RathGibson Inc.

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RathGibson Inc.

2505 Foster Avenue
Janesville, Wisconsin 53547-0389
U.S.A.
Telephone: (608) 754-2222
Toll Free: (800) 367-7284
Fax: (608) 754-0889
Web site: http://www.rathgibson.com

Private Company
Incorporated: 1958 as Rath Dairy Sales Company
Employees: 560
Sales: $200 million (2005 est.)
NAIC: 331210 Iron and Steel Pipes and Tubes Manufacturing from Purchased Steel

Maintaining its headquarters in Janesville, Wisconsin, RathGibson Inc. is the world's leading maker of commercial and sanitary precision stainless steel, nickel, and titanium tubing, offering more than 1,000 products to the food and dairy, beverage, power generation, oil and gas, specialty automotive, chemical processing, pharmaceutical, biotechnology, and semiconductor markets. The company maintains a 190,000-square-foot facility in Janesville, which include 16 mills that focus on straight tubes; a 255,000-square-foot plant in North Branch, New Jersey, that houses 28 gas tungsten arc and laser weld mills and produces mainly coiled tubing; and a 110,000-square-foot facility in Clarksville, Arkansas, specializing in short runs and fast turnarounds for both straight and coiled tubing. RathGibson also maintains sales offices in Houston, Shanghai, South Korea, and Australia. About one-quarter of the plants' production is sold overseas. The company, a combination of Rath Manufacturing and Gibson Tubing, is owned by DLJ Merchant Banking Partners, a private equity investment unit of Credit Suisse Group.

RATH MANUFACTURING, 1952 ORIGINS

The Rath Manufacturing component of RathGibson traces its history to 1952 when Virgil Rath, who sold milking machinery, decided to buy one of his suppliers, Roy L. Meyers Manufacturing Company, a bankrupt farm equipment manufacturer located in Janesville, Wisconsin. Unfortunately, advances in technology quickly rendered the company's products outmoded, and in 1953 the business was barely able to break even. The following year, the company, with only $600 in the bank, nearly shut down, but the family pressed on. Rath's 16-year-old son Duane became sales manager and began driving as far away as the Northeast in a Plymouth convertible to sell the company's dairy farm equipment, while also peddling such household goods as can openers and mixing bowls. He continued to sell for the company even as he went on to earn a degree in English literature at the University of Wisconsin, located about 40 miles north of Janesville. Rather than getting a new car upon graduation, the younger Rath received a promotion, becoming president of the family business, which had undergone a pair of name changes in previous years. In 1958 it became Rath Dairy Sales Company and three years later took the name Rath Manufacturing.

The struggles continued for Rath Manufacturing and its young president, but even when the manufacturing plant was destroyed by fire, the company persevered and continued to fabricate farm machinery out of steel tubing. A major turning point came in 1975 when Duane bought the company from his parents for $112,000 and ceased making farm equipment. Instead, he decided to manufacture steel tubing, an area that he realized presented an opportunity because the supply was often tight, resulting in high prices as well as manufacturers who took their customers for granted. "When the market was in very short supply," Rath recalled in a Forbes interview, "we would call certain vendors for estimates and they would literally laugh at us." His father devoted his time to finding a more efficient way to produce tubing. The traditional method required two steps, one to fashion steel strips into tubes on a mill, and another to finish them in a furnace. Virgil Rath developed the Rath Continuous Processing Mill, which eliminated the firing and subsequent cooling time. Not only was the new process more efficient, it produced a more consistent grade of tubing. Duane Rath also brought in a partner, James R. Sanger, who worked along with his father to design the machines needed to commercialize the innovative technique. With $2 million raised from industrial revenue bonds, Rath Manufacturing completed a plant expansion and the installation of new equipment in 1979, the same year that Sanger became a partner. A third partner, a retired Milwaukee businessman named James Dodson, was added five years later to help the company in marketing its products.

Innovations at Rath Manufacturing did not end with continuous processing, however. The company turned to computers to develop a pricing program capable of providing customers with a firm quote for its products in a matter of minutes. Contractors began turning to Rath when making bids on large industrial jobs. While Rath did not always land the contract, it gained valuable market information that eventually led to more sales, and the willingness to serve its customers forged lasting and lucrative relationships. In addition, Rath benefited from being a nonunion company, but not at the expense of the workers. In 1970 the company's mill operators voted to decertify their membership in the Sheet Metal Workers union, opting instead to work for Duane Rath in a "shared stewardship" relationship. The employees worked without managers, charged with solving their own problems. They also received a weekly bonus connected to the amount of tubing the company shipped during that period. As a result, the employees controlled their own job security by efficiently producing the best steel tubing in the world. Turnover was negligible and the number of people with employment applications on file numbered in the hundreds. Moreover, sales soared, increasing from $6 million in 1984 to almost $45 million in 1989.

Rath Manufacturing and its president gained national attention in late 1989, when at the company Christmas party, Duane Rath announced that the company was establishing a scholarship program that would pay college tuition plus room and board for the children of all employees who had at least one year of tenure. Explaining why he decided to establish such a generous benefit, Duane Rath told the Milwaukee Sentinel, "I think that when a company and a family have been as successful as we have been, I think we have a responsibility to put something back into the system."

COMPANY PERSPECTIVES

For over half a century, RathGibson has been proud to supply its customers with state-of-the-art tubing and piping for such diverse markets as oil and gas, power generation, food and dairy, biotechnology and chemical processing.

DUANE RATH MURDERED: 1994

The scholarship program was Duane Rath's parting gift to his employees, which numbered about 125. A year later he sold the company to a Greenwich, Connecticut, private equity investment firm, Dubin Clark & Company, but not before establishing a foundation to ensure that the scholarship program continued. He stayed on as a consultant for a time, and also joined forces with Sanger and Dodson to form Capital Investments, Inc., in Milwaukee to make small business loans, but his life was soon cut short. In 1994, at the age of 53, Duane Rath was found dead in the master bedroom of his Wisconsin estate along with a pair of butcher knives. He had been stabbed at least a dozen times, the fatal blow severing an artery in his chest. In the garage was discovered his killer and longtime companion, Frederick "Ted" Hurdman, who committed suicide by carbon monoxide asphyxiation, breathing in the exhaust of a Mercedes and a Land Rover, but not before stabbing himself several times and slashing his own throat. A former Green Beret who had served in Vietnam, the 48-year-old Hurdman was an accomplished equestrian. He and Rath had been together for about 15 years, their relationship often stormy. According to press reports Rath had found a new lover. Before taking his own life, Hurdman left a note in the kitchen, leading police to speculate that before the murder the two men had argued over finances and horses.

Ownership of Rath Manufacturing changed hands again in 1995 when the New York private investment company Liberty Partners bought the business. With Liberty's backing, the company in 1999 combined with Gibson Tube Company, based in North Branch, New Jersey. Gibson had been founded in 1962 by Glenn J. Gibson. After graduating from Lehigh University in 1935 with a bachelor's degree in civil engineering and a master's degree in welding engineering, he coinvented the Gas Metal Arc Welding Process while working at a welding company in the post–World War II years. He then established his own company after designing and building a revolutionary small diameter tubing mill. He served as the company's president until retiring in 1982, when he turned over the reins to his son James.

Rath and Gibson were a good fit because the former specialized in larger diameter tubing and the latter's strength was in smaller diameter and extended coil lengths. Although Gibson became a Rath operating unit, it continued to be run as a separate entity under the management of James Gibson. Capital was invested over the next five years to upgrade both the Wisconsin and New Jersey plants. In North Branch, for example, a 55,000-square-foot addition was made and purchases included new laser mills, testing equipment, finishing equipment for a new high purity product line, and zinc cladding equipment—needed to produce coils as long as 80,000 feet in order to compete in the field of subsea umbilicals used by the oil and gas industries. To support the fast-growing global market for subsea umbilicals, a sales office in Houston, Texas, was opened in 2002.

To enter the increasingly important China market, a sales office was opened in Shanghai in November 2004. The Rath and Gibson business units were integrated, a step that was soon emulated by the company at large. In May 2005 the Rath and Gibson units were more fully integrated, leading to a new name, RathGibson Inc. The sales forces were also combined, allowing for the efficient selling of both units' product lines. The management of the manufacturing plants remained separate, however.

By time of the RathGibson creation, the company had a new chief executive officer in Harley B. Kaplan, installed by Liberty in 2003. Although not familiar with the tubing industry—Kaplan had been the chief executive of Wells Lamont, a glove maker—Kaplan possessed more than 20 years of experience selling into international markets. At the time he took over, Rath and Gibson were just regional companies, selling their products in the 48 contiguous states and to some extent in Canada and Mexico. "These were clearly world class companies with world class capabilities," Kaplan told the Janesville Gazette in 2007. "As a leader, I needed to push them to the international marketplace." Within four years, about 20 percent of the New Jersey plant and 25 percent of the production of the Wisconsin plant would be sold to foreign markets.

KEY DATES

1952:: Virgil Rath buys dairy equipment company.
1961:: Company adopts Rath Manufacturing name.
1962:: Glenn J. Gibson founds Gibson Tube.
1979:: Rath completes plant expansion and installation of new equipment to manufacture tubing.
1991:: Duane Rath sells the company to Greenwich, Connecticut, private equity investment firm, Dubin Clark & Company.
1995:: New York private investment company Liberty Partners buys Rath Manufacturing.
1999:: Liberty acquires Gibson Tube.
2005:: Integration of Rath and Gibson units leads to a new name, RathGibson Inc.
2006:: Liberty sells the company to Castle Harlan, a New York private equity firm; Greenville Tube Company is acquired.
2007:: RathGibson is acquired by DLJ Merchant Banking Partners.

CASTLE HARLAN ACQUIRES RATHGIBSON: 2006

RathGibson was generating about $200 million a year when in early 2006 Liberty sold the company to Castle Harlan, a New York private equity firm, for $260 million. Harlan wasted little time in expanding the business. In August 2006, RathGibson acquired Greenville Tube Company, a specialty tube manufacturer that was headquartered in Greenville, Pennsylvania, north of Pittsburgh, but maintained its 110,000-square-foot plant in Clarksville, Arkansas. Established in 1950, Greenville produced both straight lengths and coiled stainless steel and nickel alloy tubing, serving the agriculture, chemicals, food and beverage, medical, and oil and gas industries. Because it was well established and the Greenville name had created a good deal of brand equity, the acquisition retained its name as well as its management team.

Castle Harlan did not own RathGibson for very long but certainly profited from the experience. In May 2007, just 15 months after buying the business, Castle Harlan sold it to DLJ Merchant Banking Partners, a Credit Suisse affiliate involved in private equity investments, for $440 million, or $180 million more than it had paid. RathGibson was given a chance to help pick its new owners, and the advantages of having DLJ as it corporate parent were obvious, as the company hoped to make use of Credit Suisse's global clout. According to the Janesville Gazette, within a matter of weeks DLJ was "laying out an aggressive investment strategy to grow the business more."

Ed Dinger