Glass House

by Brian Alexander

  The festival would live on. But from the moment Blues Traveler took the stage, Piccolo’s future with it began to seem ever more tenuous. The band played a lousy set—too loud, garbled, shambling—but that wasn’t really the problem. Like Lancaster itself, the festival had become mired in an uncertain search for what it should become: old people’s (and donor-class) music versus kids’ music, big versus small, Lancaster PR versus an event for the community.

  There was one other problem Piccolo knew he faced but couldn’t control: As pleasant and successful (Blues Traveler not withstanding) as it was, the festival did nothing to solve any of Lancaster’s problems. It didn’t attract any new businesses, and it never would. Lancaster was now just one of many communities with arts and music fests; it had no more claim to being an “arts center” than any other place. Towns all over the Midwest were brewing beer, hosting new coffeehouses, and establishing vegan restaurants as ways to promote their leisure-hipness. Even as the festival unspooled under the bright skies, the economic forecast darkened.

  The Lodge, where the Rotarians met, announced it would close for good. The owners had tried to sell the building and lease it back as a way to continue operating, but they couldn’t find a buyer for one of the grandest buildings in a prime location on Lancaster’s main street.

  On July 30, two nights before the festival finale, at about 10:00 p.m., Michele Ritchlin, the director of the West After School Program, received a text on her phone from the Ohio Department of Education. She held her breath, anxious over how many of her grant applications had been successful. All were denied.

  She thought of the teachers. They made either $10 or $13 per hour, with no benefits. Ritchlin had hoped to give raises to some, or a full-time position to Dawn Shonk, a relative by marriage to Aaron, who worked part-time. Then she wondered if she would have a job herself, and if the program would even survive.

  “How do you replace $200,000 a year?” she asked herself. She couldn’t just ask one of Lancaster’s wealthy to drop a check in her lap. The pool of well-off people had become much shallower than it once was, so the same handful was tapped over and over from every nonprofit in town. Yet the need for the program was more profound than ever.

  The day after Ritchlin received the bad news, I ran into Rosemary Hajost at the festival offices. I asked if she’d heard about the grants. She hadn’t, and when I told her the bad news, she said, “This will be devastating.” But then she locked her jaw and looked at me with undiminished gumption. “Maybe we should just go back to our roots: ladies with pencils and books and pieces of paper!”

  THIRTEEN

  Maximum Value

  August 2015

  Sam Solomon’s father showed no mercy when they played nine-ball. He was a shark prowling a green velvet sea. Solomon loved the game, but no matter how much he practiced, he wasn’t competitive until his dad aged into reading glasses. Even then, Solomon lost more often than he won.

  The rule in their games was always “call your shots.” Solomon could sink a miraculous double bank, side pocket, but if he hadn’t called it before the stick hit the cue ball, his father would disallow it.

  Now, as Solomon sat at the long conference table in a room adjacent to his office with Colin Walker, Erika Schoenberger, and Anthony Reisig, he impressed on them the importance of calling their shots. The next day, board directors would come into town for the meetings. This rehearsal of their presentations would be their chance to convince the board that Solomon’s strategic plan for the future was the right one, and that they were the team to execute it.

  Calling the shots—being as clear as they could be about what they expected to happen—was so important because Solomon wanted credit for good results. The more credit management received, the bigger Solomon’s “operational bubble,” the space within which he could manage the company. “If we don’t tell them what actions we’ll be taking,” Solomon told his team, “they’ll be telling us.” The bigger the bubble, the better the chance of finding a forever home for EveryWare Global and Anchor Hocking.

  Long-term value creation was the path he wanted to walk, but Solomon recognized his position. Other than WAMCO’s seat, all the other board seats were occupied by proxy hired hands, which made for a weak board. Solomon was already a weak CEO, because the board was entirely new and hadn’t hired him, and what little track record he had was inked with default and bankruptcy. A weak CEO answering to a weak board could be disastrous.

  In the face of weakness, he planned to project strength through data. He had no intention of pleading, “Don’t you want to be my mommy and daddy?” Instead, he’d appeal to their sense of value—as in money—and ask them to decide, sooner rather than later, how long they wanted to stay in the game.

  Going into bankruptcy, the value of the debt to the twenty-six shareholders who had a stake was essentially zero. After bankruptcy, the value of the debt was roughly $50 million, and soon, Solomon believed, maybe $100 million. “So yesterday you assholes were splitting one-thirtieth of zero. Today you are splitting about fifty, okay?” Solomon said, preparing—in less diplomatic language than he planned to use—what he would tell the board. “So, because I happen to know how accounting works, I know that when you closed your books last fiscal year, you took your loss. Every penny that you recover this year is found money in your bonus program. So if you really don’t want to be here, get the fuck out. Don’t come play like debt in an equity chair. So it’s not a ‘Do you wanna?’ It’s ‘This is the ride. This is what it can deliver. This is the timetable in investment required. Are you in or out?’”

  The interests of the management team, the board, and the employees would all seem to be aligned under the rubric “maximizing value.” But while maximizing value was easily defined in nine-ball, business was different. With Monomoy, maximizing value meant maximizing cash for themselves and their institutional limited partners in as short a time as possible. If their time horizon was two years, then spending money on anything that would not show a payoff for three years would do nothing to maximize the value. Plant maintenance, marketing, and research were deemed worthless. The fact that Monomoy wound up owning Anchor Hocking for over six years aggravated the effects of all those deferred expenditures. The tanks kept aging, after all.

  Maximizing value for Solomon and the three other top managers meant building the perceived worth of EveryWare Global to $300 million, then $400 million, and on to $1 billion. He insisted he could create a billion-dollar company faster than anybody imagined because EveryWare had such a huge potential. He envisioned Anchor Hocking’s—and, to a lesser degree, Oneida’s—return to strength, followed by a series of compatible acquisitions. The brands, the distribution channels, the sales force already existed. He could scale it up with each new acquisition—“and you can do it over and over and over again, and you’ll grow in hundred-and three-hundred-million-dollar bites at the apple.”

  But what did maximizing value mean to the lenders? Some might want out now, some later. Some might want to settle for avoiding a loss, some might hope for a gain. To give the board a basis on which to advise its lender clients, the team was trying to forecast cash flow and EBITDA numbers in increments of one, three, and five years. That way, Nationwide or Voya, for example, could choose how long they wanted to remain owners. Solomon seemed to be hoping that the lenders, tempted by the projections, might ignore their instinct to recover their cash as fast as possible in a “liquidity event,” and instead give the team a few years to build the value of the company before selling out. But at least one board member, representing about 16 percent of the shares, wanted to be able to go to his bosses and explain how they could get out of EveryWare within sixteen months.

  EveryWare was already fielding interest from potential buyers. Going into bankruptcy, the then-board discussed the possibility of a sale to Libbey. But, aware of the Federal Trade Commission’s past objections when Newell tried to sell to Libbey, it abandoned the idea. Now that it was out of bankruptcy, Solomon b
elieved he could, if the lenders demanded a sale, deal the company in a matter of weeks. The team would dutifully report any such interest at the board meeting, but, Solomon said, “If I can figure out a way to do what we need to do on that floor for the guy in the furnace room in a way that maximizes the value for these guys”—the new owners—“and allows him to keep doing what he’s doing? We’ll likely maximize his value as an individual contributor as well. If I don’t do this, and these guys decide to liquidate, then we are all screwed.”

  Solomon had a powerful self-interest, of course: his share of the company. He and the others weren’t sticking around a crippled, old-time outfit located in a small, declining town for just a few hundred thousand dollars at the end of the road. They hoped for millions. “You can consider it as a fair reward for salvaging what’s currently circa-2000 jobs,” Solomon said. “What if we actually build a platform for scalable growth and turn it into many more than that? The positive impact that you have sorta multiplies out. That seems like a fair trade, versus ‘We failed miserably, everybody gets to go home, we shutter the place.’”

  The lenders had been burned by Monomoy. Solomon believed the board’s view of the company now was top-down and clouded by murky numbers from the past. It wasn’t aware of all that had transpired, including what decisions Solomon had already made to turn the company around. So the team had prepared a slide: a “2013 Adjusted EBITDA Reconciliation” to make their case that 2013’s reported $51.1 million was bogus. They planned to project to the board a final 2015 adjusted EBITDA of $23.6 million—less than half the reported 2013 amount. (The shutdown-ravaged 2014 number was $11.9 million.) If they could convince the board that the $51.1 million reported for 2013 should have been much less, their $23.6 million wouldn’t look like such a big drop, especially considering the millions spent on the bankruptcy.

  They would tell the board that, by 2020, they expected a “return to 50”—$50.9 million in adjusted EBITDA on revenue of $439.5 million. The owners wouldn’t have to invest another dime to get there, but they could get there faster by financing some “tuck-in” acquisitions.

  All through July, the team had prepared 150 pages of PowerPoint slides: charts, bar graphs, diagrams, financial tables. They examined the competitive landscape. They detailed “How We Will Win” through service, pricing, manufacturing, marketing.

  After the overview of the strategy, Solomon called on the members of his team to dry-run their presentations. He had faith in them, but he imagined his role as CEO to be a combination of coach and mentor. As each person spoke, he judged, focusing on how well they grasped not only their own silo of responsibility but on how they linked that silo to those of the others.

  Walker was the oldest, and most experienced, executive aside from Solomon. A Canadian who commuted from Ontario to Lancaster on Monday and returned on Friday, Walker—in charge of sales and marketing—had worked in banking, then had a long run at Cott, a Canadian maker of private-label beverages. He’d arrived at EveryWare via John Sheppard, who had worked at Cott.

  Reisig, the operations chief, was the only one to live in Lancaster. He’d moved his family to town in February because he wanted to be close to the factory, and because he thought it was important to be seen as a local resident. He’d worked in manufacturing-supply-chain management for aerospace, telecommunications, and computer printer companies.

  Schoenberger was the daughter of a Baptist minister. Her father, she said, sought the sacred in the “nitty-gritty of showing up and being a faithful worker and doing all the right things.” Her mother was a grade school teacher. Shoenberger was born in Chicago and homeschooled until the fourth grade. The family moved to Kent, Ohio, a short drive southeast from Cleveland, where she entered public school. After law school at Ohio State, she joined a large Columbus law firm that had EveryWare as a client. She’d helped the company interview Kerri Cardenas Love for the job of general counsel. Cardenas Love then recruited Schoenberger to the company. Schoenberger had been comfortable at the firm, but the idea of working for a struggling company in transition intrigued her, because she realized she’d gain experience in a much broader array of business law. Plus, Cardenas Love had told her that EveryWare was going to move its headquarters out of Lancaster to Columbus, and that Cardenas Love was about to rise to become chief administrative officer—a de facto CEO—since Sheppard spent most of his time traveling, fluffing investors, and mounting road shows for the IPO. That would place Schoenberger in position to become general counsel. Had Schoenberger known that EveryWare was a house of cards about to collapse amid accusations and recriminations, she’d never have left the firm, but there she was. Now she found herself a one-fourth member of the 10 percent club.

  Perhaps because she was the youngest, at thirty-six, and had the least corporate experience, or perhaps because Solomon spotted her raw talent, his coach-player relationship with Schoenberger was more obvious than it was with Walker or Reisig. She was his special project.

  In addition to her other duties, Schoenberger handled human resources, which meant she also handled safety. When the board members had made their quick first trip to Lancaster in June and toured Plant 1, they came away shocked. Though management had tried to explain to the board members the nature of glass production, Walker recalled that “they didn’t listen. So they just assumed, because they saw that it was scary—it was burning, it was fire, it was hot, there’d been a fire in the plant—here must be all hell.” Plant 1’s age, the jerry-rigging that had gone on over the years, and the fact that machines were packed closely together didn’t help.

  Safety became the board’s priority. Now it was up to Schoenberger to explain to them that safety was everybody’s priority, and that they’d made progress. The company did have a safety problem. Plant 1’s injury rate was slightly higher than the glass industry average, and Monaca’s was higher still. But the number of lost-time accidents had been cut in half since 2014, Schoenberger rehearsed, and the whole company was creating an improved safety culture.

  “‘Alas! We do need consultants!’” Solomon said in a mocking imitation of an expected board response. “What if they want safety consultants?” he challenged Schoenberger.

  The care and feeding of more consultants, she suggested, would be asking a lot of the small number of team members who were focused on doing their jobs digging the company out of the bankruptcy hole. “They ain’t sticking around for another consultant,” Walker chimed in.

  Okay, Solomon said. The bottom line to the board should be: “We were awful. Now we’re average.” He turned to Schoenberger. The board chairman is insecure, he said. “So let silence be your friend.” Don’t volunteer information. Don’t try to fill in space. You’ll only give them rope.

  Around the table they went. CFO Bob Ginnan discussed the possibility that the board would demand a “value consultant” to determine how much the company was worth. He practiced his IT presentation. The system had been created for a billion-dollar business and hadn’t been updated through multiple owners. It was ancient.

  Walker explained how EveryWare was constrained by the “second-tier” Oneida and Anchor brands and the old glass plants in Lancaster and Monaca. To make a run at Libbey’s food service business, they needed either brands or lower cost—and right now they had neither.

  Reisig described options he would present to the board to make operations more profitable. Metaphorical money leaked from every metaphorical crack, from inefficient machines to the amount UPS charged for shipping. A new machine was about to be installed to put lids on canning jars. At the moment, that was done by hand, so some employees might lose jobs, but perhaps they could be shifted to other work.

  As the meeting went on, it became clear that even as the management team talked about adding value and maximizing value, there wouldn’t be much difference in the lives of Lancaster workers or the town. Any hope they might have had that they would emerge from the scalding trauma of the past decades was as empty as the sample glass jars on the
conference room table. Under the strategic plan Solomon and his crew had formulated, employment would stabilize, but there’d be no hiring surge, no expansion of overall work. And while, under their hypothetical plan, glass would probably be made in Lancaster for five, maybe ten, more years, by 2030 Plant 1 might go cold.

  While the years of underinvestment had crippled Plant 1’s ability to make certain items like high-quality stemware, it remained an industry leader in heavy glass—bakeware, measuring cups, storage containers. If that was where the profit could be found, then that was what Anchor would make. One or more of the H-28s that Brian Gossett used to operate would have to go to make room for press machines to make kitchenware. Employment would not necessarily fall, but it wouldn’t expand, either. Once that was accomplished, Reisig said, “we should take our shopping cart around the world” and outsource production of ware once made in Lancaster to Mexico and China.

  Of course, there was always the option to sell now. Organizations had called Pierce Avenue to express interest in buying all or part of EveryWare Global. The list read like a sinner’s samsara.

  Anchor Glass, the old Anchor Hocking container division that had been sold off to Naimoli and Simon and then tossed like a medicine ball from one investment group to another through one bankruptcy after another, wanted to explore the purchase of the Monaca plant. Anchor Glass was now owned by KPS Capital Partners, the outfit Monomoy’s founders had left to start their shop. KPS bought Anchor Glass in 2014 from Ardagh Group, a global glass manufacturer. Ardagh had bought it in 2012 for $880 million from another PE shop called Wayzata Investment Partners. The deal for the 2014 sale from Ardagh to KPS was for $573.5 million—$435 million in Anchor Glass debt and $138.5 million anted up by KPS. KPS soon recouped its money. In 2015, Anchor Glass took out a $465 million loan and provided a dividend recap to KPS in the amount of $145 million. In May 2016, Anchor Glass provided yet another dividend recap to KPS and a PE partner, AlpInvest, of $148 million. The money came from another $140 million loan to Anchor Glass provided by Credit Suisse’s Cayman Islands Branch. KPS called this an “upsizing” of Anchor Glass’s term loan.