warranty may only cover very major items and not smaller failures
4. Your boat might be warrantied, but not the drive or vice versa
5. Some components and subsystems may still be warrantied by the supplier

I am not sure how this has been handled in similar situations in the past and not had time to check up on it yet.

Dealers are currently very concerned about possibly not being re-imbursed for warranty expenses already incurred by them.

Some have suggested creating a new warranty (sort of insurance policy) and letting existing customers buy a new one, perhaps with a little assistance from dealers. This would allow boaters to share their risk, so the one guy with the major failure does not loose his shirt. Perhaps a very high deductable type warranty could accomplish this purpose?

Bottom line, it all remains to yet be sorted out.

Bombardier Feb 15 Blast Fax

One of our readers sent us a copy of the Bombardier's Feb 15 blast fax, their first dealer communication.

Bombardier Recreational Products
February 15, 2001
Dear Dealers and Distributors,

It gives me great pleasure to inform you that on February 9, 2001, the United States Bankruptcy Court for the Northern District of Illinois approved the joint bid of Bombardier Motor Corporation of America and JTC Acquisition LLC for certain assets of Outboard Marine Corporation (OMC) and it affiliates.

The joint bid was for a total consideration of $95 million US and Bombardier's share is slightly more than half that amount. The sale to Bombardier is still subject to regulatory approval. Upon closing, Bombardier will receive certain engine assets and JTC Acquisition LLC will receive certain boat assets. The engine assets include Evinrude and Johnson Outboards and FICHT RAM Injection technology.

I am very excited about this potential acquisition and what it will mean for Bombardier Recreational Products and, also what it will mean for you. Today we are holding a Press Conference at the Miami International Boat Show to celebrate the anticipated purchase of these great, long-lasting, marine brands and I hope that in the near future, we will have the opportunity to meet and discuss the challenges ahead of us. These brands will only become stronger under the vision that Bombardier Recreational Products has for them.

As the new President and Chief Operating Officer of Bombardier Recreational Products, I believe that we have a great leadership team and that we have great opportunities ahead of us. It is our goal to ensure that our customers continue to enjoy the high quality outboard engines that you have been providing them thus far. The Evinrude and Johnson outboard engines and FICHT RAM Injection technology, will be joining a group of quality products that are on the leading edge in all categories: Ski-Doo and Lynx snowmobiles, SEa-Doo watercraft, Sea-Doo sport boats, Bombardier ATV's and Rotax engines.

We will be working on the Business Action Plan in the upcoming weeks to transition these three historic brands into the Bombardier family. We will keep you abreast of the direction in which we will be heading. I look forward to what the future holds for all of us and wish you a great selling season.

Cordially yours,
sig------------
Michael Baril
President and Chief Operating Officer

Some Archived thoughts from Mr. Wizard

Feb 22: Sounds like the Ficht fire complaints are echoing in a Bankruptcy Court Hearing Docket Document (#622 filed 21 Feb). In the document concerning Mr. Rabe's severance pay, he states Mr. Jones was advised by the Engineering and Service depts "that Ficht engines contained serious design flaws which were potentially dangerous." Mr. Rabe goes on to claim Mr. Jones proceeded to sell the engines anyway, he (Mr. Rabe) complained and was terminated in Sept. 1998.

Feb 9: They posted the actual sale agreement online. Strongly encourage firms operating in the industry to download it as it contains a great deal of internal information not usually available to outsiders. It is document #541 in the court docket. Note, it is a tiff file, about 244 pages. See link below.

Feb 8: If anybody wants a great look at the inside of OMC, the detailed financial ledgers are online in the court docket (Document numbers 460-479) for the engine group and seven boat operations. Would encourage competitors to download them for future use as they may not remain up on the docket site long after the trial is over.

Feb 8: If Genman and Bombardier they can claim it for < $100 mil they may be able to assume warranty for boats and motors in the field as well as dealer inventory. Court docket documents indicate the coke plant EPA superfund site may not have sold (freeing the buyers from any liabilities associated with it). Wonder if Brunswick knew that when they placed their bid? Sounds like the coke plant site may just be left on the books as owned by a bankrupt company. Suspect the other parties sharing in cleanup responsibilities there, (North Shore Gas, etc) are less than thrilled with that.

Feb 8: Almost 40 items were filed in the Bankruptcy Court docket yesterday (Feb 7). Several were from firms objecting to the sale on one grounds or another. A few of the documents were huge. The court may not be able to sort through it all today. Especially, when there were already many objections filed in front of these.

Feb 7: There are still dozens of folks and firms objecting to the sale of OMC on a myriad of issues in the court docket. May take a while to work some of these out before sale can be made final. Bids might be approved pending settling the remaining issues?

Feb 7: I checked in on our Vote for Who You Think Will Buy OMC poll, looks like not a lot of winners. Currently shows 3,257 voters and only 9% of you thought Genmar would be a buyer. But we did have 43% vote for "other" which includes Bombardier. We were limited to 6 allowable entries, and did not specifically list Bombardier.

Feb 6: Don't count Brunswick out yet. They used to be known for loosing every major court battle they even got close to, but recently they have been winning quite a few. If it goes into some sort of a contested court battle, things may change.

6 Feb: The current <$100 mil price for OMC is a strong discount from the previous about $364 mil price paid by Greenway/Soros. Penske even bid $323 mil last time. If you add the approx $130 mil Soros poured in to keep it afloat in 2000 that puts Greenway/Soros out about $494 mil for a piece of $100 mil property. In early stages of bankruptcy over $768 mil of creditors lined up. Many more have now surfaced. Just using these numbers

$494 + $768 =$1262 mil    
$1262 mil - $100 mil sales price = $1162 mil losses on paper

$1162/28 = $41.5 mil a month.

1 Feb: One of the foreign firms might sweeten their bid by offering management political asylum? :)

Jan 30: One of our readers suggested Brunswick might purchase some of boat companies for resale later with stipulation they use Merc drives. Interesting concept.

Jan 27: What if Brunswick bought the Evinrude and Johnson tradenames and just sat on them to remove them from the industry? Wonder if any of the FTC (Federal Trade Commission) will review the auction outcomes? (monopoly issues)

Jan 25 PM: Brunswick's announcement of closing 4 boat plants to reduce inventory today might be timed to shake the confidence of OMC boat plant bidders? Historically, Brunswick makes announcements like this (bad news) on Friday when they get lost in the weekend news, today is Tuesday.
Buckley's comments to investors of no credible bidders for OMC engines (see today's BII article) agrees with the comments I made earlier this morning (immediately below)

Jan 31: Anyone involved in the bidding process might want to take a look at the latest issue of Competitive Intelligence magazine. Jan-Feb 2001. It is a special issue dealing with Merger and Acquisition intelligence.Covers how to anticipate who might be in the play, reviews several recent ones and describes the tools used in performing due diligence for a Merger and Acquisition, including how to know when you have done enough research. The magazine is printed by SCIP, the Society of Competitive Intelligence Professionals.

Jan 25 AM: Tommorrow is the day to have the first round bids in. We suspect Waukegan will NOT sell at this time. Also suspect problems with sale of the outboards. Too many loose ends to wrap up in the time allowed (not enough lawyers to go around) to cover the EPA superfund site issues, City of Waukegan wants to block sale for back taxes and water bills, North Shore Gas wants to block for EPA superfund site issues, Orbital wants to block sale of Ficht technology, Lot of intellectual property issues concerning patents still in process, warranty issues, trying to price out the place considering many of the choice employees are already long gone, etc. Will take a lot of time to sort through those issues. If sale does occur at this time we predict it will NOT STICK. This tie up will also prevent current sale of Evinrude and Johnson tradenames (will save them for possibly going with the outboards). Will be much different with the boat companies. They can be sold like commodities and some already have natural owners.

Jan 17/18: An interesting point raised by one of our viewers - If the OMC outboard lines die or have major problems in restarting, Mercury will probably need extra capacity to keep up with demand (provided the whole economy does not go in the toilet). Earlier we dismissed Brunswick as a bidder due to anti-trust problems. Although they would probably not be allowed to purchase the boat companies, they might purchase some of the drive manufacturing operations (less the tradenames and existing designs) for capacity. Also would be interesting to see how the courts would treat purchase of the Johnson and Evinrude tradenames? They FTC (Federal Trade Commission) would obviously prevent purchase of the Engine and drive operation as on ongoing concern selling under the existing names, but the names alone might be allowed?? Not aware of prior case law in this area.

If Brunswick were to purchase the drive manufacturing facilities (but much is not farmed out) and close them, they could eliminate a potential new competitor or an existing one adding U.S. capacity. Not too sure how the courts would look on this one either.

Jan 10: The Yamaha Ford stern drive engine team up announced today really puts some new dynamics in the situation.

Jan 6th: Bankruptcy is like musical chairs. All those in the game: investors, banks, creditors, suppliers, employees, retirees, dealers, boat owners (warranty) keep walking and hope to find a chair when the music stops (money runs out). Now the music stopped and there aren't enough chairs to go around. In the children's game their were enough chairs for all but one person, but in this game there is only one chair and the major investor is trying to take it for themselves.

Dec 30th: we are hearing things are starting to happen in the background. Some of the boat companies are getting ready to fire up either on the temporary funds or under new ownership. Several of the companies have found logical new owners pending the bankruptcy situation.

Sounds like OMC is going to be broken into a lot of pieces. Most feel Bombardier or possible Suzuki will get the outboards, Genmar will get several of the boat companies (but Genmar now says they are not interested), Earl Bentz may get Stratos and Javelin, some feel PrinceCraft may be cut out for another buyer. Even the test and engineering facilities may be cut off seperately. Obviously all of this is pure speculation.

Looks like they will be able to get a lot more for the pieces than the whole company. As discussed in the Mr. Wizard article, price for the whole firm might only be $100 to $200 million as it seems like that is all you might be able to justify based on the previous selling price and current business failure and future outlook. But, some of the individual pieces are pretty shiny, especially some of the companies that still have their original owners in the game (repurchase). Seems much easier to justify some decent money for each piece that adds up to a lot more than $200 million.

Wild idea: Why not consider putting the pieces on ebay? The whole world knows they are for sale anyway. Just put the pieces up for an auction and sell them "where is as is", because that is the way they are going to be anyway. Several multi-million dollar firms have already been sold there. Will also save a lot of middle man money as ebay only takes a 1.25 percent cut. Would get the whole process over in a few days after bankruptcy was declared.

Recent news reports indicate this may not be so wild at all. Sounds like the courts may be auctioning off any companies OMC cant sell off.

We have been visiting with state government offices in Illinois and North Carolina assisting those trying to find new jobs, trying to get our year end finances in order (yes, Wizards pay taxes) and trying to keep this site updated.

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