“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 Partners, 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.”
EveryWare management, working under the advice of Monomoy, hadn’t bothered to consult with veteran operators in the plant. “They brought all these machines,” Chris Nagle recalled. “They were in junk shape. They said, ‘Oh, we did this. It’s a great machine.’ It was a pile of junk.” The Olivotto machine sat in the parking lot for the next two years.
Anchor Hocking didn’t just bring machines from Oklahoma. The company also bused Mexican families into Lancaster and put them up in the Hampton Inn on Route 33. While fathers went to work in Plant 1, children enrolled in the city schools.
“We all knew they was illegal,” Chris Nagle charged, “because they all had the same Social Security number.” Nagle knew this because they told him so. Anchor Hocking’s human resources department, he said, also knew their immigration status, but the company wanted them because they earned less money and worked as if Plant 1 were a non-union shop.
“They did what the company told ’em to do. I had to keep pullin’ ’em back. ‘You can’t do that—that’s someone else’s job. It’s a union shop. We gotta work as a union.’”
Some of the Mexican workers were supposed to have been trained operators, but many were not. And they didn’t know Plant 1’s equipment. Nagle insisted they start as apprentices, angering the company, which wanted them working as low-wage operators right away. The training proved to be a waste, thanks to U.S. immigration authorities.
Being as far north as it was, and not having as much of the kind of industry—meatpacking, large-scale vegetable and fruit agriculture—known to use immigrant labor, Ohio was not a high-priority state for immigration enforcement. In 2008, federal authorities arrested only sixty-nine people on immigration charges. So it took a while for authorities to show up at Plant 1. Company salaried and hourly employees alike recalled the day with near-exact language. Immigration agents entered the plant “and got two of them right away,” Nagle said. Panicked phone calls zipped across Lancaster.
“My son was in high school,” another veteran executive told me. “And this Mexican kid’s phone rings. He stands up right in the middle of class and walks out the door.”
Old cars and beat-up minivans showed up at the plant’s gates to meet workers who, in some instances, sprinted out of the plant. “They ran out any door they could. In one day, everybody was just gone.”
Meanwhile, machines continued to run. The production line moved ware through the plant. But with too few workers to handle the ware, a lot of it crashed to the shop floor, with broken shards piling up under machines and conveyer lines.
“I remember old Constantine,” Nagle told me. “He came up to me and he sat there, and I said, ‘Hey, sorry about you gotta leave and all this,’ and when he was leaving, he said, ‘Chris, you got a right to know. My name is Juan. My name’s not Constantine. That’s the name they gave me.’”
When it bought Indiana Glass, Monomoy issued a press release. “Since acquiring the Company in April of this year, Monomoy has instituted a series of business improvement programs at Anchor that have substantially reduced operating expenses and increased profitability throughout the Company.
“‘We are pleased with Anchor’s progress following its emergence from bankruptcy,’ said Stephen Presser, a Monomoy principal and chairman of The Anchor Hocking Company Board of Directors. ‘We have challenged nearly every aspect of the Anchor business model over the past seven months, and the entire employee group has stepped forward to make Anchor a much stronger, much better company.’”
“We got no return on what we did,” the sales executive told me, referring to the Indiana Glass purchase. “None.”
In December 2007, a month after buying Indiana Glass, Anchor Hocking was approved for two business incentive loans from the state of Ohio, amounting to over $10 million, at 3 percent interest. Anchor said it would use the state’s money for tank repairs. The commitment to use the public money, and the purchase of Indiana Glass, Presser told the Eagle-Gazette, “are evidence we’re in this for the long run and to build something special and viable. We’re not just in this to see if we can make a quick buck.”
Monomoy had already made a buck. So far, just about everything Monomoy had done to Anchor Hocking 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 do an “add-on”—the Indiana Glass buy. And collect fees.
Monomoy charged “monitoring and consulting fees” to Anchor Hocking—the price of its business expertise. How much Anchor paid to the firm in 2007 remained hidden, but in 2008 Anchor paid Monomoy $1.2 million in fees and expenses. The fees increased year after year: $1.3 million in 2009, $1.6 million in 2010. Monomoy employees also were paid directors’ fees for sitting on the board of the company their fund owned. The firm charged similar fees to the other twenty-five companies in the first fund’s portfolio. As for Monomoy Capital Partners, LP, it may have already recouped its $6.5 million investment from any dividend it may have taken from the $23 million disposal of the DC.
That’s not the magnitude of payoff PE outfits or their investors seek, though—they’d earn better returns investing in a stock market index fund. The goal is to reap many multiples of the invested cash. To do that usually requires an “exit,” the sale of the company to another buyer, just as Presser told Nagle he planned to do. But even as Monomoy bought Anchor Hocking in 2007, the most powerful seismic upheaval of the world economy since 1929 rumbled through credit markets.
Subprime home mortgages began to explode lenders’ balance sheets. By June 2007, Wall Street giant Bear Stearns was forced to pledge $3.2 billion to save one of its own hedge funds from collapse. (Bear Stearns itself would fail in March 2008 and be absorbed by J.P. Morgan.) Credit dried up all across the economy, making leveraged buyouts like the one Monomoy had executed for Anchor Hocking increasingly difficult, and then nearly impossible. Monomoy found itself stuck with a glass company it didn’t want and couldn’t unload.
Monomoy waited, while business at Anchor Hocking continued. Sales were dented by the recession, and the Mexican workers had to be replaced, but the company managed to chip away at the debt handed to it by its owner. The country, too, dug itself out of the economic trenches, but emerged damaged and skittish. Deals of the kind Monomoy needed for an exit remained scarce. By 2011, Monomoy had owned Anchor for nearly four years—at least a year longer than Presser had predicted to Nagle. Still unable to unload it, in late summer 2011, Monomoy decided to use Anchor Hocking as a cash machine by executing a PE magic trick called the dividend recapitalization, or recap.
Monomoy had Anchor Hocking borrow $45 million. Anchor then paid Monomoy Capital Partners, LP, $30.5 million as a dividend. But Monomoy had an even bigger play in mind.
The following month, November 2011, Monomoy Capital Partners II (MCP II), the firm’s second investment fund, went looking for its first purchase. Monomoy had more ammunition this time, $420 million, supplied by the California Public Employees’ Retirement System, the Municipal Fire and Police Retirement System of Iowa, the Ford Motor Company Master Trust Fund, the Standard Fire Insurance Company, RCP Advisors, 747 Capital, and, most ironically, the School Employees Retirement System of Ohio, among the MCP II limited partners.
MCP II bought Oneida, the iconic flatware brand based in Sherrill, New York, for what sources told the New York Times amounted to $100 million. Another source calculated the price at closer to $85 million. MCP II kicked in $5.8 million. The rest was borrowed (or assumed existing Oneida debt) and placed on Oneida’s books. That was a lot of money to pay for what amounted to a name. Oneida no longer manufactured anything.
Its flatware business was so damaged by cheap Asian imports that it stopped making its own products in 2005. It shut down the famed manufacturing facilities in upstate New York, fired about two thousand people, and contracted with Chinese manufacturers to make Oneida-branded products. The company Monomoy bought consisted of a logo, office staff, and distribution centers where goods arrived from overseas and were then shipped to customers.
In announcing the Oneida buy, Monomoy declared that Oneida and Anchor Hocking would work closely together to market their products to food service businesses like hotels, bars, and restaurants. (Oneida had already licensed the brand name for consumer retail sales to another company.) But in March 2012, Monomoy decided to not just have their two portfolio companies cooperate, but to merge and become EveryWare Global. Monomoy hoped the combination would attract a buyer, or that it could exit by taking the company public.
Anchor CEO Mark Eichhorn resigned. He was replaced by John Sheppard, who was thought to be better equipped to prepare EveryWare for an IPO. In connection with the merger, the new EveryWare refinanced its debt once again, this time with a $150 million loan. But by now, Anchor and Oneida were so deep in hock that, to attract investors to buy the debt, Monomoy had to sweeten the deal, offering to pay a high interest rate, shorten the term of the loan to five and a half years, and include other investor-friendly terms like selling the loan at ninety-eight cents on the dollar—all signs of junk debt.
Monomoy planned to take another $15 million dividend for itself. Instead, it was forced to accept a more modest $10 million.
Monomoy foisted a new advisory agreement onto EveryWare. Now EveryWare—a company owned by Monomoy—was required to pay Monomoy $625,000 every three months for “advisory” services, plus a daily fee “for the services of operating professionals of the Advisor” (meaning Monomoy). EveryWare would also pay 1 percent of the value of any transaction—say, a recap, acquisition, divestment, like the sale of the DC, or refinancing, like the new $150 million loan package.
Anchor/EveryWare paid Monomoy $3.6 million in advisory fees in 2011 and $3.2 million in transaction fees. The advisory fees and expenses in 2012 amounted to $2.6 million. (If you’re counting, that’s $54 million in known dividends and fees, compared with a combined $12.3 million Monomoy invested from the funds to buy the two companies.)
Monomoy colonized EveryWare like a nineteenth-century imperialist. It obligated EveryWare to use Monomoy’s services, whether EveryWare wanted them or not: “The fees and other compensation specified in this Agreement will be payable by the Companies regardless of the extent of services requested by the Companies pursuant to this Agreement, and regardless of whether or not the Companies request the Advisor to provide any such services.”
Yet it also denied any obligation to serve EveryWare’s interests. It exempted itself from any liability and gave itself permission to work for competing companies and do business with EveryWare’s own customers; to withhold knowledge of possible business opportunities; and to exempt itself from any liability “for breach of any duty (contractual or otherwise)” if Monomoy acted on such knowledge for its own profit, even at the exclusion of EveryWare. EveryWare had to indemnify, hold harmless, and defend Monomoy, at the former’s expense, against any lawsuit—“just or unjust.”
Even as Anchor Hocking was paying Monomoy tens of millions of dollars, it wasn’t funding the employees’ retirement plans, just as it hadn’t under Cerberus. As of December 31, 2012, the plan was underfunded by $8,758,000. Between the October dividend recap and the merger with Oneida to form EveryWare, all the debt reduction Anchor achieved in the preceding few years turned into more debt—about $181 million—than it had since being bought by Monomoy in 2007.
“We were within months—and I don’t mean a year or even six months, but a couple of months—of being debt-free,” an Anchor insider recalled. “And the decision is made that we’re going to be EveryWare, and we acquire this bankrupt, broken-down company nobody wanted. And now, all of a sudden, we have this chain around our neck, and we are starting to sink.” He stopped, but the aggravation he felt didn’t. “We were that close!” he shouted, holding up his thumb and index finger in the universal sign for damn close. Another executive, hearing the comment, defended not the deal but the Oneida employees: “Those people at Oneida were fighting and clawing just like we were. It wasn’t their fault.”
Not only did it now have much more debt to service; EveryWare Global also had a sword hanging over its head—the $150 million loan—that would drop in five and a half years. Monomoy tried to make a company somebody wanted to buy before that five-and-a-half-year deadline by giving EveryWare a compelling story. The EveryWare story became “the tabletop.” EveryWare would supply everything you could want for your tabletop—the glasses, the flatware, the casserole dishes, the pie plates. You could eat “synergy” for breakfast, lunch, and dinner.
If Presser or Collin had walked into the Pink Cricket and asked Ellwood, as he drank his beer, or Ben Martin, as he sat at the bar having his Monday evening glass of wine, they’d have heard a true story about how Anchor Hocking tried to execute almost the same strategy in the 1980s. Anchor did a little shopping of its own back then, acquiring small, loosely related outfits like a pottery company and a silver-plate company. The plan didn’t work. With the benefit of hindsight, they conceded that losing its focus on glass weakened Anchor.
But some people who tout themselves as business geniuses will always fall for a story—sometimes because they want, or need, to believe in it. Fortunately for Monomoy, a hedge fund called Clinton Group needed to believe.
* * *
On September 19, 2011, at just about the same time Monomoy awarded itself that $30.5 million dividend, Clinton Group formed a special purpose acquisition company—a SPAC—called ROI, a finance pun referring to “return on investment,” or, in the Clinton case, the name of a horse.
ROI was an empty suit, a “blank-check company,” sent in search of a body to fill it. The suit was stitched together by a public offering of ROI stock on February 24, 2012, that raised $75 million to buy a company. But Clinton didn’t have any particular company in mind.
Clinton, a collection of funds, some domiciled in the Cayman Islands, was founded in 1992 by a man named George E. Hall, who was fifty-one at the time of ROI’s creation. Financial engineering had made Hall rich. In addition to an estate in New Jersey, he owned a 385-acre thoroughbred farm outside Versailles, Kentucky, called Annestes Farm. He and his wife, Lori, liked to jet in from New Jersey to spend long weekends there. A few months before ROI was created, one of his horses, Ruler on Ice (ROI), won the 2011 Belmont Stakes.
Clinton had its fingers in a number of businesses in a number of different ways. Sometimes it behaved like an activist out of the Icahn and Barington mold. It teamed up with Barington on occasion to target companies like the Dillard’s department stores and Griffon Corporation, a defense electronics firm that had turned into a conglomerate. Clinton also went after Steve Madden shoes. In most cases, the goal was to win board seats and recapitalizations that threw cash into Clinton’s hands, much like the strategy Barington used to pressure Lancaster Colony to buy back shares.
Sometimes Clinton acted more like private equity, buying controlling interests in companies. Clinton had recently bought up chains like Red Robin and California Pizza Kitchen. ROI’s initial purpose was to find another dining chain to take over. That’s why ROI’s most famous director, former NBA star Jamal Mashburn, served on its board. Mashburn owned thirty-eight Outback Steakhouse restaurants, thirty-two Papa John’s Pizza restaurants, and three Dunkin’ Donuts stores.
But ROI had trouble finding a chain to purchase. As the months ticked by, with no target acquired, Clinton became anxious: ROI had a deadline, too: A provision of its SPAC charter required it either to buy into a company by November 29, 2013, or to dissolve ROI and return its investors’ money.
On November 13, 2012, with one year to go to complete an acquisition, ROI president and Clinton portfolio manager Joseph A. De Perio received a call from Lampert Debt Advisors, a firm hired by Monomoy to shop EveryWare to potential buyers. EveryWare wasn’t a restaurant chain, but it was related, sort of, because it sold ware to restaurants. Libbey was a much bigger seller of products to the food service industry—food service was still a smaller part of Anchor’s business—but Monomoy told the story of how it had turned EveryWare into a big food service player. Whether De Perio bought into the EveryWare story, was motivated by ROI’s deadline, or both, he was interested enough to open negotiations.
Monomoy did have other chances to sell EveryWare, or parts of EveryWare. ROI reported that at least one other SPAC had expressed interest. According to two EveryWare insiders, a man described as “a Canadian billionaire” was alarmed at some of the numbers Monomoy had offered up, specifically its EBITDA. He thought they looked suspicious. A second possible buyer brought in by new CEO John Sheppard balked when Monomoy tried to “get that last penny” for the sale.
The reasons why those other deals fell through may have been contained in the initial terms sent to Clinton by Monomoy. Monomoy wanted too much. In return for a minority stake in EveryWare Global, Monomoy demanded $100 million in cash, a $7.5 million promissory note, 12.44 million shares of common stock, preferred stock that could be converted to common stock saleable if the stock price reached certain levels, and six board seats, to Clinton’s two. The other board seat would go to Sheppard, who’d been hired by Monomoy.
As negotiations over terms continued, De Perio and others from Clinton traveled to Lancaster and toured Plant 1 on December 13, 2012. Workers like Joe Boyer and Chris Nagle were used to seeing guys in suits walking around, curious and dumb. They always took it as a sign there was about to be news. The first couple of times it happened, back when Libbey’s people toured the plant, they’d get the jitters. They barely looked up from their work now.
Clinton noticed the off-kilter EBITDA numbers, too. But after more negotiation, and a lowered price, Monomoy and Clinton signed an agreement on January 31, 2013, to merge ROI and EveryWare Global and take the combined company public.
At the deal’s closing date, Monomoy received $246.9 million, $90 million of it in cash and the rest in stock. Monomoy retained almost two-thirds of EveryWare. Clinton paid the $75.1 million held in ROI and $16 million of its own money. The rest came from loans totaling more than $265 million. As always, that debt would be EveryWare’s.
Both Monomoy and Clinton stood to gain more by selling the stock, but there was a hitch. Most of the stock was handcuffed by a so-called lockup: Neither Monomoy nor Clinton could sell their shares for 180 days following the closing of the merger.
Such lockup agreements are meant to reassure investors that a stock’s sponsor will share risk rather than quickly bailing out of a company with little chance of success. But this lockup agreement was worthless. Under the terms, Monomoy and Clinton could sell earlier if the stock sold for at least $12.50 per share on at least twenty trading days during any thirty-day period after August 19 (ninety days after the closing date). This could provide an incentive to manipulate the share price during that period. Even if the price provisions weren’t met, they had yet another out: Monomoy and Clinton could sell earlier if the audit committee of the board of directors—made up of Clinton and Monomoy personnel—approved an earlier date.
Sheppard, Monomoy’s Dan Collin, and members of Clinton all hit the road to sell the new company to investors. They showed PowerPoint slides. They held conference calls. On one such call, Collin promised that “we believe in the business, we believe in its people and we believe in the future growth of the organization. We also believe that the structure of the transaction we are discussing today aligns the interests of all parties involved as we will work together tirelessly to drive go-forward performance and shareholder value in the years to come.”
All of them trumpeted words like “world” and “global” over and over, to hammer home the idea that EveryWare was going to compete worldwide. Sheppard took a moment to praise his CFO, Bernard Peters: “I’m proud to have a strong partnership with my CFO Bernard Peters who has a strong, very ethical financial background with unique global experience.”
Despite the hard sell, the stock strolled languidly out of the gate at $10 per share. It barely moved over the next several weeks. But by mid-June 2013, the price began to perk up as Oppenheimer, hired by EveryWare to prepare a secondary offering of stock in anticipation of qualifying for the shorter, ninety-day lockup term, talked up the shares to potential investors.
On July 8, it closed at $12.96. On August 1, EveryWare released earnings results for its first quarter as a public company and for the first six months of the year. They looked good. Revenue was up. EBITDA was way up—32 percent—and if you excluded one-time expenses like merger costs, earnings came in at twenty-seven cents per share for the quarter.
On August 19, ninety days after the closing date, the stock closed at $12.75. On September 3, it closed at $12.95 per share. On September 13, Monomoy and Oppenheimer entered into an underwriting agreement to sell four million shares. The stock price, however, had not met the ninety-day lockup terms set forth in the public filings. The audit committee waived them.
The market for EveryWare’s shares was fragile, and the price of the stock was already dropping before Monomoy could get to market. Monomoy had to settle for a sale of 1.75 million shares (90 percent of which were Monomoy’s shares) at $11.50 per share, yielding another $18.5 million.
Two weeks later, on October 30, EveryWare released another earnings statement. Sheppard sounded the upbeat notes CEOs always sound in such calls, but he also announced that EveryWare might pull back from some of its earlier, more optimistic predictions. He further said that, to save money, the company was not going to rebuild one of the Lancaster furnaces, as promised. Instead it would “reposition” the capacity.
The stock lost more than 10 percent of its value that day. On October 28, EveryWare shares opened at $10.50 per share. On November 11, they closed at $7.49. The price would never hit $10 again. By March 9, 2015, two days before Solomon called the lenders to break the news about the going-concern qualification from the auditor, it closed at eighty-nine cents.
The question that puzzled Brian Gossett and so many other Anchor employees—Who was making money?—wasn’t so hard to answer once you chopped away the acronyms and footnotes and jargon. EveryWare Global was drowning in over $400 million in liabilities. It possessed just over $100 million in total assets. Sales were respectable, but the company had to pay high interest on all that debt. It had to lease a distribution center it used to own. It paid generous salaries and stock options to Sheppard and Peters—Sheppard was paid $2,281,966 in 2012. Most of all, it paid Monomoy, and Monomoy’s funds, many millions of dollars while Brian Gossett, Swink, Joe Boyer, Chris Nagle, Chris Cruit, and hundreds of other Anchor Hocking workers gave up wages and benefits.
* * *
After the summer shutdown of 2014, EveryWare’s board became increasingly desperate to find a way out of the debt prison it had constructed. Monomoy had used $20 million to buy preferred shares as a bridge over the covenant breach during the shutdown, and it was still the majority owner of the company. It wanted that money back. And Clinton hadn’t begun to recoup its investment. So the board formed a mergers-and-acquisitions committee.
“The concept is very simple,” Solomon explained. “I combine that company with no debt with this company with too much debt, and the combined company has about the right amount of debt. It’s basically: they’ll make beautiful kids together. That’s all you are lookin’ at. Clean balance sheet, ugly balance sheet—it’s an average kid.”
At one point, Clinton’s De Perio tried to bluster his way into a merger with CSS Industries, a maker of stationery, greeting cards, ribbons, bows, baby books, and photo albums under the brand names C. R. Gibson, Paper Magic, and Berwick Offray. On November 17, 2014, De Perio wrote to the CSS board of directors and issued an implied threat to mount a hostile campaign to win over CSS shareholders.
I write on behalf of Clinton Group, Inc., the investment manager to various funds and partnerships (“Clinton Group”) that invest in public equity securities of companies such as CSS Industries, Inc. (“CSS” or the “Company”).
We have monitored the Company from afar for the last few years and have owned its common stock in the past. We are ambivalent to owning stock of the Company if it continues to operate as an independent entity in a declining industry niche.… The liquidity in the stock is what keeps us on the sidelines today, and I imagine current shareholders wonder how they will eventually monetize their positions. [emphasis added]
I believe Clinton Group can set forth an alternative path to equity value creation. Clinton Group is also the owner of a significant stake in EveryWare Global, Inc. (“EveryWare”) (NASDAQ: EVRY), and I sit on both the Board of Directors and the Acquisition Committee of the Board. Assuming both parties can come to an agreement on a contribution analysis and an exchange ratio and based on our detailed review of the Company’s publicly available information and our substantial knowledge of the industry, I believe EveryWare Global can offer as much as $34.00 per share in an exchange offer to CSS shareholders.
“The rest of the story plays out, unfortunately, like much of my early dating exploits when I tried to date models,” Solomon laughed. “You can easily envision a model saying, ‘I understand why you wanna date me. Tell me why I wanna date you.’”
CSS, which had very little debt and a healthy share price, laughed off the threat from the crippled EveryWare. The idea sputtered out. Solomon did not tell me so directly, but by December 2014 it seemed clear to me that he believed bankruptcy was the most likely outcome for EveryWare.
Bob Ginnan knew as early as October 2014, just after the shutdown, that the company would probably collapse. A headhunter had called him to talk about replacing the Alvarez & Marsal–supplied interim CFO, who was costing EveryWare more than $31,000 per week. Ginnan was CFO of an Ohio printing company that had navigated rocky financial shoals, so he wasn’t intimidated by EveryWare’s basic finances. But when he looked up the filings, he was alarmed by the nuances. “I could start to see there were some things going on here that probably weren’t right,” he recalled. “The way I saw some of the earnings and the words flow and the cash flow and the investments, it looked to me like this thing was headed towards a problem.”
Besides, there’d been a lot of turmoil inside the executive offices on Pierce Avenue, with executives like Sheppard, Peters, and Kerri Cardenas Love, the general counsel, suddenly departing. Ginnan decided he wasn’t interested.
Solomon later called Ginnan and asked him to rethink his position. Monomoy and Clinton were probably not going to be around forever. He convinced Ginnan that the Anchor Hocking and Oneida brand names, freed of the PE shops, had value. Ginnan liked the fact that Anchor made its glass in the U.S.A.—and, more specifically, in Ohio. He was a born-and-bred Buckeye with an affinity for manufacturing who would rather be on the shop floor than the New York Stock Exchange floor.
“I like dealing in things that have value and use beyond the intellectual value,” he said. “It’s just something about the craftsmanship of people, and seeing that, and these guys out there on the forming process. They’re craftsmen. They really are.” He changed his mind and took the job.
In early March 2015, on the Thursday before Ginnan was scheduled to be in Lancaster, Solomon called him. Referring to a bankruptcy filing, Solomon said, “Oh, by the way, we’ve got this little project we need to start on Monday.”
The board, however, refused to go quietly. On March 12, the day after the going-concern call to the lenders, it appointed Solomon to a seat so he could explore another junk-financing scheme involving the issuance of high-interest securities in return for a cash infusion.
But when the plan was presented to the lenders, they rejected it. The board asked the investment banking firm Jefferies to draft other possible out-of-court restructurings. Jefferies offered advice on at least five occasions between March 19 and the end of the month. The lenders rejected them all.
EveryWare had been servicing the debt at the sacrifice of the plants and the workers. The payments arrived on time. No skin would be shaved off the lenders’ backs if they let EveryWare try to figure a way out of the going-concern qualification. If a new financing plan failed, or proved inadequate down the road, the lenders could take the keys at that time. Meanwhile, why not wait and keep collecting the interest payments? The lenders could have done just that, Solomon said. “Or they could say, ‘I don’t like you.’”
By now, most of the lenders were disgusted. Had there not been the shock of the previous year, and had Monomoy not left them with a soured relationship, the lenders might have been willing to explore such alternative financing schemes. But they insisted they would only settle for bankruptcy.
As much as he seemed to favor it, Solomon had mixed feelings about heading for court. On the one hand, he thought of Monomoy as abusive parents and longed for “a forever home.” But he was the CEO, and not interim anymore. And now he had a board seat. From the outside, EveryWare looked like his ship. He didn’t relish the idea of being the CEO of a corporate Titanic. He worried about the patina of failure, especially if he decided to look for another job. That reluctance, however, was outweighed by his desire to rid the company, and himself, of Monomoy and most of the debt. Freed of both, he might finally be able to do what he’d come to do: build that billion-dollar company beneath himself.