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Calculated risk, painful failure

Betting on the savvy of Tampa executive Dennis Ross, a group of bay area investors sank millions into a unique, but unproven, product idea. When the company went under, Ross and his investors lost big.

By KRIS HUNDLEY, Times Staff Writer
© St. Petersburg Times
published January 13, 2002


In the late 1990s, Dennis Ross had what seemed to be a promising business proposition: turn leftover sugar cane stalks into particleboard panels.

Ross, former president and chief executive of building materials supplier Celotex Corp., had expertise and connections in the construction industry. The 59-year-old Tampa native, who has been active in Democratic circles and was chairman of the Florida university system's board of regents, also had the right social connections. In short order, he attracted a list of prominent high net worth investors that included a former Tampa mayor and several area developers and lawyers.

But Ross' savvy and millions of dollars from Tampa's elite were no match for market forces. In mid-December, Ross' company, New Smyrna Corp., filed to liquidate in U.S. Bankruptcy Court in Tampa.

Total assets: $200. Total liabilities: $20-million.

Though Ross' company received $500,000 from the U.S. Department of Agriculture and had some costs underwritten through an industrial revenue bond, most of the capital came from 21 private investors. Among them were ex-Mayor William F. Poe Sr., whose family invested more than $4-million in Ross' venture.

Jim Walter Jr., son of the late Tampa homebuilding tycoon, lost about $3-million on the ill-fated business while his brother Robert and his father's estate were in for another $58,000. Developer Jim Shimberg Sr. put nearly $250,000 into the deal. Fellow Tampa developer Ted Couch was in for about $87,000. H. Lee Moffitt, who, as speaker of the Florida House, spearheaded efforts to start the Tampa cancer center that bears his name, ponied up $43,000.

For their money, these well-connected investors may walk away with little more than a reminder that investing in a new venture with an untested business model is risky -- no matter how appealing the idea or how experienced the entrepreneur behind it.

"When you invest money, you expect the good and the bad," said Poe, who hired Ross as Tampa's director of administration in the mid-1970s. "Unfortunately, we had too much of the bad."

Making a wood substitute from agricultural byproducts -- sugar cane, wheat straw or flax seed hulls -- is a dream that has had limited success. And that success has largely come in third world countries with cheap labor and high tariffs on imported alternatives.

That didn't deter Ross when he began investigating the technology for turning sugar cane bagasse -- the fibers left after the juice is pressed from the cane -- into high-density building panels.

Ross became aware of the process, developed in England, while running Celotex, which briefly considered acquiring the technology.

Celotex passed on the opportunity, Ross said, because the Tampa company concentrated on building materials used for the exterior of a house, rather than particleboard that is used inside, as well as for cabinetry and furniture. And though Celotex had factories, Ross said, "the whole manufacturing culture there did not relate to these microscale plants" used in the agrifiber business.

After he left Celotex in late 1997, Ross spent several months considering his options, even visiting a cane-to-board plant in Mindanao, Philippines. Ross said there were about 20 plants using the technology worldwide when he got into the business. The only other U.S. operation, in Hawaii, has since shut down.

"The Mindanao plant was doing quite well," Ross said. But in hindsight he adds that he should have noted two keys to the plant's success: The Philippine government guaranteed the manufacturer's price, and workers were paid $1 per day.

By May 1998, Ross had incorporated as sole owner of New Smyrna Corp., general partner in Acadia Board Co. Investors were limited partners in Acadia.

Using British-built machines, Acadia set up shop in an empty ethanol plant in New Iberia, La., two hours west of New Orleans. The plant is right across the road from the Cajun Sugar Co-op, the biggest sugar mill in the area.

Though the mill burns much of the bagasse to create the electricity that powers its machinery, at peak production the plant still generates an excess of 35 tons of bagasse an hour. Before it contracted to move that excess across the road to Acadia Board Co., Cajun Sugar was paying $300,000 to ship the waste to a landfill in New Orleans.

"It was a good thing for us and a good thing for the community," said Tommy Thibodeaux, Cajun Sugar's general manager.

* * *

The Acadia factory had about 50 employees and two production lines. Baled bagasse was put through a rotary dryer, then ground up, mixed with resin and pressed into 4-foot by 8-foot panels in thicknesses of 1/8 to 5/8 inches.

Ross spent about one-third of his time in New Iberia and the rest at New Smyrna's corporate office in North Redington Beach.

Acadia's plant was small by panel industry standards, with a capacity of 18-million square feet annually. Factories owned by Georgia Pacific and Uniboard of Canada produce up to 400-million square feet of particleboard from wood chips each year.

But Ross and his investors were planning to develop lucrative niche markets for their product. In the meantime, they thought they had a short-term plan to generate cash when the plant came on line in spring 2000.

The idea was to initially market Acadia's product, trademarked DuraCane, to compete with the particleboard used as underlayment for flooring. The numbers seemed to work if Ross' plant could sell its product at $250 per thousand square feet, then the market price for particleboard underlayment, or PBU.

"We couldn't hope to compete with the big plants on a commodity basis," Ross said of the initial strategy. "But at those prices, we could generate cash flow to be cash-neutral while we were developing our specialty products."

Once again, though, Ross and his Florida investors ignored a crucial detail: Prices could always go down. And they did.

"The week we got our certification, the price of PBU fell by $20," Ross said. "Within six weeks it had dropped from $250 to $180 per thousand square feet. And there was such a glut on the market from overproduction that even though the price was low, it was hard to find customers."

Ken Tennefoss, publisher of Crow's Market Report, a Portland, Ore., building trades publication that tracks the price of 1,700 lumber products weekly, confirms that the price for particleboard had been high for nine months before dropping dramatically in summer 2000 because of overproduction. "For a new producer, with a new product," he said, "that's a tough nut to crack."

And the price has stayed at historic lows, despite strong housing starts. In early December, particleboard, which is less tied to new housing construction than lumber and plywood, was selling at $165 per thousand square foot, with no immediate rebound in sight.

Deprived of cash flow, Acadia began eating into its capital as it tried to develop higher-price niches.

DuraCane promoted its environmental advantages: Instead of chopping down trees, the panels were made from cane waste that otherwise would have been sent to landfills. And the fibers were bonded together using an expensive plastic glue rather than formaldehyde, which gives off emissions.

"We were totally green," Ross said of his product's environmental credentials. "And because cane fiber is one of the toughest agricultural fibers there is, we were able to achieve extremely high density and low moisture characteristics."

Such advantages meant higher product costs, and hopefully a premium price. Ross said he expected DuraCane to compete with a better quality particleboard used in furniture and cabinets, and to sell at five to seven times the price of the lowest quality wood-based panels.

To get a higher price, Ross and his team, including Aaron Babcock, general manager of Tampa International Forest Products, targeted specialty markets. One was selling DuraCane boards as an alternative to poured concrete, which is used as underlayment in raised-floor offices and computer rooms.

"Our product had the same performance capabilities as concrete," Ross said. "It was hard enough and dense enough and it didn't fracture."

A second potential market was as an alternative to gypsum board in moveable wall systems. DuraCane was promoted as a lightweight, rigid alternative that could hold a screw better than drywall.

Ross' panels were also in the process of being certified by Herman Miller Inc., the high-end office furnituremaker, for use in a line of environmentally friendly products. "But it was going to be at least six months before they began cranking out products," Ross said.

That was the bottom line with all of Acadia's potential customers: interest but no business. And the business they got -- selling an alternative to conventional particleboard -- didn't generate enough cash to cover expenses.

With the economic downturn, the demand for new offices -- and the raised flooring, moveable walls and expensive environmentally friendly furniture that go into those offices -- slowed dramatically. The terrorist attacks on Sept. 11 brought it to a standstill.

"And we had no hope or expectation of when it might come back," Ross said. "We had nobody to sell to."

* * *

Two weeks before Christmas, Ross pulled the plug on New Smyrna and its Acadia limited partnership by filing in Tampa to liquidate his company under Chapter 7 of the U.S. Bankruptcy Code.

But he postponed telling the workers in New Iberia until last week. On Wednesday, Thibodeaux, manager of the Cajun Sugar mill, said his company was still sending bagasse to Acadia and was unaware that it had gone out of business.

"It shut down for the holidays and was supposed to open up next week, but somebody from the company is supposed to be talking to us this afternoon," Thibodeaux said. "We'd surely be willing to work with anybody that takes it over."

Cajun Sugar wasn't the only one seemingly unaware of the demise of Ross' venture. On Wednesday evening, NBC Nightly News reported on the Department of Agriculture's venture capital program that invested $40-million into dozens of ill-fated farm projects. The TV report erroneously described Ross' business as "one of the few continuing concerns." The segment had been taped in mid-summer.

Ross said it will be up to the bankruptcy court trustee to find a buyer for Acadia's property. Aaron Babcock, Ross' marketing partner who runs a lumber brokerage in Tampa, thinks a big wood producer like Georgia Pacific might pick it up and have the deep pockets to make an agrifiber alternative work.

"There are a number of people interested in buying the plant, knowing they can get a heck of a good deal on it without the debt and operating expense we had," Ross said. "Then in spring or summer when the building industry comes back, they can come on line with production at a reasonable price."

Chris Leffel, senior vice president of the Composite Panel Association, a trade group in Gaithersburg, Md., said it's not a question of whether but when agrifiber boards will gain widespread use.

"Boards from rice, wheat, straw and bagasse definitely have a future in our industry," he said. "The last two years have been challenging in terms of supply and demand, but as we pull out of the recession in the tail end of 2002, our business should see good times."

But Ross said time and money just ran out for Acadia.

"We needed $2- to $3-million more in operating cash to get to break-even status," he said. "At some point you just have to say enough is enough."

Nor did Ross' experience successfully guiding Celotex through bankruptcy protection end up being much help.

"Celotex was a completely mature business, well-established in the marketplace," he said of the building material company, which was forced into a Chapter 11 bankruptcy reorganization in 1990 because of asbestos-related claims. "While I was at Celotex, we had record sales and profits, so the issue there was asbestos liability, not the fundamental quality of the company.

"Acadia was truly an entrepreneurial situation and our markets were utterly and devastatingly affected by Sept. 11."

Ross, who has worked and socialized with many of his investors, said the liquidation came as no surprise to any of the limited partners, who were kept well-informed of the company's precarious finances. But that didn't make losing money any easier.

"These are people I have known most of my adult life," said Ross, who described his personal investment in the company as "substantial."

"Nobody likes to lose money, least of all me. But the limited partners have been completely decent and understanding."

Indeed, Bill Poe Sr., the biggest investor both individually and through his family trust, took his $4-million loss in stride.

"Dennis and his team worked as hard as they could but the marketplace was not very friendly," he said. "The product was environmentally positive, but that doesn't help when nobody wants to buy it."

Though Poe praised Ross' ability and honesty, he said he'd wait awhile before backing another of his ventures.

"Dennis is a fine person," he said. "But I don't like to bet on a horse that hasn't run good for me before."

-- Times researcher John Martin contributed to this report. Kris Hundley can be reached at

hundley@sptimes.com or (727)892-2996.

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