Kmart Corp.'s recent bankruptcy has stung one of its plastics molders: StyleMaster Inc. and its charismatic leader Martha Williams, who opened the housewares molder's plant on Chicago's South Side last year.
StyleMaster filed for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code on March 18. Williams, who claims that Kmart owes the company $7 million, is trying to buy the company back through a fast-track sale.
Williams says if the court does not approve a sale by April 5, StyleMaster will shut down its inner-city plant. U.S. Bankruptcy Court Judge Jack Schmetterer was expected to rule on the plan at a hearing on March 22.
During court action that began March 20, StyleMaster lawyers - supported by four creditors - argued in favor of a quick auction of the firm, its facility, and its seven injection presses and other equipment. Raising questions about the plan, and suggesting that a quick sale could be rigged to benefit Williams, were lawyers for two other creditors: custom molders Matrix IV Inc. and Paramount Plastics Inc.
Matrix, a Woodstock, Ill., company that molded parts for StyleMaster, recently had to lay off 103 of its 184 employees, according to Matrix President Ray Wenk Sr. StyleMaster owes Matrix $6.6 million, Wenk said.
``This is terrible. I wouldn't wish this on my worst enemy,'' Wenk said. Matrix has sued StyleMaster in Circuit County Court in McHenry County, Ill.
How things have changed in just 10 months. In May, StyleMaster and Williams celebrated at a ribbon-cutting to dedicate the brand-new, 660,000-square-foot plant. Mayor Richard Daley gave a speech.
Williams, who once lived in Chicago's Robert Taylor housing projects and worked her way up the ranks at Chicago-area molding shops, was living her dream of owning a company molding storage boxes, laundry baskets and other housewares.
But in January, when Kmart filed for bankruptcy reorganization, Williams' dream began to crumble. On March 20 a battery of lawyers trooped into Schmetterer's Chicago courtroom to debate StyleMaster's future. The hearing was convoluted and contentious, with some lawyers testily complaining that they had just two days to digest the case.
Williams and other current investors plan to bid for their own company, if they can secure funding, according to court papers. A speedy auction sale is the only way to keep StyleMaster as a going concern and preserve its 133 jobs, they claim.
Some creditors say the involvement of Williams - who has been featured in People magazine and PBS television - is critical to the future of StyleMaster.
``If she moves forward, you have a chance of ongoing business,'' said Richard Laverty, president of St. Charles, Ill.-based Chicago Mold Engineering Co. Inc. StyleMaster owes his company $1.9 million for molds.
Two prospective buyers were represented during the hearings. One group includes Williams and one of her partners, William Bailes. It has not secured financing, Williams said. A lawyer for the second group declined to identify its investors, but the lawyer said it anticipates including Williams.
StyleMaster blames its troubles on Kmart, which accounted for more than $14 million of the company's 2001 sales of about $28 million. Kmart's bankruptcy left StyleMaster with unpaid bills totaling more than $7 million. The company also owes about $10 million to American National Bank and Trust Co. of Chicago, its secured creditor. The bank tightened credit for StyleMaster after the Kmart filing, according to court documents.
But Wenk, at Matrix IV, also blames Williams for expanding too fast, on the backs of suppliers she did not pay.
``I told her, `Martha, the biggest mistake you made here is you tried to become Rubbermaid in a year,' '' he said in a telephone interview. ``That wasn't right and we're paying a price for it.''
Wenk said Matrix IV handled about $10 million of StyleMaster's $14 million worth of sales to Kmart. ``But they [StyleMaster] quit paying me, right after Christmas,'' he said. Some unpaid invoices go back to last July, he said.
The 66-year-old Wenk, a mold maker who has spent a lifetime in plastics factories, said he has stopped paying a salary to himself and his wife, Matrix co-owner Patricia Wenk. It was ``devastating'' to lay off 100-plus people, he said. Plus, Matrix walked away from other business because it was molding the houseware items, he said.
Matrix IV has secured liens on the molds, and Wenk plans to hold onto the molds.
Wenk said Williams ``overspent and overexpanded.'' Because banks typically do not finance the purchase of molds, StyleMaster used some of the money it owed suppliers to buy molds from Portugal for a new line of products, he said.
Williams denied that StyleMaster was mismanaged. In an interview after one court hearing, Williams said the company was ``very profitable'' until the Kmart problems began.
``It has nothing to do with money management,'' Williams said.
Several other creditors said StyleMaster had been paying them on time before the Kmart woes. Kmart was the big blow, said John Licht, president and chief executive officer of Duraco Products Inc., a Streamwood, Ill.-based company that does molding work for StyleMaster. ``In my opinion, we would absolutely not be here, unless for the Kmart bankruptcy,'' he said.
Licht said it does matter who owns StyleMaster - and it should be Williams.
``It's important for her to own it, I will say that. The business, I think, is based on her relationships with her customer base. I think she's the most important part of that equation,'' he said. StyleMaster owes Duraco $1.6 million.
StyleMaster owes its 20 largest unsecured creditors a total of $16.5 million.
Another rough road
This marks the second bankruptcy filing for StyleMaster. Both times, Williams has fought to retain control of the company despite serious financial problems. In 1993, she sold her then 2-year-old company to Glacier Holdings Inc., a small public company. But the following year, after harsh disagreements with Glacier management, she helped push StyleMaster into involuntary bankruptcy liquidation. Then she got a new investor and promptly bought the company back, minus its injection molding presses, at a bankruptcy auction. She outsourced production to local custom molders and clawed her way back for several years before opening the Chicago plant last year.
Now, Williams again wants to buy the company out of bankruptcy - but this time, she wants to hang onto it as an ongoing molding business.
Keeping the injection presses will be key, but doing it by auction might not be so simple, said one machine supplier. ``Our position is those machines are ours,'' said Tony Firth, vice president and general manager of Sandretto USA Inc. of Freedom, Pa. StyleMaster has three Sandrettos.
Firth said Sandretto could take the machines back if it chooses to do that.
StyleMaster also bought four injection presses from Engel Machinery Inc. of York, Pa. Three are at StyleMaster's Chicago factory and one is at Matrix. Engel has no current plans to pull out the machines, said Brian Bishop, vice president of sales. ``We believe she's got a viable business. She's got great products. It's just unfortunate what happened with Kmart,'' he said.
At the March 20 hearing, it all seemed a little too pre-planned for Chicago lawyer Gregory Jordan, who represented molder Paramount Plastics of Lockport, Ill. StyleMaster owes Paramount $1.25 million.
``There's a concern we will not get value for the company because they're trying to rig the sale for insiders,'' he said. Jordan questioned how much effort Williams has put into finding an outside buyer.
Williams said she approached Duraco, but talks fell apart. StyleMaster mailed information to venture capital firms, but Williams said the company has not contacted any other injection molding firms.
``We are still in discussion about who we are going to contact,'' Williams testified March 21.
Williams said she has been very busy keeping the company operating since Kmart's reorganization. She said the fast-track sale is needed because her major retail customers want to book fourth-quarter orders, when StyleMaster does 85 percent of its business, by mid-April.