Mar 1, 2004
Solo Corporation of Chicago recently bought Sweetheart Cup of Maryland. Both are cup and paper product manufacturers. Together the two companies have 34 plants, with 5000 Solo employees and 7,400 Sweetheart employees.
Solo is actually smaller than Sweetheart, but it is able to pay for the merger by getting loans worth more than 650 million dollars. The sale includes a 16 million dollar bonus for the owners of Solo, a privately-held family company.
In fact, this is hardly the first time these companies have been involved in buying, merging and selling. Sweetheart itself is the product of one company emerging out of others, going back to 1983.
Maryland Cup, begun in 1911, was a family-owned manufacturer of all kinds of cups and paper products. In 1983, it was bought by a paper products corporation, Fort Howard. In 1986, Fort Howard bought a competitor, Lily Tulip, another cup manufacturer. Fort Howard sold off its cup businesses to investment giant Morgan Stanley in 1988, in a deal involving 300 million dollars of short term debt. This new company became known as Sweetheart Holdings.
By 1993, a group of bosses known as the American Industrial Partners had bought up the majority of Sweetheart, using 300 million dollars in junk bond debt. In 1998, another company, Fonda, became involved in stock and loan deals to merge with Sweetheart. Fonda itself was the result of the buying up of a number of smaller paper products companies. And now Solo is willing to spend 880 million dollars, almost none of it cash, to buy up Sweetheart Holdings, which had just spent 12 million dollars to buy up another cup company in 2002.
Every one of these loans has to be paid back – and with big interest payments to boot. And the price paid for each new sale is calculated to cover for the cost of earlier debt.
The interest payments alone for Sweetheart Holdings were 37 million dollars last year, more than twice the amount the company formally showed for profits! But that interest is nothing but disguised profit going into someone's pocket. And it all came out of the wealth the workers produce.
At Sweetheart, for all the millions of dollars produced by making cups all these decades, skilled jobs pay between $30,000 and $40,000 per year, but packers, for example, scarcely make $20,000 per year. What used to be a pension package, at the old Maryland Cup, has become a 401K plan in which workers are forced to gamble on the stock market. Like workers everywhere, Sweetheart workers are paying more for their health insurance and the employee attendance policy has become a way to get rid of employees.
While the basis of any economy is products and services, the wealth created from what workers make and do ends up in the hands of only a tiny minority who have been speculating in various ways, including by buying and selling companies.