The Hulseman family, which founded Solo Cup Co. in the 1930s, relinquished control of the Highland Park, Ill., thermoformer and injection molder last month after three years of losses stemming from the acquisition of a rival.
Solo's private-equity partner, New York-based Vestar Capital Partners, which helped finance the $917 million buyout of Sweetheart Cup in 2004, took control of the company's 11-seat board. Former Chairman Robert Hulseman and his brother John Hulseman, the company's vice chairman, were replaced by Vestar executives but retain two of four seats held by the family. The Hulsemans declined to comment.
Stress from the start
Buying Sweetheart more than doubled Solo's size and made it one of the largest suppliers of cups, plates and other food-service items to McDonald's, Starbucks and other restaurants. But it has lost money since acquiring the Owings Mill, Md.-based rival. Solo posted a loss of $339 million for the first nine months of 2006, after a loss of $13.4 million in the year-earlier period. Sales rose 2 percent to $1.85 billion.
``I don't know whether Sweetheart is ever going to live up to what Solo thought it would be,'' said Shawn Paydar, an analyst with Fitch Ratings Ltd. in New York. Solo misjudged its ability to cut costs from integrating the two companies' plants and operations, he said.
To raise cash for the purchase, Solo relied heavily on the bond market. With $1.14 billion of long-term debt on its balance sheet, the combined company has been under stress from the start. At the same time, rapidly rising material costs have shaved the already slim profit margins.
Vestar received 33 percent of the company's preferred voting stock in exchange for helping to finance the Sweetheart deal. As a condition of its $240 million investment, Vestar also was given the right to expand the board and appoint a majority of its members if Solo ``substantially underperformed,'' a regulatory filing shows.
``We are experienced in situations like this and confident that Solo's leadership team, with our support, can significantly improve operating performance,'' Vestar Managing Director and new Solo Chairman Kevin A. Mundt said in a news release.
Solo Chief Executive Officer Robert Korzenski, 52, a former Sweetheart executive tapped in April, is trying to accelerate the consolidation of operations. He also aims to reduce inventories and is considering the sale of some operations.
The Hulsemans' influence and largess, meanwhile, will diminish going forward. The $1.1 million salaries for Robert Hulseman, 74, and John Hulseman, 76, have been cut to $114,000, filings show. The salaries of other Hulsemans employed by the company also may be up for review, while consulting fees and tax preparation work for family members not employed by the company will cease, according to the filings.
``Creditors are going to be more stringent and mindful of how cash is leaving the company,'' said Fitch's Paydar.
