Newspaper article St Louis Post-Dispatch (MO)

Carl Icahn Is Giving Acf a Deal It Can't Refuse

Newspaper article St Louis Post-Dispatch (MO)

Carl Icahn Is Giving Acf a Deal It Can't Refuse

Article excerpt

Ousted from Trans World Airlines Inc. and all but finished in the takeover game, financier Carl Icahn has turned to doing deals with himself.

But the deal Icahn is contemplating would be his crowning achievement at ACF Industries Inc., the Earth City-based railcar company that has been his main investment vehicle for nearly a decade.

In an elaborate shuffle of ACF's $1.99 billion in assets, Icahn would extract $475.3 million in cash, along with as much as $553.8 million worth of junk bonds, stock and other securities.

The money represents much of the profits Icahn rang up in the late 1980s and early 1990s from his runs at USX Corp. and Texaco Inc., plus gains on more recent investments.

The transfer of assets would turn Highcrest Investors Corp., a shell company Icahn created last month, into a formidable financial machine.

But it would leave ACF with a heavy debt load, strip it of equity and leave it with a negative net worth.

"Basically, what we have here is ACF paying ransom," said Juli Niemann, of Huntleigh Securities Corp.

ACF and a related company plan to issue $800 million in new debt in the deal, a recapitalization designed to:

Focus ACF's operations on its primary business - manufacturing and leasing tank cars and covered hopper cars used to transport grain and other commodities.

Reduce interest rates on the company's debt, and stretch out repayment schedules.

Enable the company to make the distribution to Highcrest.

But to the president of ACF, James Unger, the deal means a chance to simplify the company's structure.

Unger said that the separation of the railcar and investment operations would eliminate confusion in the financial markets and help ACF raise money for its leasing business.

"It will provide growth opportunities for the railcar company and its employees," he said.

ACF has 1,745 workers, 300 of whom work at its headquarters. The company also employs more than 200 people in Jackson, Mo., and roughly 100 in Kansas City.

The company, which was established in 1989, has a long history in St. Louis. It once operated American Car Co., a freight-car maker that employed as many as 2,000 people at a 48-acre complex in south St. Louis.

ACF also owned Carter Carburetor Co., which employed almost 3,000 people at several plants in the metropolitan area.

ACF closed all of the manufacturing operations in the mid-1980s, when demand for railcars and large-engine automobile carburetors plummeted.

Icahn took over ACF in late 1983 in classic leveraged buyout fashion, using borrowed money and the proceeds from a prearranged sale of some of its assets.

He took out his initial investment in the company in an earlier recapitalization.

Although ACF has done well in its remaining tanker and hopper-car business, its heavy debt load has weighed down profits. The exceptions were 1989 and 1991, the years Icahn cashed out at Texaco and USX.

ACF lost $17.8 million last year on revenue of $349.2 million.

Unger declined to discuss ACF's recapitalization in greater detail, because the debt offering is in the preliminary stages and the company could run afoul of Securities and Exchange Commission regulations.

Icahn did not respond to a request for comment.

But Niemann and others question whether the deal would indeed benefit ACF.

Icahn used a similar debt-financed transaction to take his original $440 million investment, plus a $29 million profit, out of TWA in late 1988.

"As Yogi Berra says, `It's deja vu all over again,' " Niemann said.

TWA struggled financially for three years after the recapitalization, then filed for bankruptcy after defaulting on its debt payments.

Although bondholders will get a 55 percent stake in TWA as part of its reorganization, which is scheduled to be completed Sept. …

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