Hastings Manufacturing Company (USA) announced it is voluntarily seeking to delist its common stock and terminate its registration. Hastings is a supplier of internal engine components, primarily to the automotive aftermarket in the U.S. and Canada. Its product lines include ACL brand engine bearings, Hastings piston rings, Zollner domestically-produced pistons, and gaskets and other products under the ACL brand. Casite brand engine additives are part of the product mix, through a joint venture arrangement.
The stock, which traded near $20 per share in 1999, has fallen to a recent $4.30, giving the company market capitalization of only $3.3 million. As of June 30, 2003, Hastings reported a negative net worth of approximately $5.1 million.
During 2003, short term debt load has skyrocketed from $5 million to $17.6 million, primarily from its recent cash acquisitions of Ertl Manufacturing Corp. (Canada) and Syzegy Auto Distribution (Canada), both distributors of internal engine components across Canada. The acquisitions will add approximately $16 million to yearly sales, currently at a run rate of $48 million.
Hastings has faced significant challenges in 2003, as bearing and piston ring sales fell by more than 19% in the second quarter alone. In second quarter, the company said the North American replacement parts market had softened considerably while automotive OEMs cut production volumes, squeezing Hastings from both sides. In April 2003, the company laid off 20% of its workforce.
Mark Johnson, Chairman and CEO, explained the move: "After careful consideration, the Board of Directors has determined that moving to voluntarily delist and deregister our common stock is a prudent course of action for Hastings Manufacturing and all of its constituents employees, customers, suppliers, and shareholders. The board examined many factors in making this decision, including the nature of our shareholder base, recent trading history of our stock and, in particular, the rapidly rising costs associated with SEC reporting and compliance. The elimination of these expenses should have a positive impact on our bottom line and will allow us to focus our resources on growth initiatives. Our chief responsibility is to build Hastings Manufacturing into a leading supplier of internal engine components, including our own Hastings branded items; however, the board will continue to explore options to ensure continued trading, liquidity and the creation of value for shareholders." Insiders -- primarily Mr. Johnson with 214,000 shares -- hold 34% of the outstanding shares, while the largest independent institutional investor holds only 1.8%. After Mr. Johnson, the largest holding by an insider is 7,000 shares. On average, 1,000 shares of Hastings change hands each day.
If the delisting is approved as expected, Hastings stock will then trade through the Pink Sheets .The Pink Sheets is an independent stock price quotation service run by National Quotation Bureau Inc. The Pink Sheets does not have a requirement that companies register with the SEC or remain current in their periodic filings.
While delisting may solve some problems for some companies and significantly reduces the regulatory load, delisting has significant downsides for both investors and the companies themselves. The bid/ask spreads are wider, commissions are higher, smaller quantities change hands, analyst and media coverage is nonexistent, and liquidity is much lower. In addition, brokers may need to follow Rule 15g-9 which requires them to essentially prequalify potential investors in the stock, a process which can take days and further limits the pool of possible investors.

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