JLK to downsize after merger with Kennametal

By Staff -- Industrial Distribution, 10/1/2000

Latrobe, Pa.-Kennametal Inc. is buying the remaining shares of JLK Direct Distribution, and the distributor announced layoffs and facility closings that could begin next summer.

Kennametal said in early September that it would acquire shares of JLK that it does not already own-it owned 83 percent-for $37 million. Following JLK's purchase of shares in the tender offer, Kennametal will acquire the remainder of the minority shares at the same price in a merger. The transaction was unanimously approved by JLK's board, including a special committee comprised of independent directors, the company said.

Profits have fallen during the past two years for Livonia, Mich.-based JLK. The company reported net income for its 2000 fiscal year, which ended June 30, of $17.8 million, down 13 percent compared to the previous year. Sales slumped three percent to $499 million, excluding the divestiture of the Strong Tool Co. steel mill business.

JLK sells metalworking consumables and related products, including a full line of cutting tools, carbide and other metalworking inserts, abrasives, drills, machine tool accessories and other industrial supplies.

JLK also said it expects to incur special charges of $15 to $20 million as part of its business improvement plan. That will include the closing and consolidation of warehouses, satellite operations and call centers, asset writedowns and associated workforce reductions during the first half of fiscal 2002.

Kennametal earlier this year tried to sell the distributor but ruled it out because the offers received were not high enough. Kennametal CEO and president Markos Tambakeras said earlier that his firm was committed to realizing full value for JLK.

"JLK remains a non-core, good business," he said in April, and "we're committed to realizing acceptable value for our shareholders."

Also during the spring, JLK CEO Richard Orwig resigned and was replaced by Jeffery Boetticher, a member of JLK's board of directors who previously was CEO of Black Box, a leading catalog company.

Tambakeras noted the JLK's performance had recently improved. He said results during March and April showed that JLK had turned the corner after its recent investments in a new enterprise resource planning system and an online catalog.

Commenting on the 2000 results, William Newlin, chairman of JLK's board, said, "Obviously we are extremely disappointed with the financial performance for both the quarter and the year. We are developing an action plan to improve performance and get the business back on a growth track ... JLK is a good franchise and we are confident that we can fix the problems and improve our performance.''