Negotiations continued until “Presser called me on the phone and said, ‘Nagle, you know, by the end of the day, if I don’t have concessions in my hand, I will not give them twenty million dollars.’” Presser told Nagle he would “lock the door Tuesday at noon and liquidate the assets of the whole plant.”
Lancaster approved the cuts. The union at Monaca rejected them. EveryWare reneged on its word and reopened both plants anyway, leaving the Lancaster workers feeling like fools and Nagle and the rest of the Plant 1 union leadership discredited among the rank and file.
The deal was finalized on Wednesday, July 30. The four-week shutdown had lasted two and a half months. Both Anchor Hocking and Lancaster had their reprieve, but the union was angry, and EveryWare had alienated its own customers. Winemakers and distillers lacked bottles from Monaca, fouling up their production lines. Candlemakers didn’t have glass holders, so they couldn’t ship. Retailers wondered if they should start buying overseas. Maybe China or Mexico would be more reliable.
Lancaster’s state and federal representatives, both Republican and Democrat, had been mostly absent during the shutdown, leaving workers feeling abandoned. But the next day, Ohio’s Democratic U.S. senator, Sherrod Brown, issued a platitude-filled press release applauding “both management and members of the United Steelworkers for finding common ground and working toward shared success.” Brown tried to take a little of the credit, highlighting a letter he’d written to Monomoy back in June. The union guys in Plant 1 laughed when they read it.
CFO Bernard Peters resigned on September 17, effective October 3. On its face, his resignation was an odd move. The employment agreement he’d signed stipulated that, unless he was terminated for cause or resigned before his contract was up—which he’d just done—he would be entitled to a generous severance payment. By resigning, he’d forfeited the severance. He’d worked at EveryWare for less than two years. In 2013, his first year, Peters made $1,128,998, most of it in stock awards and performance bonuses linked to achieving EBITDA numbers.
To replace Peters, EveryWare contracted with Alvarez & Marsal to provide a new CFO. The company agreed to pay A&M $31,680 per week, more than Brian Gossett would make in all of 2014. In 1985, before the sale to Newell, the average Anchor Hocking hourly employee made about $9.33 per hour, almost $21 in 2016 dollars. Even before the concessions, the current generation of Anchor factory workers made less than the previous one had. Now they made less still—Brian earned $14.55—and had no retirement plan.
When the shutdown was first announced, the Eagle-Gazette published an editorial insisting that “Anchor Hocking Owes Lancaster Explanation.” “We were shocked and disturbed at just how little the company seemed to care about its employees or the city.” Community spirit, the paper argued, “at least from the corporate level, seems to have dried up in recent years.” Lancaster still wanted its company’s love.
Solomon smiled at the naïveté of such thinking, but he understood it. Most Americans held old ideas about how The System really worked.
* * *
The shutdown was six months in the past, but the sting of it lingered and festered until it metastasized to the point that some Plant 1 employees were ready to walk out on any pretext. They no longer believed Sam Solomon. “He’s just a cheerleader for the company,” some said. Some of them didn’t believe their own local president, Nagle, or the rest of the Steelworkers union. The old Flints would never have stood for the raw deal; the Flints were just a tiny speck to the Steelworkers. The Steelworkers didn’t give a crap about them. It seemed they were always the ones giving back. A few wanted to take down the company out of spite, just to be able to tell themselves they walked out like men. Being jobless afterwards would just about be worth it. Most, though, reacted with learned helplessness, keeping their heads down and going to work. They had families to think about.
Brian did not have a family, and the more he thought about it, the more he started to think that whether he could afford it or not, he wanted to quit Anchor and go to Drew. He still worried about earning less money, but he figured the company always moved backwards anyway, forcing its workers to march backwards with it. Brian did the math and realized that, after the previous summer’s concessions, the forced furloughs, and the bigger health insurance bite, he wouldn’t be making that much less money at Drew anyway.
Telling Brant was the worst part. Brant had invested time in Brian, and Brian considered him a friend and mentor. They’d gone deer hunting together out at Hilltop. They were both standing on the platform around the H-28, working on the machine, when he said it. “He comes up to me and is like, ‘Did you get that job?’ And I was like, ‘Yeah,’ and he was like, ‘Good.’ I could tell he was disappointed, but he couldn’t hold it against me.”
Leaving Anchor wasn’t quite as hard as the breakup with Renee, but he already missed Plant 1. Why did it have to happen? He couldn’t figure it out. They had to be making money. The company was always saying it was losing money, but Brian saw through that bullshit. He didn’t claim to understand the politics of the place—he had only the vaguest idea that something called Monomoy controlled it—but it was open, wasn’t it? It wouldn’t be open if they weren’t making money. Why’d they reopen it after the shutdown if they weren’t? “Somebody’s making money,” Brian concluded, “and it’s off the sweat of other people.”
EIGHT
The Bankruptcy
March 2015
“It’s not about making the product,” Sam Solomon said. “It’s about making money appear, and the 99 percent doesn’t understand that.”
The American economy had come a long way from the days when I. J. Collins could lasso some people he knew to kick in a few thousand dollars each and start the Hocking Glass Company. It had come a long way since 1938, when the first annual report of the combined Anchor Hocking featured a short note from Collins, four pages of financial tables that a seventh-grader could understand, and some comments about the numbers. Since those days, the American economy had advanced under the wise tutelage of financial experts trained in the subtle art of the acronym and the esoteric word, the secret codes that imbued the finely engineered tables and reports and footnotes—the pages and pages of footnotes and subfootnotes—with the sheen of brilliant scientific inevitability, the words flexing with the muscular bona fides of graduate school brains to justify the thousand-bucks-an-hour legal advice and the multi-million-dollar-deal percentages.
Those brains had been trained for years. Imagine the resources poured into them, the hours and days and months of molding. How could anybody working an H-28, or packing ware, or selling it be expected to know where the money went? They’d been trained to make a tangible thing, and to sell the thing for a little more than the thing cost to make, and then to use that profit to pay people, make better things, and slide a little dividend into the pockets of those who’d risked their money to invest in the creation. The idea was pretty simple. But America had come a long way—and had decided the idea was too simple. So, of course, Brian wasn’t the only Anchor Hocking employee to wonder.
The people who wrote shipping orders in the DC wondered, too. They could see goods being purchased.
The sales guys were selling. In the company’s New York City showroom, at 41 Madison Avenue, where major manufacturers of tableware that included Libbey, Lenox, Orrefors, Ralph Lauren Home, Spode, Arc, and many others leased space, buyers seemed enthusiastic. And why not? The showroom evoked a land of perpetual summer-friendly entertaining, with backyard grills and gingham-tableclothed picnic tables set with glassware and Oneida place settings. You could almost smell the rib eyes sizzling over the coals and hear the giggles of rambunctious kids and their tolerant parents sipping gin and tonics out of Anchor tumblers and Budweiser out of Anchor bottles: the Lancaster, Ohio, of Nancy Frick’s memory preserved inside a Manhattan skyscraper like a museum exhibit.
The glass business had struggled for a generation, and imports gnawed away at both volume and margin, but as
far as the employees could tell, Anchor seemed to be doing okay. Anchor was making tons of OEM (original equipment manufacturer) Pyrex-branded bakeware for World Kitchen, right alongside its own branded glass. And EveryWare Global—mainly Anchor—secreted enormous potential in the substrata of its ancient geology. Foreign glassmakers may have paid their workers much less and ignored already lax environmental regulations, but they suffered from two important disadvantages: Glass breaks, and some of it, especially bakeware, is heavy, so shipping it across oceans can be expensive. And though tariffs had dropped on imported glassware, the United States still gave domestic makers a little protection against the low wages and subsidized manufacturing in China, though no longer in Mexico.
How could Anchor, or EveryWare, or whatever the hell the company was being called these days, not be making money? Yet they’d been forced to submit to wage cuts. They watched the plant disintegrate. They lost their retirement contribution from the company.
And now, on March 11—as Brian settled into his new job as a Drew warehouseman, Lloyd Romine settled into his rental house across the street from Plant 1, Mark Kraft tried to wrestle the monkey off his back, and Joe Piccolo narrowed the list of possible festival headliners—the situation at Anchor Hocking once again turned dire.
Nobody outside the company’s C-suite had any hint, and certainly not anyone in Lancaster did. As far as the town knew, EveryWare’s problem had been solved during the shutdown crisis of the previous summer. But it wasn’t, and it never would be. It never could be, wearing the cement shoes of all that debt. The latest trauma arrived at the hands of EveryWare’s independent auditor. It was about to issue a “going-concern” qualification as part of the upcoming earnings report. The auditor doubted EveryWare could stay in business.
So, exactly one year after he faced their venom in New York, Solomon had no choice but to inform the lenders. He placed a conference call to an ad hoc committee of them and once again aggravated the people who held a firm grip on the corporate testicles by telling them the auditor believed the company was at risk of collapse.
The shutdown of 2014, and now the going-concern crisis, were not the kinds of events that gestated overnight. Understanding how they were birthed required hacking through private equity’s Enigma machine.
* * *
Stephen Presser, Daniel Collin, Justin Hillenbrand, and Philip Von Burg founded Monomoy Capital Partners in 2005, two years before buying Anchor Hocking out of bankruptcy. All three Wall Street veterans had worked at another PE firm, KPS Special Situations Funds (now KPS Capital Partners), before breaking away to open their own shop. Their first fund, Monomoy Capital Partners, LP, raised $280 million from limited partners like the IBM Personal Pension Plan, Travelers Casualty and Surety Company of America, and “funds of funds”—investments made by other money management outfits like Morgan Creek Capital Management and Swiss Re Private Equity Advisors.
Armed with this dry powder, Presser visited Lancaster in 2007, as the Cerberus/Global Home Products bankruptcy case wound down. Before committing to make an offer for Anchor Hocking, he met with labor officials. Monomoy would not buy, he told them, if the unions didn’t agree to lower pay.
“He said he couldn’t run the place paying us what we got,” Joe Boyer recalled. Boyer and the rest of the workers thought Plant 1 faced closure. So the union gave away the production bonus—extra dollars a worker could make for boosting the percentage of good ware. Presser also insisted on tiered wages, with new hires forever earning less than existing employees.
Chris Nagle told Presser about the tanks. “When they was in the process of buyin’ us, I said, ‘Our tanks are in bad shape. Our one tank needs rebuilt.’ Tank 2 was one of the oldest tanks. He says, ‘We already know the tanks are in bad shape. We don’t care. We’re only gonna keep ya for two, three years. We’re sellin’ ya.’” According to Nagle, Presser told him, “‘If I can’t get you sold in three years, I’ll shut ya down. I don’t care. I’m just in it to make money.’”
Both Boyer and Nagle were a little surprised, but they’d been through the Cerberus buyout and bankruptcy. That had been Cerberus’s plan all along, too, they figured. At least Monomoy was up-front about its intentions.
(I wanted to ask Presser—and others at Monomoy—about such statements and many other issues. Repeated attempts by phone over a period of eight months, to both Monomoy’s offices and to its public relations firm, were rebuffed. In a final effort, I flew to New York to visit Monomoy’s offices. I was told they were in a meeting, but that I could wait. A few minutes later, the receptionist told me that she’d been advised that the meeting would be “very, very long” and that I shouldn’t wait. I handed her my card with my contact information and asked her to convey the message.)
To purchase Anchor Hocking, Monomoy invested $6.5 million from Monomoy Capital Partners, LP—the $280 million pool of money it had raised from investors—and borrowed $68.5 million. As had become standard practice in PE deals since the days of Wesray, that $68.5 million was not Monomoy’s debt or Monomoy Capital Partners’ debt. It became Anchor Hocking’s debt.
When a PE firm buys a company with a view to selling it, it needs to increase the company’s profits so it can resell it at a premium. You can increase profits by building value through research and development, creating new products, investing in plants and equipment. But that takes time—usually far longer than the two or three years Monomoy had in mind. Instead, you can also increase company profit by making the same products with the same sales volumes, but cutting expenses.
The cuts came quickly. First, Anchor Hocking fired all the temporary workers who’d been part of the labor pool at the distribution center. Then, on Friday, September 28, the company fired seventy union workers without warning.
The chairman of the union council, Dennis Harvey, told the Eagle-Gazette that Monomoy had promised that any layoffs would occur through attrition. Few retired, though, because Monomoy took away retirement insurance. He felt deceived. “We gave some concessions when Monomoy bought it and we were told they would hire more people. I hope things come out right, but for the working person it never does,” he told the paper.
Twenty-three days later, Monomoy sold off the DC. Anchor had built it in 1969 on land I. J. Collins once owned. Lancaster’s congressman, Clarence Miller, and the state governor, James Rhodes, cut the ribbon at the DC’s opening celebration. From then on, property taxes and upkeep were the only expenses Anchor paid for it. The deal to sell it, as many such deals are, was convoluted.
The buyer was an entity called NL Ventures VI West Fair, LLC. (The DC was located on West Fair Avenue.) It paid $23 million. NL Ventures VI West Fair, LLC, was created just for the purpose of buying the DC. The real buyer was NL Ventures VI, LP, an investment pool of $111 million. NL Ventures VI, LP, in turn, had been created by AIC Ventures, a real estate equity-fund manager—private equity for real estate. Such funds were often described as “vulture” funds that catered to investors like high-net-worth individuals.
Anchor Hocking immediately signed a deal to lease back its own distribution center for twenty years. Anchor agreed to pay $2.3 million per year, with a 2 percent annual increase during years two through ten, then a 1.5 percent increase every year through year twenty. (As of 2015, the Fairfield County Assessor’s Office appraised the DC at $12,381,930.) In August 2011, NL Ventures resold the DC for $25.8 million.
The $23 million Monomoy received for the DC could be applied to Anchor Hocking’s bottom line, another shortcut to make the company look profitable, though at the price of a twenty-year lease. Monomoy likely gained money for itself, too, because it charged fees for the transactions of its portfolio companies. If the fee was 1 percent, a percentage Monomoy was known to charge, then Monomoy earned $230,000 on the deal, to be paid by Anchor Hocking to Monomoy. But it may have reaped more than that.
Sale-leasebacks are common for PE-owned companies. PE firms often call it “unlocking equity.” As the equity owner, Monomoy Capital P
artners, LP, could have pocketed some or most of the $23 million as a special dividend. Because it was a private company, Anchor Hocking didn’t have to publicly report any such dividend. Monomoy did announce that some of the proceeds from the DC sale were used to pay down Anchor Hocking’s debt, though it didn’t say how much.
It also may have used some of the money to buy another glass company. In November 2007, a month after the DC sale-leaseback, Monomoy arranged for Anchor Hocking to buy Lancaster Colony’s Indiana Glass plant in Sapulpa, Oklahoma, for $21.5 million. Once again, Monomoy may have charged Anchor Hocking its 1 percent transaction fee. How this deal was financed—how much, if any, debt was required—remained opaque.
In early 2008, Anchor Hocking closed the Sapulpa plant, which had been in the city since 1914. About 425 employees lost their jobs.
Mark Eichhorn, who had retained his Anchor CEO job after Monomoy bought the company, released a statement, in which he said, “We know this presents a hardship for employees, their families, and the people of [Sapulpa]. We want to assure everyone affected that this decision-making process was not an easy one.”
By several accounts, that was a lie. All along, the plan had been to buy the Sapulpa plant to obtain its machinery, then bring that equipment to Lancaster so Anchor Hocking could enter the flower vase market. That could have been good news for Lancaster—and, in some ways, it was. But the deal proved a lot less lucrative than advertised.
Monomoy especially prized a machine developed by the Italian company Olivotto to make large flower vases. “But the vase business is a whore’s market,” a longtime sales executive insisted, using slang for a saturated, low-margin market with no barriers to entry. “The price fluctuates as the [delivery] truck goes down the road. And this Olivotto machine they brought to us from Oklahoma, we never got it to work.”
Glass House Page 17
