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Tower Automotive, Inc. Business Information, Profile, and History

company industry components acquisition

4508 IDS Center
Minneapolis, Minnesota 55402
U.S.A.

Company Perspectives:

So what do we belong to at Tower Automotive? The answer is something beyond the bounds of a traditional company, something much less tangible and far more appealing. We are nurturing an organization much akin to a community that is created by common place or piece of property. No one owns a community and, as such, a different form of governance must prevail. Core community members are not employees but rather citizens with responsibilities as well as rights. They look to a purpose and culture that is clear, compelling and pervasive. In a world of increasing interdependency and rapid change, the top-down, command-and-control model of structure is hopelessly ineffective and, in fact, destructive.

History of Tower Automotive, Inc.

A leading supplier of automotive components to U.S. and foreign carmakers, Tower Automotive, Inc. makes metal stampings, metal assemblies, and other products for the automotive industry. Tower recorded explosive growth during the 1990s, as it embarked on an acquisition campaign that transformed it from a small metal stamping company into a full-service giant capable of supplying automotive manufacturers with the components used to make their products. At production facilities in the United States, Canada, Japan, Brazil, Mexico, and Italy, the company produced car hood hinges, brake components, car and truck frames, axles, and a bevy of other products that carmakers purchased from outside vendors. The company's most important acquisition during the 1990s was its 1997 purchase of the automotive products unit belonging to A.O. Smith, which tripled the size of Tower. During the late 1990s, Tower derived the bulk of its sales from three domestic customers--Ford, Chrysler, and General Motors--but was making a concerted move into international markets.

1993 Formation

In the 1990s, there were two closely allied trends in the automotive industry that supported Tower's meteoric rise in the automotive components industry. First, car manufacturers increasingly were turning to outside manufacturing sources for a sizeable number of the components used to make their products. It was a trend borne out of the need to reduce costs, enabling car manufacturers to avoid high wages and benefits they otherwise would have had to pay to their union workers. As carmakers increased their reliance on outside vendors, they demonstrated a desire to limit their contracts to outside sources to an exclusive few. Rather than subcontracting their components-manufacturing business to hundreds of outside sources, car manufacturers preferred to deal with only a handful of vendors. This was the second trend, which, when combined with the first, caused the automotive components industry to grow and consolidate at the same time. The production of components such as car hood hinges, brake components, fenders, frames, and a host of other assemblies and parts became big business, and that business would only be won by automotive component companies large and technologically sophisticated enough to earn the esteem of the giant car manufacturers. Against this backdrop, Tower flourished in the foreground, mirroring the industry trends swirling around it. The company awoke from its sleepy origins to record animated growth during the 1990s. It grew by taking actions that caused the general trend toward consolidation: Tower rose to the top of its industry by swallowing up competitors, acquiring one company after another until it had seized a leading market position. Starting from the less than $100 million in sales it generated in 1993, Tower embarked on a period of prodigious financial growth, creating an industry giant four years later, when the company's revenues eclipsed $1 billion. From there, the company set its sights on global dominance.

Behind Tower's remarkable ascent were forces other than the two industry trends that supported the company's growth. When Tower began its prolific rise in the automotive industry in 1993, it was an $85-million-in-sales company known as R.J. Tower Corporation. The company was a small yet respected steel stamping concern with two production facilities, one in Greenville, Michigan, and another in Auburn, Indiana. R.J. Tower was preparing to establish another facility in Bardstown, Kentucky, when its destiny was altered significantly by the entrance of an industrial management firm based in Minneapolis, Minnesota, named Hidden Creek Industries. At first blush, Hidden Creek, with a total payroll of eight people, would not strike outsiders as a company capable of changing the face of R. J. Tower forever, but behind Hidden Creek was Onex Corp., a large Toronto-based holding company that ranked as one of the 25 largest companies in Canada. With the financial help of Onex, Hidden Creek was formed in June 1989 with the primary objective of acquiring automotive-related manufacturing companies. The new, privately held partnership was given $23 million to carry out its objective. When the paths of Hidden Creek and R.J. Tower crossed, the result was Tower Automotive Inc., a small sheet metal parts-fabricating company that was about to begin its new life and reshape the automotive components industry.

Hidden Creek, led by S. A. "Tony" Johnson, bought R.J. Tower in April 1993 and emplaced Dugald "Dug" K. Campbell as its president and chief executive officer. Campbell, who was in charge of Tower's day-to-day operation while Johnson presided as chairman of the board, was the individual chiefly responsible for leading Tower Automotive Inc. to new heights. Although Campbell acquired rival companies at a pace that bespoke industry domination, his management style was far from that of a typical corporate autocrat. Abhorring the classic "top-down" management structure that prevailed throughout the country, Campbell instilled a business culture that focused on team leadership and eschewed corporate titles. Employees, from janitors up to Campbell's position, were never referred to by job titles. They were all "colleagues," working in "teams" for an organization without traditional hierarchies. "Team leader" was as prestigious a job title as anyone at Tower could earn, and that designation was only applied if other team members agreed.

This new, iconoclastic Tower began to take shape in 1993 shortly after Campbell moved into the company's operating headquarters in Grand Rapids, Michigan. There, where a total of 11 employees worked in conjunction with financial headquarters staff in downtown Minneapolis, the process of developing Tower into an industry leader got underway. In 1994, the company acquired Edgewood Tool & Manufacturing, based in Romulus, Michigan, and officially became Tower Automotive. Other acquisitions quickly followed, as the company moved forward with its agenda to develop a dominant automotive components manufacturer predicated on the principle of employee empowerment. The old R. J. Tower Corp. was replaced with the Tower Automotive of the 1990s through the acquisitive bent of Campbell and his loosely organized "team leaders." Following the purchase of Edgewood Tool & Manufacturing, Tower acquired Kalamazoo, Michigan-based Kalamazoo Stamping & Die Co. in June 1994. In August 1994, the company completed its initial public offering of stock. Next, in January 1996, the company acquired Trylon Corporation from MasoTech Inc. and four months later purchased another company from MasoTech Inc. called MasoTech Stamping Technologies Inc., based in Rochester Hills, Michigan. As the new companies were absorbed into Tower's operations, the company's revenue volume swelled, rising from $85 million to $220 million by the end of 1994, and up to $400 million by the end of 1996.

1997 A.O. Smith Acquisition

Less than three years after new owners and new management took over, Tower was a vastly different company than the small stamping manufacturer that had operated as R.J. Tower Corp. The new version of the Tower name was registering $20 million in operating earnings from the production output at its 11 manufacturing facilities and deriving the bulk of its sales from Ford Motor Co. Specializing in producing body structure chassis and suspension components, Tower also supplied Chrysler Corp., Mazda, Honda of America Manufacturing, Toyota Motor Manufacturing, and Nissan Motor Manufacturing, quickly making a name for itself among the elite cadre of car manufacturers as a well-equipped, well-managed supplier. With nearly 3,000 employees, Tower was on the verge of breaking into the upper tier of its industry segment, but the company needed one large acquisition to push it over the edge separating industry stalwarts and runners-up. That decisive push arrived in early 1997, when Tower announced a pending acquisition that would serve as a catapult to launch the company toward the top of its industry. The acquisition reflected the times: The automotive components industry was consolidating in a rush; it was either acquire or be acquired for some the seasoned veterans of the business.

In early January 1997, Tower announced it had struck a deal to acquire the automotive products unit of A.O. Smith Corp., one of the oldest and largest manufacturers of automotive components in the United States. A.O. Smith had built the first pressed steel car frame in the country, making its pioneering part in 1899. The company had manufactured frames for the Ford Model N in 1906, and subsequently had developed intimate ties with all the largest car manufacturers during a nearly century-long legacy in the automotive parts business. The $625 million acquisition was a telling example of the forces at work in the automotive components industry; an age-old legend was about to be acquired by a burgeoning upstart, the old was giving way to the new. Executives at A.O. Smith were unable to rationalize the expenditure required for the capital improvements needed to keep their automotive components unit competitive, and had decided to fold their hand. Tower, surging forward with a resolute conviction to climb the industry's rungs, stood to benefit handsomely from the deal. The purchase price was hefty, but the company's stature as an automotive components manufacturer able to garner the business of car manufacturers would increase dramatically once A.O. Smith's business was absorbed.

The acquisition, completed in April 1997, tripled the size of Tower, lifting its revenue volume to $1.3 billion. Prior to the acquisition, A.O. Smith's automotive products unit had generated $860 million in sales and produced operating earnings of $110 million, financial figures that overshadowed Tower's $400 million in revenues and $20 million in operating earnings. Tower's payroll, totaling 2,900 employees, ballooned to more than 8,000, once the 5,200 former A.O. Smith employees were assimilated into Campbell's egalitarian organization. In terms of manufacturing might, the acquisition more than doubled Towers' production operations, adding 14 plants in the U.S., Canada, and Japan to the 11 facilities the company owned before grabbing its much larger rival.

Aside from the numerical gains, the acquisition engendered other advantages, namely, the addition of A.O. Smith's leadership in the car frame business, which complemented Tower's strength in the chassis, suspension, and body structure business. The combination of the two business areas created unmatched system capabilities that Tower could use to lure business away from competitors. The capability to provide a full-range of automotive components to original equipment manufacturers such as Ford and General Motors was becoming a necessity for survival as the 1990s progressed, and the addition of A.O. Smith's talents did much to improve Tower's appeal to its clientele. The acquisition also broadened Tower's customer base, particularly its relations with General Motors. Before the absorption of A.O. Smith, Tower drew two-thirds of its business from Ford, 10 percent from Chrysler, 9.2 percent from Honda, but only a negligible 3.5 percent from General Motors. After Tower and A.O. Smith were fully integrated, however, industry pundits were projecting that nearly a fifth of the company's business would be derived from General Motors, the same percentage it was expected to draw from Chrysler. Further, the addition of A.O. Smith established stronger links with large Japanese manufacturers Nissan and Isuzu.

By all accounts&mdash one industry analyst chimed in after another--the acquisition of A.O. Smith was heralded as an astute move on Campbell's part, strengthening the company across all fronts and thrusting it into an enviable market position as the dollar value of its industry increased. "Whereas everyone knows that systems integration is the wave of the future with interiors," one analyst pointed out, "most suppliers in the stamping business have been slow to respond to the need for modularity. That's where Tower has been ahead of its competitors." Another analyst noted the behind-the-scenes presence of Hidden Creek, saying, "Hidden Creek has become a big player in this industry; a lot of people assume they are just financial types, but they are very operationally and strategically focused. And that shines through in a company like Tower." Campbell was pleased, but by no means ready to sit back and forego further growth through acquisitions. In a letter to Tower shareholders, he demonstrated a flair for the dramatic, writing, "We know the plot and a bit about all the characters, but the story is incomplete. As we go into 1997 with the (A.O. Smith) acquisition, the curtain is coming up on the crucial second act... ." One outside observer suggested he knew what that second act would be when he remarked to Automotive Industries, "I'm sure that (Onex and Hidden Creek, Tower's corporate parents) are on the acquisition trail now, especially in Europe. The fundamental challenge to maximizing this business is taking it global. That will be the next step."

Late 1990s International Expansion

Indeed, international expansion was the next step taken by Tower, as the company pushed its presence overseas with the purchase of a Turin, Italy-based stamping company named Societa Industria Meccanica Stampaggio S.p.A. On the heels of this acquisition in May 1997, the company announced in August 1997 that it was purchasing a 40 percent interest (held by A.O. Smith) in automotive steel frame-maker Metalsa SA de CV, Mexico's largest supplier of auto frames and structures. Next, in February 1998, Tower agreed to acquire a 40 percent interest in Metalurgica Caterina S.A., a supplier of structural stampings and assemblies to the Brazilian automotive market. When the deal was announced, Campbell expressed his pleasure about the equity stake, remarking confidently, "Brazil represents one of the fastest growing automotive markets in the world and presents a substantial opportunity for Tower Automotive's growth over the long-term."

As Tower prepared for the beginning of the 21st century, it was clearly a company to watch in the years ahead. There was no evidence to suggest that the company's strident rise in the automotive components industry would come to a halt. Further acquisitions, particularly those that bolstered Tower's presence in international markets, were in the offing as the company prepared for the future. The company was financially sound and led by a management team that had given it an early lead over competitors in the race to become full-service suppliers to original equipment manufacturers. The only nagging question clouding the company's future was how its laissez-faire management approach would translate in foreign markets, but with Campbell at the helm Tower's global expansion was moving briskly forward, mindful of the concern. The day when the Tower name would be recognized as a global leader hung like a carrot in front of the chief executive's eyes, prodding the company forward toward worldwide dominance.

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