Buyout artist must reach into turnaround past to right firm.

As a buyout artist in the 1980s, Andrew Galef used the skills he had honed on smaller companies to rebuild such struggling firms as Petco Animal Supplies Inc., battery-maker Exide Technologies and apparel outfit Warnaco Group.

Now Galef, 70, is trying to revive Magnetek Inc., one of the firms he fashioned during his buyout heyday.

A four-year restructuring effort has yielded mixed results for the L.A.-based power systems manufacturer as it still struggles with the collapse of the telecom industry and a slowdown in capital spending.

Shares in Magnetek have fallen 26 percent in the past year. Despite a recent run-up, the stock's closing price of $4.84 on Aug. 20 is down 5.7 percent this year.

Magnetek's recent struggles resulted from the decision four years ago to lop off slow-growth operations, such as producing electric motors.

Galef assembled the company in the mid-1980s but by 1999, unhappy with its stagnant performance, he took over as chief executive and began focusing on faster-growing products like AC/DC switches and battery chargers used in computer and telecom equipment. (International Business Machines Corp. and Sweden's Ericsson are two of Magnetek's customers.)

But the telecom equipment market has proven to be a challenging one. Spending fell 50 percent in 2002, although it is expected to rise 5 percent in 2003.

Another problem area has been the industrial controls market, supplying voltage regulators for construction cranes and elevators made by the Otis division of United Technologies Corp.

Magnetek said in April that business had been hurt by the decision by many companies to cancel or delay capital projects such as new plants and offices.

Last week, Magnetek reported a loss of $5 million (21 cents a share) for the fourth quarter ended June 30, versus a loss of $440,000 (2 cents) for the like year-ago period. Sales rose 23 percent to $54 million.

"Our bookings and revenues grew during fiscal 2003, but our profits suffered," Galef said in a press release.

Impatient dealmaker 

Galef, who still owns 6 percent of Magnetek stock, is known for his no-nonsense approach. He once resigned from a state education reform committee after quickly concluding that his hands would be tied, according to Jere Jacobs, an acquaintance of Galef's who now serves on the board of his eponymous school reform institute.

"He can be extremely engaging and charming. But when it comes to business, he's all business," said Jeffrey Deutschman, a Galef protege who now runs his own private equity firm.

Galef's fast stab at reviving a company--a sink manufacturer--ended in failure in 1964 when the firm went bust. A year later, he hooked up with a former engineer-turned-management consultant named Frank Grisanti and spent the next 13 years fixing small troubled companies.

The two moved into the buyout arena in 1978, snapping up poorly run firms such as Petco and Exide. Galef's best-known deal came in 1986 when he teamed up with Linda Wachner for a hostile takeover of Warnaco. Galef served as a director of the company until 2001, months before it went into bankruptcy.

Galef formed Magnetek in 1984 after acquiring three divisions of Litton Industries that manufactured electric motors, then added other companies to the mix. A series of acquisitions in 1999 and 2000 helped Magnetek expand into the telecom equipment and industrial controls markets.

Magnetek also replaced the head of its telecom business and turned its focus on grabbing contracts with wireless equipment makers. Last week, the telecom services operations, which installed and repaired the products, were sold to managers for an undisclosed price.

"These guys are doing the right things considering the market. It's just that the businesses are suffering from problems outside their control," said Derek Dobecki, an analyst at money manager Ironwood Capital, owner of 2 million Magnetek shares.

Another avenue for potential growth is the consumer power market. In the past year, distribution deals have been signed with dealers such as electronics distribution giant Arrow Electronics and Norvell Electronics.

If Galef can turn Magnetek around, he may be able to sell it off. Among the potential bidders: rival Power-One Inc. of Camarillo, Tyco International and Emerson Electric.

Magnetek Inc.

Stock Prices

[GRAPHIC OMITTED]

YEAR (June 30)                   2003    2002

Revenue (millions)             $201.8    $188
Total Expenses (millions)         251     186
Operating Income (millions)    (21.3)     2.3
Net Income (millions)          (34.8)       1
Earnings Per Share            ($1.48)   $0.06

Quarterly Net Income (millions)

[GRAPHIC OMITTED]

SUMMARY

Business: Power systems manufacturer

Headquarters: Los Angeles

CEO: Andrew Galef

Market Cap: $114 million Dividend Yield: 0.2%

Total Liabilities: $55 million P/E Ratio: N/A *

Long-Term Debt: $10 million

* Company is not profitable