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More from The Deal's John Morris' keynote interview with famed distressed investor Wilbur Ross Wednesday at The Deal's M&A Outlook 2008 conference at the Ritz-Carlton, Battery Park in New York City.
Morris brought up an interview Ross did with The Deal in 2000, in which the investor said he was watching a lot of companies that had gone through leveraged buyouts, having taken on debt in the late '90s. At the time, Ross said:
Auto parts When asked if any of the industries he had in mind at the time played out, he pointed to three: textiles, coal and auto parts. The latter industry, he said, saw popular LBOs back in the '90s and then went south, like Collins & Aikman, of which WL Ross & Co. has bought many assets. With respect to auto parts, Ross is just looking at suppliers, he said, not OEMs, thinking one can’t do both. Auto parts is attractive because globally it’s a $600 billion industry and highly fragmented — as no company has more than 5% — but all of these companies are trying to sell to just a small number of OEMs. The second problem he points to is that all tend to be tied to one individual OEM, which is problematic because a company's success depends directly on the OEM's performance. And on the other end, the raw materials base supply is short. "The companies kind of find themselves stuck in no-man's land," he said. "Part of our idea was to rationalize the industry," he said, beginning with interior plastics. For the auto industry on the whole, the new labor agreements the Big Three made give them a lot more flexibility. Previously, he said, contracts were such that: "You [could] put the guy out of work, but you [couldn't] put him off the payroll." They had to keep making cars regardless of demand. Now, they're beginning to regain control a bit. Mortgages and lending "I don't think the subprime crisis is over by a long shot," Ross said. "What we're doing is not buying portfolios of loans," he said, noting that it's too early to do that, but instead buying master servicing rights. "We think that's a reasonable business even with the deterioration of portfolios." On securitization, he said, there will be "class warfare" among the different tiers; the battle will be in the tranches. Ross' latest endeavor includes teaming with Richard Branson as well as AIG and investors from China, the U.K. and the United Arab Emirates on a bid to rescue embattled U.K. lender Northern Rock plc. "It may be the first bank in history to fail not because of bad assets but because of poor liability management," he said, adding that its problem is it's indebted to the Bank of England for around £24 billion ($51 billion). "We would become equity owners," he said. On competition Ross believes his firm's competitive advantage comes from its heritage, having first been a unit of Rothschild. Most people in distressed investing have a background in high-yield, market making activity, he said. Ross looks at things from an industrial point of view as opposed to a trading point of view. "[The] people we run into the most are Carl Icahn and Warren Buffett," he said, but that "they tend not to buy things that are as sick as we buy." Over general perception, he said, they have little control, but noted: "The vulture term is really wrong ... our bird should be the phoenix." Ross is in the business of rehabilitation as opposed to liquidation. A lot of it has to do with what it is you actually do, which people understand when they see it, he said. — Carolyn Murphy See Wilbur Ross' 2000 interview with The Deal's David Carey Categories Deal Video
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