On Friday, the Bedford Gazette, Cannondale’s home-town newspaper, reported that some Cannondale factory workers were sent home early without pay after being told the company “didn’t have the money to pay [us].” They have not returned to work. On Sunday, the paper reported that a Cannondale director said that "the payroll will be funded" for the employees who have worked in the past two weeks. Strict financial disclosure rules in the US prevent company execs from commenting on whether it’s likely Cannondale will soon seek Chapter 11 bankruptcy protection, or sell up. But a major announcement is expected in the next day or two...

Cannondale’s local newspaper worried about firm’s future

All of this uncertainty will likely impact on Cannondale’s stock price when the NASDAQ market opens later today. On Friday, the US bike maker finished the day at $0.80 a share. Its 52-week high had been $4.60, with a 52-week low of $0.51.

By lunchtime EST, there had been no changes at all.

Cannondale’s last filing to the US Security and Exchange Commission (SEC) was on November 12th 2002. News of any sale of the company, or the seeking of Chapter 11 bankruptcy protection, will be announced to SEC before anywhere else.

An announcement is expected later today. This could be about the closure of the motorsports manufacturing division.

Cannondale employs 863 people at two plants in Pennsylvannia, 650 of which are manufacturing jobs. Many of these employees were not re-hired after the Christmas and New year break.

Office employees are working, but there’s precious little going on in the factories. This morning there were a limited number of workers at the motorsports factory and just 30 or so cars at the bicycle plant.

Bikebiz.co.uk has been in regular touch with Cannondale execs but, because of financial disclosure rules, they can neither deny nor confirm the company is about to do anything radical.

Top-level execs in competitor companies have been mistakenly telling UK suppliers for the past two weeks that Cannondale has defininitely been put into chapter 11 bankruptcy.

This rumour-mongering is doing Cannondale no favours but, as Associated Press reported back in December, Cannondale is already on the ropes:

“A number of companies in the industry are stuck with long overdue bills with no indication from Cannondale when they will be paid. And few companies are shipping Cannondale products without being paid first, or they are offering only a limited line of credit.”

Click through to the associated articles below for a full breakdown of Cannondale’s recent financial history, including some worrying SEC caveats.

In short, Cannondale ended its fiscal year last June, posting a $15.4 million loss. In the first three months of its 2003 fiscal year (July through September), the company reported a net loss of $6.5m.

The losses are mostly due to the motorsports division. Last year, the bicycle division generated more than $134 million in sales, compared to $22 million from motorcycles and ATVs. Yet every motorcycle and ATV sold in 2002 was sold at a loss, according to Cannondale’s annual report.

In February 2002, Cannondale broke some loan covenants contained in the financing agreements with Tyco Capital Corporation and Ableco Finance LLC. By July the corporation was refinanced by Pegasus Capital Advisors. This new financing facility eliminated any defaults under its prior facility and permitted Cannondale to reclassify its debt to long term on its balance sheet.

Speaking last July, Gregory Gatta, vice president of Pegasus, explained what attracted the firm to Cannondale.

"The company has a premium global brand in its core bicycle business, with stable historical performance and we believe that it has upside value that today’s market is not recognizing. This stable platform, combined with the potential in their high-growth motorsports business make an attractive combination for an investor. We’re extremely excited to be working with Cannondale through this funding package and stand ready to consider future investment in the company, should it be needed to help Cannondale realize its long-term goals."

Right now, Cannondale has just one long-term goal, and that’s survival.

Applying for Chapter 11 protection is probably the best thing it could do, protecting as it would the US manufacturing jobs. Alternatively, the corporation be taken over fully by its main backer, Pegasus Capital Advisors.

Or it could be broken up into bits and sold.

Its profitable bicycle division would be attractive to US competitors such as Trek, Pacific Cycles, K2, the American Bicycle Group and Specialized. However, of these, only Trek and Pacific have the muscle to move quickly on a land-grab.

It’s highly unlikely any bicycle companies would wish to take on the loss-making motorsports division. Cannondale’s motorsports rivals are said to have shown interest but at a speculated price of $30m, none bit. But with the price now down to a reported $10m, Suzuki, Honda or Yamaha may take on the ATV line, Cannondale’s most successful – and most marketable – motorbike.

The two most likely suitors for the Cannondale bike division are Giant ($450m sales in 2002) and Trek ($375m sales in 2001). Pacific Cycles ($390m sales in 2001, now expected to be far higher thanks to the acquisition of GT-Schwinn) is itself partially up for sale so may not be in an acquisitive mood: Pacific’s main backers, Windpoint Partners, wish to divest themselves of their 43 percent stake in the company. However, should Cannondale be put on the market at a low enough price, Pacific would probably bid.

If Cannondale was sold to an aggressive third party from the bike trade, it’s unlikely production would be kept in the US.

Cannondale sold up to 10 000 bikes in the UK in 2002.

Steve Fenton of the grandly-styled European Cycle Development Agency said that Wei Hau of Taiwan, one of his agencies and a supplier to Cannondale, would aim to help Cannondale:

"[Wei Hau] will support them in every way possible, as I understand will other suppliers. The bicycle division just needs to be air-lifted to safety. I hope they put enough fuel in the helicopter."

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