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Hanging on: Engineering firm has taken a wild ride since since selling to Philip Services

Wednesday, February 03, 1999

By Len Boselovic, Post-Gazette Staff Writer

Dominick DeSalvo and Joseph Liptak spent 15 years building their construction management firm into one of the most trusted names in the steel industry. D&L Inc. also earned high marks from school districts, where it had built a secondary business.

 
After construction management firm D&L Inc. sold out to Philip Services two years ago, the 15-year-old company was dragged down by its new parent's bankruptcy. (Darrell Sapp, Post-Gazette) 

In 1997, DeSalvo and Liptak made a decision they thought would expand D&L's horizons. The partners hitched their wagon to Philip Services, a fast-growing industrial services company, which quietly purchased D&L that summer.

It didn't take long for Philip's temperamental stallions to lead D&L into the wilds. Accounting discrepancies, missing inventory and trading losses wiped millions of dollars in profits off Philip's books last year. Instead of continuing its furious acquisition binge, Philip is fighting for its life. And the son is paying for the sins of the father.

D&L was replaced in November as prime contractor at a steel plant being built in Indiana. The project generated about 70 percent of D&L's $48 million in revenues last year, DeSalvo says. With domestic steelmakers beset by cheap imports, there aren't many projects to replace that chunk of change.

At the same time, the North Allegheny school board dropped D&L from a $40 million school renovation project after the company fell behind in the work.

All DeSalvo and Liptak have to show for the sale of their company are the nearly worthless shares of Philip stock they received as payment. DeSalvo won't say how much stock he got, but it really doesn't matter. Trading for more than $14 at the time of the acquisitions, Philip shares were worth 28 cents when the New York Stock Exchange halted trading last month. They'll be worth pennies if lenders approve a bankruptcy plan that would leave existing shareholders with only 10 percent of the reorganized company.

So how does DeSalvo feel about throwing in with Philip?

"People ask me today 'What do you think?' says DeSalvo, now a Philip executive vice president. "It's still a good deal ... I'm here to see it through."

Philip's shaky footing was the reason D&L lost the prime contract at Galv-star, a steel galvanizing plant being built in Jeffersonville, Ind., by Weirton Steel and Dutch metals producer Koninklijke Hoogovens. The contract required Philip to back the loans funding the joint venture and to maintain a BB- credit rating, DeSalvo says.

"In reality, we were standing behind the project. When the credit rating went down [in July], the bank wouldn't give them the money," he says.

Galvstar President James Bruhn says D&L was on time and on schedule, but lost the job because of Philip's credit rating. Dick Corp. was named lead contractor on an interim basis and D&L's involvement has been reduced, he said.

Losing the lead position at Galvstar means D&L will make significantly less from the project, DeSalvo says. At other jobs, D&L has found partners who are providing performance bonds - essentially insurance policies guaranteeing work will be completed. Teaming up with the firms may lead to new business in the future, he says.

Work at North Allegheny was behind schedule when two longtime managers left D&L in the fall, DeSalvo says. Jon Thomas and David Williamson started a competing firm, Thomas & Williamson, that North Allegheny hired after terminating D&L.

"They may have been a couple of days behind on some things, but they were essentially on schedule," says Thomas, who resigned from D&L Oct. 23. He says Philip's financial problems played a part in his decision to leave, but that his main reason was a desire to work for himself.

D&L also managed renovations at the Deer Lakes School District, where elementary schools opened four days late last fall because the work was not done. But Superintendent Joel Carr didn't fault D&L's performance.

"I certainly don't want to put the blame on D&L. They did a great job of getting [them] reopened," he said.

The departure of Thomas, Williamson and Liptak "caused us some problems," DeSalvo says. But D&L hasn't lost any other key people because of Philip's woes, he adds. Employment at D&L's offices in Four Gateway Center has remained at just under 200 since the crisis began a year ago.

Philip expects to file its reorganization plan by mid-March and win creditor approval by the end of June. Lenders will dominate the board of the reorganized company.

For DeSalvo, a reconstituted Philip will give D&L a chance to seize opportunities that made him and his retired partner sell their business to the Canadian company in the first place. Philip has customers in the petrochemical, pulp and paper, and auto industries, markets D&L hasn't served. There hasn't been much time to focus on synergies because of the turmoil at Philip's Hamilton, Ont., headquarters.

Once Philip can do that and more customers are convinced the company is here to stay, DeSalvo's confident he'll find what he was looking for when he cast his lot with Philip.

"We've taken the best shot and we're still around," he says. "The new company coming out will be great. It will be the opportunity we were looking for when we sold the company originally."



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