Larry Weikel and Belinda Schell know all about the future. For them, it arrived in 1990 when they paid the price for Wall Street's excesses — and Congress's failure to curb those excesses.
Weikel is forty-seven years old and lives with his wife in Boyertown, Pennsylvania. Their children are grown. Schell is thirty-three and lives with her husband and three children, two teenagers and a seven-year-old, in Royersford, Pennsylvania.
Both worked at the old Diamond Glass Company plant that had been a fixture in downtown Royersford for all of this century. Until, that is, the takeover craze of the 1980s led to its closing, to the elimination of their jobs and the jobs of 500 co-workers — and to profits of tens of millions of dollars for those behind it all.
Their stories are the stories of middle-class jobholders everywhere. In interviews across America, the authors heard a constant refrain. It was a litany sounded in city after city, from Hagerstown, Maryland, to South Bend, Indiana; from Hermann, Missouri, to Martell, California. Over and over, blue-collar and white-collar workers, midlevel managers — middle class all — talked of businesses that once were, but are no more. Sometimes the business was glass-making. Sometimes it was printing. Or timber. Or shoemaking. Or meat-packing. But always the words were the same.
They talked about owners and managers who had known the employees by name, who had known their families, who had known the equipment on the floor, who had walked through the plants and offices and stopped to chat. They talked about working with — and for — people who were members of an extended corporate family. And, finally, they talked — some with a sense of bewilderment, some with sadness, some with bitterness — of the takeovers, of the new owners and the new managers who replaced the old.
Sometimes those new managers knew the workers' names, but never the people behind the names. The new managers had only a nodding acquaintance with the equipment. And they were obsessed with meeting ever rising production quotas.
Listen to Larry Weikel, who grew up in Spring City, Pennsylvania, went to Springford High School, joined the air force, spent four years in the service, returned home and, in 1966, went to work at the Diamond Glass Company, a family-owned business that dated from 1874:
"Everybody knew everybody. Everybody was friendly. The supervisors were all nice. The owner would come in and talk to you. It was just a nice place to work. It was a nice family, you know ... I loved to go to work."
Belinda Schell, born in Keyser, West Virginia, the daughter of a glassmaker, remembers how difficult it was to get a job at Diamond. Everyone, it seemed, wanted to work there. "It took me about two years to get into the plant, " she said. That was 1984.
But already the plant was operating under the new economic rules. The company embarked on a course that thousands of other businesses had embarked on and would follow — because the rules by which the American economy operates actually encourage it.
That course went something like this: Take the company public, borrow a lot of money to expand by acquiring other glass companies, run up the price of the stock and sell it off at a nice profit.
At first, the process moved slowly. The company, which had changed its name to Diamond-Bathurst Inc. , following a management buyout, picked up a second glassmaking plant in Vienna, West Virginia, from a bankrupt producer in 1981. Two years later, in 1983, it went public. Then, in April 1985, Diamond-Bathurst purchased Container General Corporation, a Chattanooga, Tennessee, glass manufacturer with twelve plants. And in July 1985, the company purchased most of the assets of Thatcher Glass Company of Greenwich, Connecticut, a manufacturer with six plants that was operating under the protection of a United States bankruptcy court.
Thatcher, like so many companies in the 1980s, had gone through a leveraged buyout in which managers and investors purchased the company with mostly borrowed money. So much borrowed money that the company eventually was forced into the bankruptcy court. That same month, Diamond-Bathurst moved from the drab second-floor offices above the aging Royersford plant into a modern office complex built into a hillside in the wooded and rolling countryside in Malvern, Pennsylvania. As Frank B. Foster 3rd, the company's president and chief executive officer, put it at the time:
"We became in three short months one of the largest glass-container manufacturers in the United States, with projected annual sales of $550 million."
To finance it all, Diamond-Bathurst borrowed big. Its debt rocketed 700 percent, going from $13 million in 1984 to $104 million in 1985.
Wall Street loved it. The stock shot up from a low of $6 a share to a high of $29. Later, it split. Sales climbed from $62 million to $408 million. Profits went from $2 million to $11 million.
The Philadelphia Inquirer in July 1985 quoted a First Boston Corporation securities analyst, Cornelius W. Thornton, as saying:
"There's a whole lot of synergism in this deal. I don't think the question is can Diamond pull it off. I think they've done it."
They hadn't. But Wall Street has a short attention span and many investors already had made a killing.
It soon became clear that Diamond-Bathurst would be unable to make the interest payments on its mountain of debt. The debt was made possible by a Congress that, at the time, was working on a tax bill that would eliminate the deductibility of most forms of consumer interest but retain the interest deduction for corporations.
Without that deduction, much of the corporate restructuring that took place in the 1980s, and the job loss that followed, might never have occurred, since the deals depended on the tax advantage. The use of debt to buy and dismantle companies — instead of to build them — was exploding. Congress, in hammering out the Tax Reform Act of 1986, chose to ignore that phenomenon.
In any event, Diamond-Bathurst posted a $6.2 million loss for 1986 rather than the profit that had been forecast by stockbrokers and company management. In June 1987, Moody's lowered the credit rating on Diamond Bathurst's bonds. Company executives had already closed one manufacturing plant after another — in Indianapolis; Wharton, New Jersey; Mount Vernon, Ohio; Vienna, West Virginia, and Knox, Pennsylvania — abolishing the jobs of several thousands of workers.
It was not enough. In August 1987, a heavily indebted Diamond-Bathurst was acquired by a competitor, the new corporate headquarters in Malvern was closed and more than 250 salaried workers were dismissed. The buyer was Anchor Glass Container Corporation of Tampa, Florida, a descendant of a leveraged buyout.
When the new owners arrived in Royersford, Larry Weikel, by then a shift foreman; Belinda Schell, a clerk; and other workers noticed an immediate change.
"It just became so competitive," Weikel said, "and things just started getting nasty and out of hand. It just seemed like they didn't care what you did to get the numbers.... They'd expect you to get on somebody about a problem that wasn't their fault to start with."
Schell said Anchor Glass sent in managers from its plants in other parts of the country, and they issued conflicting orders. Jobs were eliminated and the remaining employees were pressured to increase output. But there was no investment in more modern equipment or new technology. The final day of production came in August 1990. Weikel, Schell and the remaining 275 or so employees were out of work.
Once again, their stories were much like the stories the authors heard in scores of interviews across the country. With few exceptions, the former Anchor Glass workershave moved into jobs that pay lower wages and offer reduced health-care benefits. Weikel works part time at a marine-supply store run by his brother-in-law. His wife works in a sewing factory, earning about $6 an hour. When he lost his job, he refinanced the mortgage on the family home and has been draining their savings. Jobs that pay the $15 an hour he earned at Anchor Glass do not exist.
"That's all I ever did in my life, work in a glass plant. I went to work there when I came out of the service and, you know, I really never learned anything because all I did was make bottles, and there's not much call for that. I could reeducate myself, I guess, but I don't want to get into another mess like that. I could get a job anywhere, I mean making $5, $6 an hour. But that's not worth my time.... I would do it if I was starving. But I'm not. My kids are grown and I'm not worrying about it that much anymore. I spent twenty-three years worrying about it.... All I really have to do is make enough money to feed my wife and myself"
Belinda Schell, with a growing family, had no choice but to go back to work. At Anchor Glass, she earned more than $10 an hour. At her new job, as a nursing home aide, she earns considerably less. It is an occupation that the federal government touts as a growth industry that will provide many jobs — mostly low-paying — as the aged population continues to grow.
Belinda Schell's husband, who like Weikel earned $15 an hour at Anchor Glass, found a job in another manufacturing plant in King of Prussia, Pennsylvania. He, too, earns less than he did.
Mrs. Schell said her brother-in-law encountered another obstacle when he sought a job at lower pay than he had made:
"They would tell him he made too much money and he wouldn't be satisfied. He was making $16 at Anchor Glass and they said he wouldn't be satisfied making $8. But people like that don't know what it's like to go through a plant closing when you have a mortgage and children to feed. He has two children. He had just bought a new home the year before."
She said her brother-in-law finally found other work, but at lower pay than he made at the glass plant. As for their co-workers, she said,
"some of them that are working are only making $5 to $7 an hour, which doesn't compare with what we were making at Anchor.... I don't know anybody that is making what they made at Anchor Glass."
For Larry Weikel, the experience was disheartening:
"You know what hurts me, that I was liked there at that plant at one time. And then for this to happen.... Twenty-three years in there, you know, and everything was great. And then an outfit comes in like this and destroys you.
"It seems like I prostituted my whole young life to that company and then they turn me out to pasture.... I spent Saturdays and Sundays down there. I didn't do anything with the kids. I didn't go to ball games. I didn't do that. I was always working. And then they turn around and do something like that to you."
Weikel, Schell and the other Diamond Glass employees were working under America's old economic rules that, for many, provided a job and good salary and health care and a pension for life in exchange for a commitment to the company.
The new rules were quite different, and the owners of the Anchor Glass company that bought Diamond Glass knew them intimately. In fact, you might even say that one of Anchor Glass's original owners helped to write those rules. He was former United States Treasury Secretary William E. Simon, who catapulted himself onto the Forbes magazine directory of the 400 richest Americans (his worth is estimated at $300 million) by taking advantage of the tax deduction for corporate debt.
Anchor Glass Container Corporation was itself the product of a leveraged buyout. It was formed in April 1983 by Wesray Corporation and executives of the glass-container division of the Anchor Hocking Corporation, one of the country's glass-making institutions. Wesray was an investment banking firm founded by Simon along with Raymond G. Chambers, an accountant. It was one of the first of what would be many leveraged-buyout firms that acquired companies with mostly borrowed money.
After making cosmetic changes that often included job cutbacks and other short-term cost-reduction measures, the companies would be sold, in whole or in part, at a substantial profit — or taken public, another form of sale.
Newspapers and financial publications regaled readers with Simon successes during the 1980s — among them Anchor Glass. In an article published in October 1988, the Los Angeles Times reported that after Simon helped engineer the Anchor Glass buyout,
"managers cut the work force, slashed expenses and made a successful acquisition." Simon, the Times said, "made more than 100 times his money."
When Anchor Glass purchased the old glass-container division of Anchor Hocking, the transaction was financed with the patented Simon debt formula: $76 million in borrowed money and $1 million investment by Wesray and others. You might think of that kind of arrangement this way:
Let's say you want to buy a house for $100,000. You visit your friendly neighborhood bank and offer to put about $1,500 down. That is not the kind of deal you can get.
But Simon and his associates got a much better one when they organized Anchor Glass. After Anchor Glass borrowed the $76 million, according to documents filed with the United States Securities and Exchange Commission (SEC), $48.5 million of that sum was reloaned to Simon and friends. They, in turn, used $24 million of that money to buy the land and buildings of the various glass plants. Then they leased the land and buildings back to their new company, Anchor Glass, for twenty years.
In other words, the new owner of the glass plants, Anchor Glass, would pay rent on the land and buildings to Simon and the other investors.
There was still more. Simon and his associates bought the furnaces and other glass-making equipment in the various plants in exchange for a note promising to pay $43.6 million. Then they leased the glass-making equipment back to Anchor Glass.
Several years later, Anchor Glass, in a report filed with the SEC, said the transactions were too generous to Simon and the other investors:
"These arrangements were entered into when the company was privately owned, were not the result of arm's-length bargaining and on the whole were not as favourable to the company as could have been obtained from unrelated third parties."
There were other deals. Wesray picked up investment-banking fees for handling the purchase of the glass-container properties and the acquisition of Midland Glass Company. Anchor Glass purchased its casualty and liability lnsurance, and its employee health and benefit insurance, from two brokerage firms in which Simon and his colleagues also held an interest. That was worth more millions of dollars in fees. And finally, there was the Anchor Glass corporate headquarters in Tampa. It, too, was owned by Simon and associates, who leased the building to the company.
In March 1986, Anchor Glass, which had been a private company, offered stock for sale to the public. By February 1988, according to an SEC report, Simon had sold his holdings. His total profits from the deals are unknown. But they run into the tens of millions of dollars.
One more note: In October 1989, Anchor Glass s was sold. The buyer was Vitro, S.A. , a Mexican glass company that ships products into the United States, competing with American-owned companies. Vitro is part of the corporate empire of Mexico's Sada family, which is ranked by Forbes among the world's billionaire families. The Mexican company's first moves included a decision to close the glass plant in Royersford. And another plant in Vernon, California. And another plant in Gulfport, Mississippi. And another plant in San Leandro, California.