Anixter Outbids Fastenal for DDI

Jason Sandefur

Anixter International will cut what it planned to pay fastener suppliers because a bidding war with Fastenal Corp. upped the price for bankrupt Distribution Dynamics Inc. to $32.8 million.\
While suppliers lose, the higher price increases the bonus to DDI CEO Dominic Polimeni.
It took seven rounds of bidding on June 18 for Anixter, which entered the fastener business by buying bankrupt Pentacon in 2002, to acquire DDI’s assets at 17 locations in the U.S., Canada and Mexico.
In a news release, Anixter CEO Robert Grubbs said the higher price would limit funds Anixter had earmarked to pay unsecured vendors.
“Due to the higher purchase price paid as a result of the active bidding process, Anixter now expects that if it purchases any valid pre-petition claims that the aggregate amount of such purchased claims will be substantially less than was originally contemplated,”” Grubbs stated.
Fastenal’s bids boosted Anixter’s initial offer of $25 million by more than 30%, inadvertently increasing the bonus for Polimeni and other executives by more than $350,000.
According to court documents, Polimeni and CFO Michael Wise stand to walk away from the company with substantial bonuses. DDI earmarked more than $2.2 million for Polimeni and 11 other “key” employees.” Polimeni is scheduled to receive $1.4 million and Wise is slated to pocket $292,500, on top of their current unspecified compensation packages. In addition, Polimeni and other DDI executives will also receive 4.2% of any proceeding in excess of the original $25 million bid.
Vendors Could Still Lose Millions
Grubbs said Anixter expected to assume more DDI debt than the final price allows them to.
“Our total outlay for the purchase does not materially change from what was contemplated, rather the mix changes between the assets and operations purchased and the purchase of pre-petition claims,”” Grubbs explained.
“We also recognize the losses incurred by the suppliers to the DDI business and we look forward to new mutually beneficial relationships as we go forward,” he offered.
Several prominent fastener suppliers, including Textron Fastening Systems and Porteous Fastener Co., are collectively owed millions by DDI. The bankruptcy judge has set aside a $4 million fund to pay claims against DDI. The funds will not be disbursed before July 15, 2004.
Fastener companies on the unsecured creditors committee are Textron, which is owed $587,014; Porteous $577,303; Matenaer Corp. $120,244; Safety Socket Screw Corp., $109,195; Brynolf Manufacturing, $103,446; Kanebridge Corp.,$84,265; and Lindstrom Metric, $62,465.
Other fastener companies owed money by DDI include Brighton Best Socket Mfg. Co. ($173,374); SPS Technologies ($146,134); Heads and Threads International ($102,687); Hill Fastener Corp. (83,337); Emhart Teknologies ($66,721); and Rockford Fastener Inc. ($74,760).
The bankruptcy filing includes 1,739 unsecured creditors owed more than $8.4 million.
Fastenal Buys DDI Oregon Operations In Separate Auction
The DDI sale to Anixter did not include two facilities in Portland, OR, which were sold in a separate auction. Fastenal reportedly bought the Portland facilities for about $1.1 million, topping offers from Portland-based RBJ Fasteners and Hodell-Natco Industries Inc.
Anixter Boosts Fastener Presence
Buying DDI boosts Anixter’s fastener presence to about $400 million in annual sales and increasing their fastener workforce to about 1,000 worldwide. In addition to Pentacon, Anixter acquired UK-based Walters Hexagon in 2003.
“This acquisition is an important step in our continuing strategy of building a global OEM supply business,” Grubbs noted. “Benefits of the acquisition include the addition of an excellent team of people, a number of blue chip customers and new geographic locations that will complement our previous acquisitions of Pentacon and the Walters Hexagon Group.””
The DDI purchase also provides Anixter with a platform to pursue more multinational OEMs. Grubbs stated that Anixter’s size and services provide “a sound alternative to the many local and regional suppliers in this business.””
DDI reported sales of $76 million during fiscal 2003 and has 227 employees. Anixter said it would extend employment offers to all DDI workers.
DDI Deal Roils Fastener Suppliers
Anixter signed a purchase agreement with DDI for $25 million on April 23, three days before DDI filed for bankruptcy protection.
In May the court ruled that DDI must entertain bids for portions of the company, but the partial bids must collectively add up to more than the amount DDI would receive for selling the company intact in order to be deemed valid.
The ruling was a concession to the group of unsecured debtors owed at least $8.4 million by DDI. The group unsuccessfully fought to block a “Key Employee Retention Plan” that guaranteed Polimeni’s bonus.
Polimeni, who joined DDI in September 2003, was head of Questron when it went bankrupt and was subsequently sold to GE to form GE Supply Logistics.
Considering that Polimeni and Wise have worked for DDI only since the fall of 2003 and continue to receive their annual compensation packages, the vendors group claimed the KERP is “excessive.””
Court records show that Polimeni and his associates will be compensated in full before vendors receive any money.
Off the record comments to “FIN” showed how angry suppliers are.
One DDI supplier lamented that “we bent over backwards to hold prices and not shut down any of their customers and I found out yesterday that I will not even get a penny from the goods I shipped in the last 10 days prior to Chapter 11 while Polimeni and the CFO get their ‘blood money.’ Why don’t you start a ‘Hall of Shame’ and induct these two beauties as charter members?””
One supplier found that not only was he not getting paid but “we even shipped an item wrong and they won’t return it, claiming it is illegal.””
One former Questron distributor told FIN that Polimeni was reportedly soliciting higher lines of credit from fastener vendors at the National Industrial Fastener Show/West in Las Vegas last November. �2004 FastenerNews.com