Canada’s Rite Way Mfg is set to become the new owner of fellow Canadian manufacturer Morris Industries from 1 July 2020 if the Morris receiver can get the Saskatoon Canada court to stamp its approval on the deal.
Not many would have expected that when Rite Way Mfg started out in 1972 with a rock picker they would one day be in charge of the high-end Morris range.
At that time Morris Industries was already a powerhouse multi-million-dollar operation with models sold worldwide.
The drama for Morris Industries Canada came to a head on 8 January 2020 when the company filed for court protection against several creditors eager to get paid.
The company advised the court it did not have enough cash to make payroll and meet its other obligations, debts of more than $50 million owed to a bevy of creditors that were eager to appoint a liquidator and take control of the company.
Morris Industries management had a handle on the situation from where all the troubles began.
The company pinpointed a timeline where rising overheads and production costs were associated with the introduction of ShieldCore welding technology and the release of its Quantum Air Drill product line in late 2018.
Morris Industries chief operating officer Kevin Adair said at the time, initially the Quantum line was a big success for Morris in Canada and abroad. However, the Quantum drill openers developed problems.
And while in North America the issues could be dealt with through an upgrade program, it was their export markets where a money drain far too big to block would occur.
In export markets where the units came under more wear and tear with dryer soil conditions and longer growing seasons – the problems with breakages were exponentially greater.
The issue called for changes to the design and eventually the complete replacement of the drill openers and this cost ended up accounting for as much as 40% of the original unit cost.
By September 2019 this unexpectant expense drained the company resources and led to a crisis point as to how the company could continue.
The resulting warranty issues called for “a significant capital investment far beyond any foreseeable estimates,” the company said at the time.
Morris did implement cost-cutting that included periodical shut downs at their Yorkton SK, and Minnedosa MB Canadian plants, along with subsequent wage cuts to the assemblers workforce.
But the situation was also compounded due to fewer orders flowing through as the in-paddock issues began scaring off new buyers, a Morris Industries Canada company spokesperson said.
Morris was now at a stage where it had significant expenses tied up in completed equipment that also required an additional 40% spend to replace the drill openers.
Morris was at a tipping point where its successful long held marketing plan to place product world-wide on floor plans for its dealers, had now become its weakness, as carrying costs under this arrangement adding up to further unbearable expense.
However, with the Saskatoon Canada court protection granted to Morris Industries in early January 2020 it served to stave off any immediate challenge to its management. The order granted a stay of proceedings until 27 March 2020.
The court appointed Alvarez and Marsal as receivers to oversee the effort to restructure and get the company’s finances in order.
This was helped when the Morris Group was able to secure interim financing of $5.7 million from the Bank of Montreal.
It became apparent throughout the process that the best way forward was for a new entity to take over the Morris Industries business.
But by early May 2020 it was clear that the receivers and Morris management were not happy with the offers they received all were flatly rejected.
With the only obvious option left, to wind up the company, receivers Alvarez and Marsal went back the unsuccessful bidders and opened up further discussions on different terms.
This strategy struck gold as it was announced that a successful bid from Rite Way Mfg is poised to succeed and buy the assets of Morris Industries, according to court documents filed 26 May.
The deal is slightly complicated as Superior Farm Solutions Limited, which operates the Rite Way field equipment business, has submitted a non-binding letter of intent for a proposed acquisition.
However, the receivers expect an asset purchase agreement by 19 June, with the deal to close by 30 June 2020.
Details of the offer have not been made public as the receivers did not want to disclose any information to third parties before a binding asset purchase agreement was closed.
It added that releasing these details of the sale could jeopardise efforts to attract future offers, if the binding asset purchase agreement and closed sale does not proceed.
Morris Industries creditor and work force will have to wait until 3 July when the court will be advised if the potential purchase has been completed.