IRVING, Texas--(BUSINESS WIRE)--Kelly-Moore Paints (“Kelly-Moore” or the “Company”) announced today that the Company plans to immediately cease operations and commence an orderly, out-of-court wind-down of substantially all its business.
During the wind-down process, the Company will continue to endeavor to fulfill previously placed customer orders to the extent possible from existing inventory in Kelly-Moore’s Union City, California, distribution facility. All the Company’s other facilities will be permanently closed effective immediately, including Kelly-Moore’s manufacturing facility in Hurst, Texas, and its retail stores, all of which were leased. Kelly-Moore employees will be fully compensated for regular time worked, and management will continue its efforts to collect receivables to pay all accrued benefits including Paid Time Off.
Earlier this week, the Company announced a furlough of approximately 700 employees across the Company’s locations, as well as an operational halt at its manufacturing facility. At the time, the Company had a number of interested investors with which it was working, in hopes of allowing for a return to full operations. Since then, the Company has continued actively seeking new capital to enable a turnaround, with assistance from financial advisor Houlihan Lokey. Unfortunately, none of the interested investors has stepped forward with a Letter of Intent, and the Company has not secured the additional funding needed to continue operations.
"I'm extremely disappointed and saddened by this outcome, as the entire Kelly-Moore team made incredible efforts to continue innovating and serving the unique needs of professional painting contractors,” said CEO Charles Gassenheimer. “The ownership group’s commitment from day one was to fix the business if we could. Sadly, no matter how great the Kelly-Moore team, products and reputation for service, we simply couldn’t overcome the massive legal and financial burdens that have been weighing on the Company for many years.
“I could not be prouder of what our talented team accomplished under extremely challenging circumstances,” continued Gassenheimer. “My deepest sympathy goes out to our loyal employees, customers, industry partners and the communities where we do business, who have supported Kelly-Moore throughout its long history. Unfortunately, this was the only viable alternative remaining for us after evaluating all other potentially feasible options.”
“Our owners took on significant financial risks in the acquisition last year,” continued Gassenheimer. “Unfortunately, despite their extraordinary efforts after acquiring this distressed business, they simply couldn’t overcome the unexpectedly large challenges, and will be exiting the business.”
For over 30 years, the Company has been grappling with thousands of asbestos litigation claims related to the Company’s past use of asbestos in cement and texture products under prior ownership, a practice that was discontinued in 1981. Through the cumulative cash drain caused by legal settlements and the cost of defending ever-continuing case filings, the Company’s ability to reinvest in the business – including investments needed to address historical supply chain challenges that were exacerbated by the recent pandemic – has been severely constrained for an extended period of time. Despite paying out approximately $600 million over the past 20 years to settle asbestos claims, a recent study commissioned by the Company estimates future asbestos liabilities exceed $170 million.
The Company has also been impacted by insurmountable legal liabilities inherited by the current ownership group from their 2022 acquisition of the Company, including millions of dollars of previously unpaid sales and use taxes. The Company is pursuing its legal rights with respect to these claims.
After acquiring Kelly-Moore in October of 2022, Pleuger Chemicals appointed Gassenheimer, a seasoned businessman and experienced turnaround professional, to evaluate and implement strategies for improving the Company’s dire financial position by enhancing the Company’s reach and market share. These strategies included starting the process of relocating the Company’s headquarters from California to Texas, exploring new supply-chain partnerships domestically and abroad, planning strategic technology and store upgrades, and resolving a sizeable portion of the pending asbestos claims.
The Company also engaged and worked with outside professional advisors to assess and improve its liquidity position, exploring various options for new funding sources or partnerships to avert a wind-down. The Company and its advisors conducted an exhaustive process that included pursuing opportunities for new capital investment, a potential sale, merger or reorganization. However, largely due to the asbestos litigation overhang, it was impossible to attract any additional funding or interest to recapitalize, restructure or reorganize the business.
Ultimately, to its deep regret, the Company’s leadership team determined with the assistance of outside advisors that the Company is financially unable to continue operations. Kelly-Moore leaders today informed employees, stakeholders, creditors and other interested parties of the Company’s need to cease operations and conduct an orderly, out-of-court wind-down process.
Neither a bankruptcy reorganization nor an in-court liquidation is viable or advantageous given the Company’s inability to fund its continued operations, as well as the fact that the Company leases all its facilities and has no unencumbered hard assets that could be made available for distribution to creditors.
All inquiries should be directed to kminfo@kellymoore.com.
