Saturday, January 20, 2007

O'Sullivan officials ask for six months without utility bills

You have to give new O'Sullivan Industries CEO Jim Malone credit. If nothing else, he has nerve.
The Lamar Democrat, in an article written by Editor Rayma Bekebrock Davis, reports in today's edition that the company is asking to be allowed to go the next six months without paying its utility bills to the city of Lamar. After that, they said, they would pay it back over an extended period of time.
Based on O'Sullivan's normal power usage, the city would be out $1.2 million.

According to (Lamar City Administrator Lynn) Calton, he and council members were invited to the plant on Monday to meet the new CEO, Jim Malone, and to tour the plant and have lunch. They were certainly surprised to hear the request concerning the utilities. Calton says the city council has made no response to the request but has discussed the situation and will make a decision soon. He says, “I don’t see any way what they requested can be done.”

I'm sure there are a lot of people with financial problems who would love to go six months without paying their utility bills and then be allowed to repay them at their own leisure. It's only the million-dollar CEOs who have the gall to ask.


Anonymous said...

And so it begins....

When Malone was announced as the new CEO, I told you it wasn't going to be fun. Now comes the hardball games such as"if you don't make concessions, I'll have to close the plant and put 900 people out of work in your town". Turnaround isn't going to be painless for anyone. When done, everyone will have been affected and Malone will be richer! You will all be making "Devil and the deep blue sea" decisions. Property tax abatement request will come next I'd bet.

Blame the "penpals". They gutted the salesforece and put their cronies in place. By my reconing, that cost the company over $100mm in sales.

Anonymous said...

It has been clear that the plans for making the company profitable have not worked up to this point. What everyone is reading in the news and on this site is only part of what the comapny is doing to try to stay in business and continue to provide employment to the 800 employees. There is more to this story than just asking the city, who by the way also acts as a business of some sorts, to help give the company a chance of making a go of it. There are some other major negotiations taking place to make this transition. On the surface, it looks like the company os asking for a lot, but when you dig a little deeper, how much profit does the city see from each monthly utility bill? I don't know what that is (Randy can you help us find this out?) but I suspect it is a decent amount. If we do not help the company take the steps necessary, where will these profits come from. Not an empty bulding and a certain amount of employees that will likely move for the lack of a job. I'm sure there is also a certain loss of property taxes that will be impacted too. So, the choice is hard, we just hope that the right decisions are made which will have a major impact on the area.

Anonymous said...

This is not anything new! Wal-Mart has been doing this to small communities in asking for their taxes to be deferred for 10 years. Does Lamar really think that this company will pay their back-utilities? Why can't they just take out a loan like any one of us would have to do! The nerve!!!

Anonymous said...

Great, so the Company is not profitable and the answer is to squeeze every vendor (including the city) until they can't afford to stay in business? Meanwhile, how much is Malone deferring? Granted, I am sure that he makes a huge nut in the end if he pulls this off by selling options, but I would be willing to bet he didn't defer everything. There is a bet I'd like: Here, gamble with someone else's money but continue to draw a fee while doing it!

Guaranteed that Malone is not driven by what is best for Lamar or the employees. If it is the most profitable for him to take all production to China and set up a warehouse in California, that is exactly what he will do. Find out what his plans are for Lamar and make him commit to them before anybody takes another big risk because they will threaten to go into liquidation now and six months from now. You will all be unsecured creditors. How'd that work for everyone last time?

A couple of points to ponder: If Lamar is making a profit on utilities, it is certainly not making 100% vprofit. How long would it take to recove the losses if O'Sullivan goes belly up in six months, or wants to string it along even longer? That is the downside to the deal. Six months from now, you we may still end up with 800 unemployed people AND have a $1.2mm writeoff. How can you insulate yourself from that loss? Why not insist on some type of a convertible note from the company if you are being asked to take that kind of risk? See if you can secure the note, but I would bet that is impossible. But even undesured bondholders have a better chance than an unsecured creditor. Make the bond convertible into equity. That way, you are getting some upside for your risk. Also, it makes sense to counter with deferring a percentage of the utility bill instead of the whole thing.

The bottom line is that Malone is holding a gun to your head now about the 800 employees and, yes, he will pull the trigger because he has nothing to lose. But he will also be holding that same gun to your head six months from now and then you will have the employee loss AND the $1.2mm at risk. He will have put you somewhere you can't afford to lose and he will bleed you to death if it serves his purpose!

Anonymous said...

Look at the numbers....the City has almost $2 million dollars in the bank from us for electricity.
I am sure they want to have even more< but what O'Sullivan is asking for deferred payments...not a freebie.
That's better than the types of things that most companies do.....

Anonymous said...

I dont beleave that what o'sullivans is asking for is going too help them in the long haul.They have five or six warehouses full of product,where is all their money going,if they have the sales they say they have why would they not have the money to pay their bills on time?They are paying time and a half to work on saturday and have people standing around or going home through out the rest of the week.If they came out of bankruptcy with fifty million dollars operating capital and now its all gone how long is six months differd elec.bill going to last?I thik we all need to be ready for the unemployment line,weather it happens in six days or six months if the management doesnt change nothing else is going to change.