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-bra
nded 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 wa
s 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.
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