Belden Inc., which recently acquired CDT's NORCOM wire and cable business, may now close the operation so that it can begin selling to its Canadian customers.
The NORCOM operation is based in Kingston, Ontario. NORCOM is a division of NORDX/CDT, a Canadian subsidiary of CDT.
Belden www.belden.com, based in St. Louis, Mo., purchased the accounts receivable, inventory, and equipment and will assume the accounts payable and certain other current liabilities of NORCOM, for approximately $11.3 million. The transaction closed on Oct. 31.
When the purchase was complete, Belden representatives informed the employees of the Kingston plant that it will reduce the workforce by probably 100 people immediately, and that it may close the plant.
"We are considering closing it down," says Dee Johnson, director of investor relations for Belden Inc. "If we don't close it down, we'll make products for all various customers, freight, purchasing, look at places for reduction."
The plant, which employs about 300 people, manufactures wire and cable products for the communications industry. Customers of the plant include Bell Canada and other communications service providers and distributors in Canada and the United States. And it is these customers that Belden would now like to absorb.
"This will increase our market share and give us access to wonderful customers like Bell Canada and some distribution customers where NORCOM has all the strengths," says Johnson.
Johnson notes that the demand for the plant's products has fallen by half from a year ago.
NORCOM had revenues of approximately $50 million in the last 12 months, down from $100 million in the prior year.
"The main thing is the level of demand from telecom customers for copper cable," says Johnson. "The demand for copper cable is below the maintenance level right now - they are deliberately under-spending for a variety of reasons."
Johnson says by closing the NORCOMM operation, Belden could effectively close a money-losing venture and consolidate the industry further, opening up a new avenue to NORCOMM's customers.
"We can turn it around," says Johnson. "There is just too much capacity in the cable industry for this current level of demand. Some consolidation might be favorable for us to get our company back to profitability."
"This acquisition strengthens our presence in the North American market and further positions Belden to benefit when our communications customers resume a more customary level of spending for their vast installed copper network," agrees C. Baker Cunningham, president of Belden.
Johnson says Belden has undergone an aggressive cost reduction program of its own for the past two and a half years, and can now approach parity with others in the industry.
"Like everyone else, we've seen a lot of contraction in our key markets," says Johnson. "Cable for the electronics industry is the main part of our business, and the demand has flattened out. We are now bumping along the bottom, but we are still below prior years."
NORCOM occupies a plant of approximately 500,000 square feet. Fred Kuznik, CDT's CEOP, says the cash received from the sale to Belden will be used to reduce bank debt and other liabilities.
"This transaction presented an opportunity to exit a business where we had a very small market share and that was not strategic in our long-term plan," says Kuznik. "The transaction will result in a pre-tax loss of approximately $45 million on the sale in our first fiscal quarter ending Oct. 31, which would be improved by the receipt of the contingent payment of approximately $8.1 million."
"This business has, during the prior fiscal year and recently, been in a loss position due to our small market share, inability to achieve synergies with other CDT businesses, and general market conditions," Kuznik adds. "We view this disposition as positive for future earnings."