Under pressure

No closely held company wants to go where Conbraco has been. This family beat long odds to bring it back.
by Mark Kemp
and
Edward Martin

As a boy, Glenn Mosack would trail his father around Conbraco Industries Inc.’s factories, fascinated by the whining tools that machined blocks of metal into valves and left bright shavings that sparkled almost like gold. For the business his grandfather had begun in 1928, the valves were golden. By the time Glenn was in his teens, his dad had turned the Matthews-based company into a manufacturing powerhouse.

Glenn worked there summers during college. “I was just enthralled by the business of manufacturing,” he says. Carl Mosack put his son in different departments. “I painted walls one summer. I worked in some of the assembly departments. I worked in the production-control area. My dad started training me early on to see if I would be interested in the business.”

He was. Conbraco represented financial security for the family. He, his older brother and a sister became executives. But it was more than that: Mosack blood was in the bronze and brass. His grandfather had moved the company to North Carolina from Detroit in the 1950s. Under his father, who took over as CEO in 1968, it thrived. Conbraco valves turned up everywhere. They regulated water temperature in bathroom sinks, controlled the flow of bleach at huge paper mills and precisely measured chemicals in drug factories.

Then, the business that three generations of the family had built almost shattered. In March 2001, Carl Mosack surrendered to FBI Special Agent Eric Davis in Charlotte, facing charges he had laundered money, lied to banks to get loans and committed fraud, all to cover gambling losses that in one year came to more than $30 million. As his world collapsed — he would spend 15 months in federal custody — the dreams of his children and the legacy of Conbraco crashed with him. He had run the business with an iron fist. His children had to wrest it from his grasp, then hold tight. It almost slipped away from them.

Now, five years later, Conbraco is 44th on Grant Thornton’s North Carolina 100, the accounting firm’s annual ranking of the top private companies in the state. With three factories in the Carolinas, it employs about 1,200. Sales topped $190 million in 2005. From 1986 to 2001, it was a fixture on the list, reaching 24th five years ago. Though its woes made the kind of headlines no business wants, many private companies would recognize the problems it faced: an aging CEO clinging to power and resistant to change, directors and managers kept in the dark, competitors poised to exploit any weakness and fluctuating economic and market conditions.

“Succession — both ownership and leadership — can be a major issue for any private company, let alone a family-controlled private company,” says Alan Day, the Grant Thornton partner in charge of the ranking. “As private businesses mature and ownership structures become more complex with time, companies are faced with significant decisions regarding future alternatives. Alternatives they may consider include generational transfer, transition to professional management or sale of the company.”

Those alternatives weren’t top of mind when Carl Mosack’s kids confronted him about his gambling addiction. He threatened to fire Glenn, the ringleader. Glenn’s lawyer said his choices were limited: He could leave, or he and the board could depose his old man. They pushed him out, but the family later would lose control of Conbraco. Not until this past April did the immediate family — led by Glenn; his brother, Cal, executive vice president of sales; and sister Carole Mosack Lee, vice president of marketing — regain control. It cost them and their partners $46 million, money they had to scrape and borrow to find.

The promise of a new century seemed to stop at the front door of the black-glass Conbraco headquarters. Glenn, now 42, and his siblings had known for years their dad liked to gamble. No big deal. “We figured what he did with his own money was his business.” But between the summers of 1999 and 2000, their father had lost $36 million and won $5 million, mostly betting on sports events. To cover the losses, he borrowed $21 million from his company and $10 million from Bank of America and other lenders. He told bankers he was buying more Conbraco stock. They believed him. But FBI agents had been tracking his bets for months, not only with local bookies but with mob-related outfits in Florida and the Caribbean.

Carl Mosack threatened to fire one of his sons when confronted about his gambling addiction.

While he was running the company, board members got financial reports only once a year. Glenn first saw evidence of his father’s out-of-control spending in April 2000 when Conbraco’s longtime controller, Everett Lowery, showed him the 1999 annual report and other records, including the loan documents. The numbers worsened, and in late August, Glenn, Cal and Carole confronted their father in his office. Glenn recalls the meeting as “brutal.” His father seethed. If you don’t like how I run the company, he said, get out.

When Glenn was in grade school, he was asked to write a profile of his hero. He had chosen his father. Now, it was clear his idol was not even willing to admit he had a problem. Says Cal: “We tried to talk to him sensibly about what he was doing to himself and to the company and to the employees and their families. But he just kept accusing us of trying to ruin his life. We couldn’t believe the level of denial.”

On Aug. 28, Glenn, then vice president of operations, called an emergency meeting of Conbraco directors. They voted to remove his father as chairman and CEO and named the brothers co-CEOs for 90 days. The FBI showed up the next day with files of evidence against the elder Mosack, Cal recalls. “They told us, ‘It’s a good thing you guys held that meeting when you did. Because if you hadn’t, we were going to come in and padlock this place.’”

In August 2006, Glenn peers across a conference-room table. Fine lines crease his forehead, and faint circles underscore his eyes. From a speaker in the ceiling drifts Tom Petty’s song Free Fallin’ — an apt description of what he’s discussing. In late 2000, the downward momentum of Conbraco had been nearly unstoppable. “I compare it to how hard it is to change the direction of a train running fully loaded in the wrong direction. First, you have to slow it down, then you have to get it stopped and turn it around, and then you’ve got to start back in the opposite direction. It takes time.” When his father was sent to prison, the banks, which had pressed charges, gave Conbraco 18 months to make good.

Glenn continued as president and CEO after the 90-day period while Cal, 47, opted to resume his position over sales. The first thing Glenn did was to come up with a 13-point cost-cutting plan to save $12 million to $13 million a year. It included freezing salaries and slashing benefits and bonuses. During the next two years, 400 people — a quarter of the work force — were laid off. He brought in a consultant from Huntersville-based OperationsRx LLC to help improve productivity, shrink inventory and convert about $20 million of it into cash. “The way we’d always run the business was, build inventory and people will come and buy it. That wasn’t efficient, but it did give us a big chunk of inventory at a time when we really needed it.”

He also had rumors to quiet. “You can imagine what your competition’s doing out there. They’re like, ‘Well, the old man’s gambled away all the money, the company’s gone, the family business is no longer there.’” Says Cal: “There was a time when people actually thought we’d been sold to Wal-Mart.” He booked flights and visited customers. “We wanted to make sure they knew where we were and that we were committed to turning this thing around and that we needed for them to hang with us. And they did. Not one of our customers left us, and neither did any of our distributors or our sales reps.”

But his father’s gambling wasn’t Conbraco’s only crisis. The 2001 recession ravaged manufacturing. Customers were switching to foreign companies with lower-cost labor and just-in-time delivery. After Conbraco’s record sales of $180 million in 2000, revenue dipped to $157 million in 2002. “In the ’80s and ’90s, everything we did turned into something positive on the bottom line,” Glenn says. “Then all of a sudden, we were faced with new competition.”

And Conbraco started slipping away from the Mosacks. Carl Mosack owned 26%, and his children, including another daughter, had about 14%. Carolyn Vanderberg of Charlotte, daughter of Carl’s late sister, owned 32%. In September 2002, Memphis, Tenn.-based Mueller Industries, a publicly owned manufacturer of copper, brass, plastic and aluminum products, showed up at his personal-bankruptcy hearing in federal court in Charlotte. So did Glenn, Cal and Carole. “We came in with the little bit of trust we had to try to bid on [their father’s shares], but there was no way we could bid against the deep pockets of Mueller,” Cal says.

Mueller bought enough to own 15% of the company, and Conbraco retired the rest to compensate shareholders for money Carl Mosack had borrowed from the company. Mueller later bought out some shareholders not related to the family, eventually accumulating 38%. “They thought that over a short period of time they’d be able to offer us some low number and buy the whole family out,” Glenn says. That wasn’t going to happen. “We felt like the three of us were in this thing as a family and that we could get through it together,” Carole, 43, says.

“We felt like the three of us were in this thing as a family and we could get through it together.”

“One thing that’s important to family management is that the family name is attached to the business,” says Tom Ogburn, a management professor at Wake Forest University and director of its Family Business Center. “So it’s very, very important to them to protect the family name in the community and in the business world and therefore protect the company. It’s not just money at risk: It’s the reputation of the family itself.”

Slowly, the momentum turned. By 2004, sales had rebounded. The programs Glenn had begun enabled the company to pay down debt by more than $50 million. But by early ’05, Mueller and Vanderberg, who now owned 34%, wanted out. The board hired Fidus Partners, a Charlotte investment-banking firm, to sell the company. The siblings, borrowing against their own stock, joined senior managers and other investors to buy Mueller’s and Vanderberg’s shares. They paid dearly — $270 a share for stock that had cost Mueller an average of $210. But when the deal closed April 28, they controlled 70%, more than they ever had.

Carl Mosack took a long time to admit and understand his addiction, Glenn says. “It wasn’t like he just sat down and said, ‘Gee, you’re right. I really do have a problem, and I’ve got to get this fixed.’”

But after bankruptcy, prison and treatment for the gambling addiction, his father says the compulsion is under control. “It took over my whole life for a couple or three years. I can enjoy life with my wife and my family and my grandchildren again.” He’s 75, lives in Charlotte, travels to the Caribbean with his fourth wife, plays golf and follows business trends. He often gives his kids advice, and they don’t rule out his return to the board.

His anger at them has faded. “I’m extremely proud of all of them. They just dug in and did the best they could, and it paid off.” In more ways than money. Cal says he and his siblings are closer than ever. “You know, there were certainly emotional moments when things didn’t look too great, and we’d get frustrated and emotions would run high — but overall this whole process has really solidified the three of us as brothers and sister.”

They hold no grudges against their dad, Carole says. “In his mind, he never did anything to anyone but himself, because everything he did, he had backup, in his mind. He had collateral, he had a plan. But it was getting bigger and bigger, and he just couldn’t see it for what it was because of the addiction. He’s always provided us great jobs here, great opportunities. People that worked for him still miss him, still wish him well.”

Mark Kemp is a Charlotte-based freelance writer.

NC 100

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Grant Thornton’s North Carolina 100, the accounting firm’s ranking of the top closely held companies in the state, always has been different. Unlike most rankings published by Business North Carolina, participation has been voluntary since the list started in 1984, just three years after the magazine began publication. The firm compiles the list by sending questionnaires — more than 2,000 this year — to privately held North Carolina-based companies. Subsidiaries don’t qualify. Rankings are based on 2005 revenue.

Top 15 Private Companies

05
RANK
06
RANK
COMPANY Headquarters CEO EMPLOYEES BUSINESS
$500 MILLION + IN 2005 REVENUE
1 1 The International Group Inc. Raleigh O. Temple Sloan Jr. 14,250 Distributor of automotive replacement parts
- 2 A.T. Williams Oil Co. Winston-Salem Stephen T. Williams 2,000 Operator of Wilcohess convenience stores, travel plazas and restaurants; petroleum-products distributor
2 3 SAS Institute Inc. Cary James Goodnight 10,076 Software developer
5 4 National Gypsum Co. Charlotte Tom Nelson 7,750 Wallboard product manufacturer
3 5 Baker & Taylor Inc. Charlotte Richard Willis 2,607 Distributor of books, DVD, software and other media
    Median of all reported $468 5.5 $258.4 12.7