Solo Cup Co. will lay off 654 workers at four soon-to-be-closed facilities - including two plastics-related plants - and further revamp its operations, following its purchase nearly a year ago of rival Sweetheart Cup Co. Inc.
The disposable-packaging leader, based in Highland Park, Ill., announced the sweeping changes Feb. 9. The company will close sites in Springfield, Mo.; Shreveport, La.; Glens Falls, N.Y.; and Goshen, Ind. The Springfield plant - the largest plastics-based operation of the quartet - will close by year's end, with the other three shutting down by Sept. 30, said spokeswoman Angie Chaplin.
The Springfield plant has more than 1 million square feet, employs 331 and thermoforms drink cups under the Trophy Cup brand. The facility had been owned by Sweetheart of Owings Mills, Md.
Solo bought Sweetheart in an industry-changing deal finalized March 1. Since then, Solo has been integrating the operations; 10 other sites have been closed or targeted for closing since the acquisition, Chaplin said. Those plants include three in Illinois and facilities in Pennsylvania, Georgia, New Hampshire and Florida, according to news reports. The moves have been expected by analysts, including credit-rating service Standard & Poor's in New York.
``It is very much part of the integration,'' said S&P packaging analyst Liley Mehta. ``The company said it would generate $60 million in synergies from the purchase [of Sweetheart]. Closing down facilities and consolidating some smaller facilities into larger ones are all part of the plan.''
Solo has said it will not complete its integration until 2008, and Mehta anticipates more reductions.
Of the current closings, the Shreveport plant also makes plastic packaging. The 148,000-square-foot facility injection molds cutlery and extrudes drinking straws, Chaplin said. That site, gained in 1998 when Solo bought Clear Shield National Inc., has 210 workers.
The Glens Falls and Goshen plants make paper products, including plates, placements and napkins. Those two facilities are the smallest sites on the closure list and together have 113 employees.
After the closings, Solo will have 20 facilities worldwide, Chaplin said.
Solo used two criteria to determine a plant's continued viability: whether it could be transformed into a multiple-process technology center and whether it was close to customer locations, Chaplin said. Solo defined its ``multiple-technologies facilities'' as those that could combine manufacturing of foam, plastic and paper products.
The goal is to align customer demand and supply and shorten the supply cycle, Ronald Whaley, Solo president and chief operating officer, said in a news release.
The company's plant reductions should not be taken as a sign of distress, said Gerald Caruso, a partner at investment banking firm Goldsmith, Agio Helms. Caruso's firm helped arrange another large deal in 2002 between injection molding competitors Precise Technology Inc. and Courtesy Corp.
In such deals, companies must react quickly to lower the high debt load that comes with an acquisition, he said. Those that do sometimes find other opportunities. In Solo's case, opportunities could come from outside North America.
The market in North America, where Solo has nearly all of its plants, ``has been growing at single-digit rates and is a very mature market,'' said Caruso, who is based in Minneapolis. ``It's not uncommon for companies to find ways to take labor out and become more efficient. It could eventually make them stronger global competitors if they are looking at beefing up their presence outside North America.''
Solo has continued its sales growth since the acquisition. For the first nine months of 2004, sales grew 9.9 percent after excluding the impact of the acquisition, the company said. The firm has annual sales approaching $2.2 billion, Mehta said.
The company's S&P credit rating is a solid B-plus with a stable outlook, she said, and Solo's ambitious consolidation efforts are expected to generate more free cash flow. ``Those credit measures will improve over time,'' she said.
With resin prices going up and debt levels high, Solo is under a microscope to cut costs, Caruso said.
``I don't know of any client that likes to lay off people,'' he said. ``But it can be [justified] if it preserves jobs for everyone else.''