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Date deal closed: Sept. 30, 2005

Legal advisers: Dow, Lohnes & Albertson;

RESEARCH TRIANGLE PARK - John Gaither finally got what he wanted after all these years, but it wasn't easy.

"There were lots of stumbling blocks," Gaither says of the management-led buyout of

from the Japanese firm Dainippon Ink and Chemicals. "It's a real roller coaster."

Gaither, a protégé of company founder Henry Reichhold, spent the first 32 years of his career at the firm. But after serving in several senior executive roles at the company, he left in 1998 after butting heads over strategy with then-CEO Phillip Ashkettle.

During the time he was away from Reichhold, Gaither and a former company colleague tried to organize a buyout of the firm from Dainippon, but the overture was rejected. Dainippon instead offered Gaither the opportunity to run the company, which manufacturers polymer products. He jumped at the chance and took over as CEO in 2004.

By October 2004, Dainippon had its own new management team in Japan - a management team that was open to divesting an American-based subsidiary that wasn't core to its business. Even though he had spent just a few months at the helm of Reichhold, Gaither was approached by Dainippon executives and finally given a chance to make a bid for the Research Triangle Park company.

"They ... decided it would be a good time to sell and they knew they had an eager buyer," says Gaither.

It took a year to straighten out the details.

The gambit started out as an asset-based deal in which Gaither and his management team would buy certain assets but not acquire Reichhold's liabilities. By the time negotiations were done, the parties had turned things around 180 degrees.

The buyout ended up as a stock deal in which the Reichhold management team got a better price, but also had to take over liabilities that included some contaminated former factory sites.

Dainippon had $450 million in debt on the books stemming from Reichhold. Dainippon wrote off $250 million of that, while Gaither and his buyout team picked up the remaining $200 million in debt.

Dainippon provided the financing to the six senior Reichhold managers, who now own all the equity in the company.

The Reichhold team also struck a separate deal for a $100 million line of credit from and for working capital.

Reichhold has about 20 inactive plant sites, some of which are contaminated, that it is trying to get off its books. Gaither says that management hopes to get half of those plants off the books this year by selling them and by working with brownfields developers.

The company still has 17 active plants around the world, including 11 in the Americas. It employs 1,500 people worldwide, including 210 in the Triangle.

Reichhold tallied $1.1 billion in sales last year. The company was cash-flow positive for all of 2005, though it was not net income-positive for the year due to some write-offs from the management buyout.

The deal gives Gaither the chance he's always wanted to run the company founded by his mentor. There's still a lot of work to do, but he's gratified to be able to maintain Reichhold as an independent firm.

"It's up to us now to succeed," says Gaither. "If we don't, it's our own fault."


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