Yesterday I gave an overview of Brian Alexander’s Glass House, his story of the economic decline of Lancaster, Ohio. Today I will fill in some of the details about the decline of its principal employer, the Anchor Hocking glass company.
First, a word of caution. The financial wheeling and dealing that helped bring down Anchor Hocking is very complicated and sometimes shrouded in secrecy. Alexander is not an economist or CPA, so he has to rely primarily on the stories told by his informants to make sense of it all. What he does have going for him is that he is a good journalist, he digs deep into the information available to him, and he knows the town of Lancaster well, having grown up there himself. Ultimately, we cannot know what would have happened to businesses like Anchor Hocking if they hadn’t been targeted by other companies as sources of quick profits. However, I think Alexander makes a pretty good case that the leveraged buyouts and revolving door of owners did more harm than good.
The first company to acquire Anchor Hocking in a leveraged buyout (in 1987) was Newell Corporation, a maker of household goods like window shades and hardware. The good news is that Newell’s management “introduced a few needed modern efficiencies and systems that Anchor Hocking had neglected–like data and accounting techniques, order tracking, customer service methods.” They succeeded for a time in making Anchor Hocking more profitable. On the downside, they sold off some parts of the company and eliminated an important segment of Lancaster’s leadership by bringing in outside executives who didn’t reside in the town. They persuaded local authorities to take money away from public schools in order to finance tax breaks. They were also harder on workers, eliminating training opportunities and quickly firing those who didn’t hit performance targets.
The larger problem was that Newell was becoming financially overextended because of its continuing acquisitions. Its merger with Rubbermaid in 1999 “nearly killed the company,” because Rubbermaid was in such bad shape and the deal left Newell with such a debt burden. Newell no longer wanted to put any money into Anchor Hocking for maintenance or improvements. It sold off the company in 2004, one year after getting the tax breaks from the town.
Anchor Hocking’s next owner was the private equity firm Cerberus. Its business was buying and selling companies, not manufacturing as such. Here things get a little complicated. Cerberus formed a new company, Global Home Products Investors, LLC, to buy Anchor Hocking and two other businesses from Newell. Global Home Products borrowed most of the money it needed to make the buys, meaning that it and not Cerberus bore the cost of the acquisitions. To make things more confusing, it borrowed a lot of the money from a Cerberus affiliate, so that Cerberus made money by lending to GHP, its own creation. That also meant that “Anchor’s cash flow wound up supporting the structure of Global Home Products [and ultimately Cerberus], and because of that it starved.”
Anchor was still profitable, but GHP’s need to get money out without putting much in soon began to hurt the company. Maintenance was neglected; quality suffered; cash flow deteriorated; and the retirement plan was underfunded. After a while Anchor Hocking wasn’t even paying some of its suppliers. In 2007, after only two years in business, Global Home Products filed for bankruptcy. The bankruptcy proceedings were contentious, but in the end GHP’s lenders got paid, while the pension plan lost millions and retirees lost medical benefits.
“Meanwhile, Cerberus continued to thrive. As of mid-2016, Cerberus was one of the largest private equity firms in the world, with more than $30 billion under management, and [founder and manager] Stephen Feinberg was named as one of Donald Trump’s key economic advisers.” Trump, of course, also knows something about continuing to thrive while taking his acquisitions into bankruptcy.
As a result of GHP’s bankruptcy, Anchor Hocking was sold at auction to the sole bidder, Monomoy Capital Partners. That was an investment fund controlled by the private equity firm Monomoy. As with the Cerberus deal, the purchase was made with mostly borrowed money. The deal was structured so that the debt was incurred by Anchor Hocking rather than by Monomoy.
Monomoy’s intention was to manage Anchor Hocking for a couple of years and then sell it at a profit. Most of what Monomoy did “followed the standard private equity playbook: jawbone the unions, cut costs even at the price of damaging longer-term success, do a sale-leaseback of real property assets, take whatever public money you can get from communities eager to save their industries…and collect fees.” The sale-leaseback occurred when Monomoy sold Anchor Hocking’s distribution center for a quick $23 million, a “shortcut to make the company look profitable, though at the price of a twenty-year lease.”
Before Monomoy could sell Anchor Hocking, the financial crisis intervened, discouraging lending and putting a chill on leveraged buyouts. Still stuck with a company it didn’t want to keep, Monomoy took cash out in 2009 by resorting to a “dividend recapitalization.” “Monomoy had Anchor Hocking borrow $45 million. Anchor then paid Monomoy Capital Partners, LP, $30.5 million as a dividend.”
In 2012, Monomoy merged Anchor Hocking with Oneida, another troubled company that it owned, naming the combined company EveryWare Global. In 2013, Monomoy sold a minority share of EveryWare Global to a special purpose acquisition company controlled by the Clinton hedge fund. Most of the money for this purchase was also borrowed, and that too became part of EveryWare’s debt. At this point, “EveryWare Global was drowning in over $400 million in liabilities. It possessed just over $100 million in total assets.”
As the excessive debt strained EveryWare’s cash flow, Monomoy threatened to shut down Anchor Hocking unless the union agreed to a deal: Monomoy would give the company a cash infusion of $20 million, but the workers would accept lower wages, an end to company contributions to retirement plans, and higher insurance premiums. The unions accepted the ultimatum in the summer of 2014. Despite those concessions, EveryWare declared bankruptcy in 2015. This time, the lenders took over the company. They appointed a “turnaround board” of bankers and other glass industry outsiders to fix up the company for sale, like a rundown house.
The losses were hardly distributed evenly. Alexander concludes:
From the standpoint of a private equity firm, it was a success. Like a lucky old lady hitting a slot in Reno, Monomoy put a little money in and pulled a wagonload of money out.
Monomoy sent what was left of Lancaster’s once-grand, 110-year-old employer into bankruptcy court while it made off with millions and the employees walked their wages and benefits backwards in time. Lancaster’s social contract had been smashed into mean little shards by the slow-motion terrorism of pirate capitalism.