Glass House

by Brian Alexander

  Sue Powers later ran into George Hamilton, Cerberus’s handpicked GHP CEO, at a housewares show. “He said, ‘How’s things going?’” Powers recalled. “I said, ‘You know, I could have done without that bankruptcy thing,’ and he said, ‘Oh, everybody’s gotta go through that once in their life.’ I’m like, ‘Really? Do you know what that did to me?’ Sometimes that is what you had in those leadership people. They didn’t understand what it was doing to the city of Lancaster, Ohio, when they made those stupid, short-term decisions, you know?”

  Brenda Stone wound up trying to pay $1,183 per month for a health insurance plan with high deductibles. She had to drop it. She wanted the bankruptcy judge to know that, and to ask him—and really Cerberus, too—a question.

  How could it be, she wanted to know, “that the law and the government allows companies to go back and take our insurance and other benefits? If you can only imagine how hard and impossible you make it for us! I guess none of you really care just as long as your bank accounts get larger.” Brenda spent twenty-five years doing what she thought she was supposed to do. She earned a living through hard work. She received excellent performance reviews. “I am sure sorry this is how you decided to repay us.”

  Brenda had a lot of company. Cerberus businesses had a habit of going bankrupt: Mervyn’s department stores; OnePage, the papermaker once called MeadWestvaco, with its plant in Chillicothe; and Chrysler (which was then bailed out by American taxpayers) among them.

  Anchor Glass Container was in that huddle, too. In September 2003, Cerberus took the old container division public with an IPO. It’d be a terrific investment, Cerberus told would-be buyers—not only because it was selling bottles and jars to Snapple, Kraft, and Anheuser-Busch, but also because of the “execution of an agreement with the Pension Benefit Guaranty Corporation, or PBGC, which we refer to as the PBGC Agreement, which eliminated all of our past-service pension liabilities.” Also, Cerberus had been able to arrange the “reduction of our retiree medical obligations by approximately $24.4 million.”

  Cerberus made a sizable profit off the Anchor Glass Container IPO. Within a year, though, Anchor Container was in deep trouble. It closed the bottle plant in Connellsville, leaving more than 250 workers suddenly unemployed. Overburdened with debt and facing investor lawsuits, Anchor Glass Container went bankrupt in 2005.

  Chrysler’s bankruptcy made news because it was Chrysler and too big to ignore. But the failures of other Cerberus-owned companies, and the complicated financial reasons for their failure, went largely unreported, or were noted in a paragraph embedded in business news roundups. Plant closings in small towns had become part of the national noise, easily blamed on foreign competition or unions or anti-business liberals. 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 Stephen Feinberg was named as one of Donald Trump’s key economic advisers.

  * * *

  The embarrassment was almost worse than the money and the bankruptcy. Lancaster had spent many years believing itself to be a much more sophisticated place than outsiders realized—and, for a long time, it was. But people in Lancaster (and people from Lancaster) could still be prone to self-consciousness about their origins in a small Ohio working town. More than anything, they hated being seen as rubes. “Li’l ol’ Lancaster” was supposed to be ironic. Cerberus left them feeling like a slicker in a checked suit had shown up and sold them imaginary band instruments. There was no reason why they should have understood a joint like Cerberus—nobody teaches the Cerberus role in The System. Americans are taught to celebrate the builder-capitalists like I. J. Collins and Bill Gates. But Lancaster was infected with hurt just the same. Over time that hurt festered into bitterness.

  Mike Shook, for example, knew a hell of a lot about glassmaking. He could tell you why a stainless-steel mold was cheaper in the long run than a cast-iron mold, how to design a product with the latest technology, why the chemical composition of one piece of ware was better than another’s. He was a west-side boy, born and raised, but he left Anchor for a time to take his skills to other companies. He and his wife had lived in New Jersey and California. He had contacts around the world. He was a smart guy.

  Libbey called him to come work for them. He and his wife even drove up to Toledo to look at some land. “I couldn’t bring myself to do it. I’ve worked for almost every glass company in the United States except Libbey, and I couldn’t bring myself to do it.” Libbey was Anchor’s archrival, and signing up there would have been a betrayal of both Lancaster and Anchor Hocking, like rooting for Michigan against Ohio State.

  Despite his experience and savvy, Cerberus left Shook feeling as if he’d never set foot out of the west side. When he, his wife, and I sat down in his living room, he said, “Here again, I’ll plead my naïveté of high finance, the Wall Street world. It was certainly foreign to me back in those days, not understanding the role that it played in the world of business and how these kinds of things happen, why they happen. I guess, again, I was more of your average Joe that said, ‘This has got to be good.’ Now, looking back, it was probably an odd understanding of what it meant, or not understanding at all.”

  Next time, Anchor Hocking employees told themselves, they’d be smarter. They understood that their new owner, Monomoy Capital Partners, was another private equity firm. They crossed their fingers and wished for it to be different, but they’d learned their lesson. As Monomoy took control, they were wary and skeptical.

  * * *

  Lancaster Glass died just three months after Monomoy bought Anchor Hocking. Like every other American glass company, Lancaster Glass lost sales to imports starting in the late 1980s. General Electric decided to buy its TV picture tubes, the picture tubes Lancaster manufactured, from Taiwanese makers. At the time, about a thousand people worked for Lancaster Glass; within a few years, that number was down to about four hundred. But Lancaster Glass still ran specialty glass and some tableware out of its plant on the corner of Main and Memorial Drive, at the entrance to downtown. Lancaster Colony also owned a glass plant in Sapulpa, Oklahoma, that made ware like flower vases for the floral industry—the Sapulpa plant was part of Indiana Glass Company of Dunkirk, Indiana, a company Lancaster Colony purchased in 1957.

  Though Lancaster Glass was a fraction of the size of Anchor Hocking, it was still an important American glass company. For example, after Newell shut down Clarksburg, the Sunbeam blender jar business—the same blender jars that had been moved from Plant 2 to Clarksburg when Topper shut down Plant 2—came to Lancaster Glass. The specialty ware, like cathode ray tubes and the tubes used in medical monitors, required exacting handwork by Flint craftsmen. Because it did, it was, for a time, almost free of import competition and yielded a high margin.

  By the mid-1990s, Lancaster Glass was among the highest-margin performers in the Lancaster Colony family of companies, a group that came to include truck-bed liners, candles, and some food products, like bottled salad dressing. Yet it worked out of a plant that was more than a hundred years old and wasn’t even built to be a glass factory; it may have started life as a canal warehouse.

  A man named Dave Gallimore was running Lancaster Glass in 2007. He’d come to town decades before to manage a small factory for another company. Like so many transplants before him, he grew to love the place. One day, out at the country club, Gallimore had a casual conversation with a member of the Gerlach family, which had founded, and still largely controlled, Lancaster Colony. Joe Ehnot, the man then in charge of Lancaster Glass, was about to retire. Would Gallimore think about taking it over?

  “I fumbled around with it for weeks trying to decide,” Gallimore recalled. “I mean, is this even possible? What I saw was a real old plant here and real old equipment and real old employees. And I didn’t realize the extent of the relationships with people, the families that worked here. But I knew something about the Anchor Hocking guys: Their fathers worked ther
e, their brothers worked there.”

  Gallimore liked that. He’d spent time working for big companies in other towns, saw how those companies were operated, and thought the stable town and the stable workforce, even the stable union—the Flints—were all positive signs. “They were willing to work,” Gallimore said of the Flints. “Glasswork is harder than hell. I mean, those swing shifts, that fluctuation of temperatures, the potential dangers…”

  By the early 2000s, though, Lancaster Colony stood at a crossroads. Its glass plants were old. The foreign competition had invested in new, better equipment. If Lancaster was going to stay in the market, it would have to spend for new machines and improved facilities. Lancaster Colony could afford to invest in the future of Lancaster Glass. It could have competed against the imports. But it chose not to.

  That choice was not entirely its own. In the spring of 2006, just as Cerberus was taking Anchor Hocking into bankruptcy, an activist hedge fund in the mold of Icahn began a campaign to force Lancaster Colony to rid itself of glass. Barington Capital Group of New York was cofounded in 1991 by James Mitarotonda. Its business model was based on the notion that it knew how to run companies better than the people who were running them. “Better,” in Mitarotonda’s dictionary, meant the Friedman doctrine: maximum return for shareholders, free of other considerations. So Barington would buy a stake in a target company, then agitate for board seats and changes in corporate strategies in an effort to spike the share price, thus enriching Barington.

  Mitarotonda had two demands: Shut down the glass plants, and borrow $300 million in order to buy back shares of Lancaster Colony. Buying back shares used to be forbidden by Securities and Exchange Commission rules. If a company—which, naturally, had inside information—went into the public markets and bought a lot of its own shares, thus increasing the share price, that would be stock manipulation. But in 1982, the Reagan administration SEC created Rule 10b-18, which allowed public companies to buy back almost unlimited amounts of their own shares—as long as they publicly announced it.

  This was wonderful news for the Carl Icahns and James Mitarotondas of the world. In their new capitalism, a balance sheet free of debt was a waste. It meant you could afford to buy your own stock, thus increasing the share price, thus making James Mitarotonda (along with CEOs, who began taking a lot more of their pay in the form of their own stock) a lot richer a lot faster. By the early 2000s, share buybacks were sweeping through corporate America. From 2003 to 2012, the companies making up the Standard & Poor’s 500 spent 54 percent of their earnings buying back their own shares.

  Lancaster Colony carried no debt on its balance sheet. Most old-time businessmen—like the Gerlachs, I. J. Collins, William Fisher, and Thomas Fulton—regarded zero debt as a good policy. In the 1960s, Anchor’s CEO, John Gushman, bragged about Anchor Hocking’s lack of debt. That freedom meant they could use earnings to invest in plants, equipment, workers, research and development—all the things Lancaster Glass needed to compete.

  In mid-March 2007, Barington filed a disclosure showing it owned 5.2 percent of Lancaster Colony. Two days later, CEO John Gerlach, Jr., announced that Lancaster Colony would shut down Lancaster Glass and the Indiana Glass plant in Oklahoma. In October, Lancaster Colony said it would buy back at least two million of its own shares by June 2008—at the top of a bull market just before the biggest stock crash since the Great Depression. In return, Barington promised to back off.

  Lancaster Colony fired the 140 workers in Lancaster. Most of the equipment was sold for scrap. The factory that made the reflector for the Statue of Liberty’s torch, lenses for battleship searchlights, millions of automobile headlight and taillight covers, millions of TV picture tubes, was torn down. The lot at the entrance to Lancaster’s downtown sat empty, surrounded by a chain-link fence.

  The day he had to tell his employees was the hardest day of Gallimore’s working life. “I grew up in the era where the idea was to make product,” he said. “Working for the community, for the United States, maybe for the world.” Then America decided none of that was so important. Jobs went overseas. The knowledge of craftsmen was lost, in order “to make a product for a little bit cheaper and not worry about what happens to the guy that used to make it for you.” Gallimore had been in town for about thirty years. His wife worked at the hospital. “I knew most of the people. I couldn’t walk down the street, go to the grocery store, go to the doctor’s office. I mean, people would just … I mean, ‘What? You’re gonna close? I don’t believe it. It can’t be.’” Those people were not experts on the global economy, NAFTA and free trade, or activist hedge funds and share buybacks. “All they knew was that place had been there for a hundred years, and the flames coming out the tubes, and their mothers and brothers, and all that.”

  I was one of those people. As a boy, I’d go to see a Saturday afternoon matinee at the Lyric Theatre, which used to sit in the middle of the block on Main Street. After The Love Bug or The Computer Wore Tennis Shoes, I’d walk around downtown, visit the stores, and wind up outside the greenish, corrugated plant gate at the rear of Lancaster Glass, where my father once worked. A small mountain of cullet, the scree of past production—shiny black, emerald green, opalescent blue boulders—glimmered in the sunshine. Some days—especially in summer, when they opened the big plant wall as wide as it would go to let out the heat—I could see inside. I was a Catholic boy. Nuns had spent years engraving images of hell on my imagination. The flames shooting out of the squat stack on the roof, the white-red glow of the furnace inside, the gray shadows of the men hoisting their gatherers to collect glass from the inferno sure looked like hell. But it wasn’t, because these men could step outside. They were dirty and sweaty, but sometimes they’d smile and wave at me in my boyish short pants and sneakers. And I’d think to myself that it was manly business going on in there, done by serious men.

  “It was a tough thing,” Gallimore said. “But when it came down to having to make that announcement, I mean…” He didn’t finish.

  Instead, he echoed Dick Ellwood. “My kids knew their kids, and my wife knew their wives and worked at the hospital. People came in there and had their babies there. They came in there sick. And the next day, they’re not working. It was a really tough deal.”

  Lancaster Colony did invest a little bit in itself, though, to meet the changing America. It became a convenience food company, making salad dressings and breads. Instead of glass, it announced it would spend $23 million to build a factory in Kentucky to manufacture frozen dinner rolls: Sister Schubert’s “homemade” rolls, a name seemingly designed to prove that corporate America had no sense of satire.

  The new American economy had come to town like an unwelcome stranger, leaving Lancaster broken. Later, some Lancastrians, mainly those over fifty, would identify 2007 as the town’s nadir. Younger people like Brian and Mark Kraft didn’t. The Lancaster of their parents’ youth was just a bunch of stories. They came of age around 2007. Their Lancaster hadn’t ever been different.

  As for Anchor Hocking, an executive who’d worked for the company since she was a teenager reported that after Cerberus, “People told me that now I knew what the devil was like.”

  Then she worked for Monomoy.

  SIX

  The Cheese, the CEO, and Lancaster’s Year

  January 2015

  Peggy Cummins smiled down upon Carly Bowman like an American madonna. Cummins had starred in Green Grass of Wyoming, the 1948 20th Century Fox release filmed at the fairgrounds. The movie poster on the flaking wall of Mark Kraft’s crumbling living room was an artifact from a trove of Lancaster ephemera collected by his family. It was a memento of the filming and the world premiere, held not at Grauman’s Chinese, nor Radio City Music Hall, but in Lancaster, Ohio, just one year after Forbes crowned it America’s town. Now Cummins—blond, pretty, wholesome as fresh air—watched as Carly melted her dope, filled her syringe, and slid the needle into her leg.

  The house was dissolving around Carly. The ris
ers of the staircase to Mark’s second-floor bedroom and the bathroom where he shot up had rotted to the verge of collapse. Patches of the plaster ceilings had decayed until cavities lay open to the lath underneath. The plumbing had corroded. Bits of dog shit dried where they dropped.

  Carly had made a resolution to quit smoking. So far, she’d stuck to it. “7 days down, no cigarettes,” she wrote on her Facebook page on January 8. The self-congratulation appeared along with other upbeat tokens from the life of a twenty-five-year-old Ohio girl: the selfies, the cute clichés about friendship, the canned empowerment mottoes.

  She didn’t post anything about heroin. Heroin was a need-to-know part of her life. She wasn’t trying to quit heroin.

  The day after her triumphal Facebook post, a customer knocked at Mark’s door. Before, this customer had bought small amounts of dope, less than a gram. Now it was a little more than a gram, Carly’s upper limit. She was strict about selling within a set range: between .40 and a full gram. Her connect up in Columbus had given her a scale so she could be sure of the weights. She sold this gram for about $100, or $10 a point—a profit of 50 bucks.

  Carly sold dope most every day. Though business was good, she had no savings, no checking account, no credit cards. She lived an all-cash life. Money flowed by her in a stream of fleeting euphoria.

  Aside from dealing heroin, Carly wasn’t much different from any of her friends. She went to the same bars, ate the same pizzas, listened to the same music. Like most everybody else, she was a Buckeyes football fan. On January 12, the day of the national championship game against Oregon, Carly showed her support by posting “Sleepy today, but GO BUCKS!” on her Facebook page.

  * * *

  Lancaster had spent eight years skittering through the mucky cellar of its misfortune. Many of its older residents had come to feel exiled in place. It was a confusing sort of exile. The town looked like an inept imitation of the one they’d loved. Every day delivered another painful, frustrating discordance.