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Armstrong Flooring mulls sale

Armstrong Flooring, one of Central Pennsylvania's largest manufacturers and a long-time staple in the Lancaster economy, said late Friday it is considering a sale or other strategic alternative.
How hard: Armstrong Flooring lost $22 million in the first nine months of 2021 on sales of $485.5 million. It lost $31.2 million on sales of $440.9 million in the same period in 2020. Contributing to the company's performance this year was the $76.7 million sale in March of a production and distribution center in Los Angeles.
  • The company carries significant debt and sent up red flags in its third-quarter earnings filing
  • "While the Company has implemented substantial pricing actions, continues to work with its lenders to secure longer-term relief and evaluates other initiatives that could enhance its liquidity, there can be no assurances that these actions will be successful. These factors raise substantial doubt about the Company’s ability to continue as a going concern," the company said in the November filing.
  • At the same time, Armstrong Flooring announced staff furloughs and other spending cuts, as well as price hikes for its products.
  • The company operates five plants in the U.S. -- including two in Pennsylvania -- one in China and one in Australia. As of the end of 2020, it had about 1,550 employees.

What's nextTo assist with a sale or other alternative, Armstrong Flooring said in a press release it has hired investment bank Houlihan Lokey Capital. The release did not disclose a timeline, though it said more details would be available this morning in a regulatory filing.
  • In the release, Armstrong Flooring also noted it has modified some of its loan agreements and received $35 million in capital from one of its lenders, Pathlight Capital.
  • "These credit amendments and additional term loan funding position us well to pursue our strategic initiatives and effectively manage our operations," Michel Vermette, the company's president and CEO, said in a statememt. "We believe in the value and brand of Armstrong Flooring, and remain firmly committed to our customers, suppliers and employees."
  • Investors seemed to like the moves. In after-hours trading on Friday, shares of Armstrong Flooring jumped more than 50% in value.

The background: Armstrong Flooring was born in 2016 after it split off from Armstrong World Industries, which makes ceilings. 
  • In 2018, Armstrong Flooring bet on luxury vinyl tile and sold off its hardwood flooring unit to American Industrial Partners, a private equity for firm, for $100 million.
  • American Industrial is now selling the division, known as AHF Products, to an affiliate of Dallas-based Paceline Equity Partners. Terms of the deal -- expected to close in the first quarter this year -- were not disclosed.

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State lawsuit over PCBs advances

A state court has delivered a partial win for Pennsylvania in a year-old lawsuit seeking damages from ag giant Monsanto and related enitities over PCBs.
  • An 84-page Commonwealth Court ruling on Dec. 30 swept aside six of Monsanto's nine objections to the state lawsuit, paving the way for the next phase of litigation.
  • Judges, however, did uphold two of the company's objections and partially upheld one
  • While other states have trumpeted their litigation over PCBs, Pennsylvania has proceeded relatively quietly.

Why is this happening: PCBs, or polychlorinated biphenyls, were widely used last century in electrical equipment and other commercial applications but they pose a danger to human health. Monsanto, now owned by Bayer, was a major producer.
  • The Pennsylvania complaint -- initially filed in December 2020 -- alleges that PCBs have leaked into the state's soil and water, where they persist today -- and that Monsanto knew they were dangerous.
  • The state also noted that it has spent time and money on cleanup efforts over the years, according to court documents.
  • A spokesperson for the state Department of Environmental Protection declined to comment, citing the ongoing litigation.
  • In addition to Monsanto, the state lawsuit names two companies that inherited bits of the Monsato business: Solutia Inc., a subsidiary of Eastman Chemical; and Pharmacia LLC, which was purchased by Pfizer in 2003. 

What does Bayer say: In a statement, the company said it was pleased that the court narrowed the state's case.
  • "However, we continue to believe the lawsuit lacks merit, and will vigorously defend the remaining claims as the legal process moves ahead," the company said.
  • Those claims include causing a public nuisance and selling an unsafe product.
  • Bayer said Monsanto stopped making PCBs voluntarily more than 40 years ago and that it never manufactured, used or disposed of PCBs in Pennsylvania "and therefore should not be held liable for the contamination alleged by the plaintiffs."
  • A Pfizer spokesperson shared a regulatory disclosure indicating that the company is not liable in the case.
  • Efforts to reach Eastman were not successful.

What's next: The lawsuit can proceed to discovery phase, in which both parties can seek documents and other information from the other as they seek to prove their arguments.
  • Given the risks of litigation, it's likely that the state and Monsanto will settle, though there could be a trial over the amount of damages, according to Dennis Whitaker, an attorney with Harrisburg law firm Hawke McKeon & Sniscak and a former chief counsel for the DEP and the Department of Conservation and Natural Resources.
  • One of the first state lawsuits against Monsanto over PCBs, filed in 2016 by Washington state, was settled for $95 million in 2020.
  • Maryland and Delaware both sued Monsanto over PCBs in fall 2021.

The background: Federal regulators banned PCBs in 1979 but they have triggered numerous lawsuits ever since. PCBs, which pose a cancer risk, can leak from poorly maintained equipment, from hazardous waste sites or from improper disposal, according to the U.S. Environmental Protection Agency.
  • One of the most well-known cases involved two General Electric plants that dumped PCBs into the Hudson River in New York over a span of three decades, leading to a $1.7 billion multiyear dredging protect.

Quick takes

WHO'S MOVING: Questmont Strategic Wealth Advisors, a family office for high-net-worth individuals. The firm is moving its West Shore office to 1027 Mumma Road in Wormleysburg, formerly an office for accounting firm Baker Tilly. Questmont, currently located at 1200 Camp Hill Bypass, plans to move this spring, according to spokesperson Joy Snyder. 
  • The 8,212 square-foot building on Mumma Road will house 15 full-time employees for Questmont, which also has an office in Tampa, Florida, Snyder said.
  • Questmont paid $1.11 million for the property, according to Cumberland County deed records.
  • Questmont was represented in the deal by Nik Sgagias and Amber Corbo of real estate firm NAI CIR. Tom Posavec and Roy Brenner of Landmark Commercial Realty represented the seller, 1027 Mumma Road Partnership

What about Baker Tilly: The firm's lease at Mumma Road expired at the end of 2021, according to firm spokesperson Nicole Berkeland.   

WHAT REBOUNDED: The share of state contracts going to small businesses, particularly those owned by women and minorities. After a pandemic-related decline, small businesses are winning a bigger share of state contracts, with the share rising to 20.25% in the most recent fiscal year, up from 17.9%, according to the state's most recent report on its performance.  
The background: The Wolf administration has worked over the years to boost the share of state contracts going to small businesses. But spending still falls short of state targets.
  • The target for veteran-owned businesses, for example, is 4.6% but the actual share in the most recent fiscal year was 0.4%.
  • For small, diverse businesses, or SDBs, the share was 11.72%, short of the 26.3% target. Under state criteria, SDBs include those owned by women, minorities, people with disabilities and members of the LGBTQ community.
  • Officials have been pushing bipartisan legislation -- Senate Bill 900 -- that would enshrine the targets into law

WHO'S TACKING ON: Select Medical Corp. In late December, the Cumberland County-based rehab chain bought out its partners in a joint venture called Concentra, a workplace health provider. Select Medical paid roughly $625.6 million for the remaining 20.23% stake in Concentra, which had been held by private equity firm Welsh Carson Anderson & Stowe and California health system Dignity Health
  • In a regulatory filing, Select Medical said it also bought certain non-voting membership interests from Concentra managers.
  • Concentra employs more than 11,000 people at more than 500 medical centers and 150 onsite clinics around the country.

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Compiled and written by Joel Berg

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