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January 12, 1998 01:00 AM

SWEETHEART MERGES WITH FONDA

Sarah S. Smith PLASTICS NEWS STAFF
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    Thermoformer Sweetheart Cup Co. is combining operations with paper products firm Fonda Group Inc.

    Fonda, based in St. Albans, Vt., formed a new company, SF Holdings, to run the combined businesses. The new firm is based in St. Albans.

    ``I don't think there will be a significant impact on Sweetheart's plastic business,'' said Dan Carson, general counsel for Sweetheart. ``In fact, this could provide enhancement. Fonda outsources plastic products and Sweetheart manufactures some of those products.''

    Sweetheart's primary shareholder, American Industrial Partners, will sell 48 percent of its voting stock and give Fonda Group management responsibility over the company. AIP will retain 52 percent of its voting stock. SF Holdings also will purchase all of a new class of nonvoting common stock from Sweetheart and acquire 100 percent of the outstanding common stock of Fonda.

    The deal is scheduled to close during the first quarter. Financial terms were not disclosed.

    Sweetheart employs more than 2,000 at its Owings Mills, Md., headquarters and 7,500 corporatewide. About 50 percent of the firm's sales are plastic related.

    ``It essentially will be business as usual for Owings Mills,'' Carson said. ``Owings Mills is our largest facility and will remain so. There won't be anything changed here as a result of this. It won't tend to grow or shrink in any way.''

    The company makes plastic and paper cups, plates, utensils and food containers. Last year Plastics News placed the company at No. 2 in its annual North American thermoformers ranking with estimated related sales of $255 million for the year ended Sept. 30, 1996. It operates 10 thermoforming plants with an estimated 59 manufacturing lines.

    Last year, the company reported a net loss of about $47 million on sales of $886 million. The year before, Sweetheart had a $5.7 million profit.

    Fonda Group employs 1,800 at 10 plants. It makes paper plates, trays, tray covers and napkins and had sales of $252 million. Both companies serve the institutional and consumer markets, and some product lines overlap.

    Hans Heinsen, Fonda Group chief financial officer, said it is premature to speculate on plant closings. Sweetheart and Fonda expect to execute joint marketing, manufacturing and distribution agreements.

    AIP will control three seats and Fonda will have two on a five-member Sweetheart board. Significant actions will require the vote of four directors. Sweetheart President and Chief Executive Officer William McLaughlin's role has not been determined, according to the firms.

    Standard & Poor's placed Sweetheart and Fonda's debt ratings on CreditWatch with negative implications, but did not change their ratings. S&P said it recognizes the potential strengthening of the companies through improved business profiles and operations, but added that the financial risk for the operating companies also will increase, as the SF Holdings investment in Sweetheart most likely will involve debt financing.

    SF Holdings also will issue its own preferred stock to Sweetheart shareholders, Heinsen said.

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