Gardner Denver IPO includes $100 million gift to workers
SHEBOYGAN - Gardner Denver, a Milwaukee-based industrial company, made a splash Friday on Wall Street and also in the homes of its more than 6,000 employees around the world who were surprised to learn they’re among the new owners of the company.
Shares of the newly minted stock worth a total of $100 million were granted to Gardner Denver employees as part of the company’s initial public offering. Shares started trading Friday morning on the New York Stock Exchange.
Workers at one of the company’s two facilities in Sheboygan, a factory that makes die cast aluminum and injection molded parts for medical equipment, gathered for what they thought would be a brief breakfast celebration to watch CEO Vicente Reynal and other executives ring the opening bell on Wall Street.
That event hit closer to home as the workers learned about their windfalls.
“It’s pretty exciting,” said Dennis Bossler, who works in die polishing at the Gardner Denver Thomas plant. “I’ve been working here 38 years and I never saw this coming.”
Like a number of workers who watched the presentation, it took a bit for Bossler to process the news that he had just received a big bonus.
“I’m trying to figure out what this all means,” he said.
Reynal told employees that they had a new economic stake in the company’s future.
“The power to collectively drive further stems from every one of us coming to work every day with the mind-set of an owner,” Reynal said in a video played for employees shortly after the market opened. “We believe the
most valuable asset of the company is its people and that all employees are critical to its success.”
Gardner Denver employees will be granted shares worth up to 40% of their annual salaries, company executives said. The average factory worker at the facility in Sheboygan is paid $23 to $25 an hour, said human resource manager Pam Maurer.
The video was played at more than 60 Gardner Denver facilities around the world, including operations in the United States, Europe, Australia, China, Africa, India and South America. About 1,800 of the company’s 6,100 employees work in the U.S. A total of 86 work in Sheboygan.
Founded in 1859, Gardner Denver makes a wide variety of industrial systems including pumps for fracking, flow control equipment, and compressors and blowers for a wide variety of applications.
The workers will be granted “deferred stock units,” a move that protects them from having to pay a large, unexpected income tax bill. It also ensures that the market for Gardner stock isn’t disrupted by a sudden surge in sales. The shares will be made available to employees in increments of 25%.
KKR, a private equity buyout firm, purchased Gardner Denver in 2013 for about $3.8 billion. The company offered 41.3 million shares of common stock and was expecting it to sell for between $23 and $26 per share, according to its filings with the Securities and Exchange Commission. KKR reserved about 4.4 million shares for employees.
Shares began trading at $20 Friday morning, and closed at $21.10, an increase of 5.5%.
In addition to giving workers “skin in the game” incentive to improve the company, the stock award sends a message about the business strategy employed by KKR. In the past, such equity buyout firms have had a reputation for driving profit through ruthless cost and employment cuts.
KKR’s leadership believes there’s a more effective way to improve the operations of manufacturing businesses, said Peter Stavros, a KKR executive who is also chairman of the Gardner Denver board of directors.
“To do that effectively, you need the engagement of the front line workforce” by making them owners, he said in an interview. “It makes our companies stronger and more effective.”
Both Stavros and Reynal are 42, and they believe they’re executing modern business practices that will resonate with investors and employees.
“Basically, we’re infusing the company with a lot of new talent and young talent. And that comes with a new way of thinking for a company that’s 155 years old,” Reynal said.
Following the stock sale, KKR remains a majority shareholder, with about 75% of the company’s stock.
Stavros said Gardner Denver is the fourth manufacturing company that KKR has owned where employees have been made owners. In previous cases, the ownership stake was granted at the time KKR bought the company. With Gardner Denver, that wasn’t possible, he said.
“We bought the company and (the) oil (industry) fell apart,” Stavros said. “We’re now coming out of the worst part of it.”
Although the company does not have industrial operations in Milwaukee, its corporate headquarters are in the Third Ward. For a brief time, Gardner Denver was led by Tim Sullivan, the former longtime CEO of mining equipment maker Bucyrus International Corp., which is now part of Caterpillar.
Sullivan paved the way to relocate the Gardner Denver executives to Milwaukee from Wayne, Pa., in 2015. The company received a $400,000 City of Milwaukee grant to move to the new location. The state agreed to provide $2 million in tax credits contingent on creating up to 200 jobs at its headquarters.
Gardner Denver was losing a considerable amount of money when KKR bought it and continues to run in the red. It reported a net loss of $36.6 million in 2016, down from a net loss of $351 million in 2015. At the same time, the value of the company has risen from the $3.8 billion that KKR paid to about $6 billion today, Stavros said.
The turnaround was accomplished by improving management and being more aggressive in areas such as selling to the fracking industry, according to the executives and company filings.
KKR replaced 45% of its top 100 business managers, including its senior management team, and reorganized business segments.
Typically, KKR buys, turns around and sells companies within about five years. That’s not going to be the case with Gardner Denver, Stavros said.
The money raised by the stock sale will be used to pay off debt, make the stock grants to employees and create the ability to make acquisitions, an indication that KKR will lead the company for a longer time than usual, he said.
“We have big aspirations for Gardner Denver,” Stavros said. “We hope a significant portion of the (employees) will see what we see — that there’s a lot of room to run.”
Reynal made it even more clear that acquisitions were in the works.
“We have been actively cultivating other companies.”