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Ravi Sood (right) thcought Timminco’s technology couldn’t work. Eric Sprott (left) thought it couldn’t miss (Sean Sprague (left) and Tim O’Rourke (right) For Report on Business magazine)
Ravi Sood (right) thcought Timminco’s technology couldn’t work. Eric Sprott (left) thought it couldn’t miss (Sean Sprague (left) and Tim O’Rourke (right) For Report on Business magazine)

ROB Magazine

Timminco: How Eric Sprott got solar burn Add to ...

Timminco’s primary business was producing magnesium and related alloys at a decrepit plant in the Ottawa Valley town of Haley Station and at another facility on the outskirts of Denver. In the 1990s and early 2000s, Timminco produced magnesium for use in luggage frames, storage tanks, water heaters and sporting goods. It was, in the words of a former director, “a not very sexy business.”

It was about to get sexier. The solar adventure began because Timminco came to represent a chance at redemption for a onetime business wunderkind from Europe who had fallen from grace. Heinz Schimmelbusch had been, more than a decade before, CEO of Metallgesellschaft AG. In the late 1980s and early 1990s, the Austrian-born Schimmelbusch was a dashing business leader and a confidant of German chancellor Helmut Kohl. Schimmelbusch envisioned Frankfurt-based Metallgesellschaft as a world-beating metals giant and a German corporate champion. “We are a miniature version of Mitsubishi,” he told BusinessWeek in 1990. “With environmental services and materials technology, it will be very difficult to make this company unstable.”

Under Schimmelbusch’s direction, Metallgesellschaft went on a $2-billion (U.S.) acquisition spree and soon comprised some 258 companies around the world. But the “mini-Mitsubishi” story ended abruptly in 1993, when Metallgesellschaft suffered a loss of $1.1-billion (U.S.) stemming from a wrong-way bet of Schimmelbusch’s on oil futures. The firm nearly went bankrupt and Schimmelbusch was out as CEO.

Leaving Germany’s financial capital behind, Schimmelbusch retreated to an unlikely venue: Wayne, a suburb of Philadelphia. It was here, along with Arthur Spector, an American lawyer with an avuncular manner, that Schimmelbusch began plotting his comeback.

In 1997, the two men founded the technology-focused private-equity firm Safeguard International Fund LP. Among Safeguard’s first investments was the 1999 purchase of Bécancour Silicon Inc., a Quebec silicon maker based in the municipality of the same name. Other than Schimmelbusch, Spector and an affiliate of Credit Suisse that had a small stake in the fund, it is unclear who else invested in Safeguard.

By 2003, Safeguard said it managed investments worth $370-million (U.S.). It was during that year that it became Timminco’s apparent saviour.

Timminco had been struggling, in part because of the destruction of the Haley Station plant in a fire. The company was deeply in debt, owing $30.4-million at the end of 2002, almost all of it to the Bank of Nova Scotia, which had put its client in workout mode. Timmins had stepped down as CEO in 2001; while he was still the firm’s non-executive chairman, former insiders say, he had lost the confidence of the bank and much of the board. He was often excluded from meetings.

Timmins confirms that once he stepped down as CEO, he had “no responsibility” for operations. That role had fallen to board member John Crow, the former governor of the Bank of Canada, who had been appointed acting CEO in 2001. Tasked with getting Timminco on solid footing, Crow formed a special board committee and hired bankers from CIBC World Markets to shop the firm to possible buyers and investors.

Despite being relegated to the sidelines of its management ranks, Timmins was still in a position of power: He controlled the largest chunk of Timminco stock and votes, approximately 46 per cent of the float.

In April, 2003, Safeguard bought six million Timminco shares in a private placement for $1.10 each–a large premium to Timminco’s share price of 68 cents. Safeguard later offered to purchase up to four million shares from shareholders, also at $1.10.

The two transactions gave Timminco much-needed breathing room with the Bank of Nova Scotia. But the investments would also have other implications. Although the purchases gave Safeguard just 10 million Timminco shares out of more than 30 million shares outstanding, Schimmelbusch and Spector had negotiated a side deal with Timmins that would give them effective control of more than 50 per cent of the stock. Thus Safeguard was able to gain control of Timminco for just $11-million, even though the company’s market valuation was about $24.5-million.

“This was a refinancing, right, and these people were coming in to refinance the company,” says Timmins, by way of explaining the transaction. “I was a shareholder and it seemed like the best thing for all the shareholders to have that done at the time.”

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SII-T Sprott Inc. 2.50 -0.03
-1.186 %
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