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Decades On, Asbestos Finally Brought Down This Californian Coatings Maker

Kelly-Moore Paints is closing its doors for good, overcome by a cash drain from asbestos litigation.

The efforts of a private equity firm to turn the business around over the past 15 months couldn’t save the Californian firm, which is now winding-down operations.

The paint-maker was the brainchild of William Kelly and William Moore, who saw a gap in the market for supplying professional contractors. Over the years it grew nationally, opening a new manufacturing and distribution centre in Texas and building a 157-strong chain of retail stores.

It all went wrong in the 1960s and 1970s, following the acquisition of Paco Textures Corp., whose cement and textures included asbestos to make them more durable and resistant to fire. But they exposed contractors to mesothelioma and lung cancer risks.

The first lawsuit came in 1977. (Kelly-Moore stopped using asbestos in its range in 1981.) But thousands of litigation claims followed over the decades. Some cases were dismissed, including the one involving Ohio-based Andrew McElhaney, whose personal injury action led to an intricate battle of briefs, replies and sur-briefs.

Kelly-Moore paid out about $600 million to settle claims, but it estimated future liabilities exceeded $170 million. On top of that were millions of dollars of previously unpaid sales and use taxes under previous ownership.

Flacks Group acquired the business in October 2022 via a stock purchase. Managing Partner and special-situation turnaround specialist Charles Gassenheimer took over as CEO, knowing it could take years to repair and that there was “no magic wand.” The purchase price was never disclosed but rumours it cost $1 to buy Kelly-Moore aren’t true.

Flacks expanded Kelly-Moore in Texas and looked further afield internationally, placing products in independent stores in China. It’s now walking away. A bankruptcy nor an in-court liquidation would have made sense because Kelly-Moore couldn’t fund its operations and had no unencumbered hard assets to offer creditors.

Last week, Kelly-Moore furloughed about 700 employees and halted production. There were a number of interested parties around the situation but none stepped forward with a Letter of Intent and no additional funding was available, the company said.

“The ownership group’s commitment from day one was to fix the business if we could. We simply couldn’t overcome the massive legal and financial burdens that have been weighing on the company for many years,” Gassenheimer said in a release. “Unfortunately, this was the only viable alternative remaining after evaluating all other potentially feasible options.”

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