Cerberus, Tower and China

It was six years ago that Cerberus Capital bought the auto parts maker Tower International for around $1 billion, betting on the recovery of the bankrupt firm under new management.

In a small initial public offering three years later, Cerberus sold Tower shares for 11% less than it had paid, raising $81 million. As of this June, Cerberus held 12.47 million shares of the company, valued at slightly less than $20 a share. In July, it sold 7.89 million shares for a little over $20 in a secondary public offering, raising another $160 million.

Taking the two sales together with the original cost, this does not look like a good investment. Cerberus could have continued to wait. Indeed, it still owns a significant stake in Tower. But apparently there is a desire to exit—a small chunk of additional shares were sold separately from the secondary offering.

What’s the hurry? Tower made a net loss in the second quarter; though revenue rose slightly. CEO Mark Malcolm pointed to global troubles. “Civil unrest in Brazil is having some negative near-term effects on business,” he said in a conference call. “A key customer of ours in China is having a slow launch this year on a key new vehicle for Tower.”

China’s economic slowdown in particular cast a pall on Tower’s prospects, with a Chinese product Tower provided parts for discontinued. While that may change, Cerberus chief Stephen Feinberg must have decided against an indefinite wait.


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