BizAims

OM Group, Inc. - Overcoming Challenges in the New Millennium

OM entered the new millennium intent on remaining a leading force in the industry. This strategy was demonstrated in 2001 when the company made a play for Degussa Metals Catalysts Cerdec AG (dmc2), a precious metals and metals management concern. The $1.08 billion deal was finalized in the fall of that year and significantly expanded OM's operations.

Unfortunately, the synergies expected from the union failed to materialize and OM was left with a growing debt load. At the same time, sales of cobalt were faltering due to lack of demand from the aerospace industry; according to the company, this industry generally consumed nearly 40 percent of the world's cobalt production. Nevertheless, company management remained optimistic and continued to forecast positive results. When the company reported an unexpected $71 million third-quarter loss in 2002, however, shareholders took immediate action. OM stock fell from a high of more than $70 per share to just $4 per share after the announcement and class action lawsuits were filed accusing company officials of issuing misleading statements in order to boost OM's stock price. A November 2002 Crain's Cleveland Business article published chief financial officer Thomas Miklich's response to the crisis: "I think where we misled ourselves is the fact of what--of really how bad the economy--how long the aerospace industry would stay down and, you know, there's really not any other explanation than we just, you know, probably had some rose-colored glasses on."

After the third-quarter announcement, OM launched a sweeping restructuring effort that included the sell-off of noncore assets, cost-cutting measures, and layoffs. Overall, the company expected to shore up nearly $100 million to pay down debt. In July 2003, OM completed the sale of its Precious Metals Group, which included dmc2, for approximately $814 million. It sold its copper powders business, SCM Metal Products Inc., in April of that year.

As part of an internal investigation into its inventory accounting practices, OM announced that it would restate its financial statements from 1999 to 2003. The company pointed the finger at accounting irregularities--improperly recorded inventory adjustments--caused by former employees. As a result of the investigation, OM delayed filing its 2003 financial results until March 2005.

CEO James Mooney resigned in January 2005. Joseph Scaminace, a Sherwin-Williams executive, was named his replacement later that year. During the remainder of 2005 and into 2006, OM worked to finalize its restructuring efforts. The company settled the shareholder class action lawsuits in June 2005. With its problems seemingly behind it, OM's management team was confident the company was well positioned for growth in the years to come.---Source: referenceforbusiness.com