As business soured, Fort Howard tried to bolster its underused plant by buying out its competition. For $332 million, Fort Howard purchased Lily-Tulip.
That only brought more trouble. The day it was announced, Lily's board had just been told of a sudden decline in profits, recalls Richard Folkoff, the former Sweetheart marketing executive who had just joined Lily. Other Sweetheart employees say a significant amount of Lily's inventory was obsolete. And a key Lily product, a two-piece foam cup, was still controlled by a prior owner, requiring royalty payments.
"It was a . . . disaster," says Mr. Folkoff. "It was virtually an impossible turnaround."
Two years later, in 1988, Fort Howard itself was acquired in a $3.9 billion leveraged buyout by Morgan Stanley & Co., the investment bank that played a key advisory role in the Maryland Cup and Lily acquisitions.
It didn't take Morgan Stanley long to conclude that Fort Howard and cup manufacturing were incompatible. In 1989, it spun off the combined Lily-Maryland Cup operations into an independent, privately held company -- one that, ironically, resembled the old Maryland Cup.
Subsequent financial filings spelled what Fort Howard's management had done to the business. Lily had $320 million in revenues for its last full year before the 1986 acquisition. Maryland Cup had almost $660 million in 1982. Merely maintaining sales would have created a company with nearly $1 billion in combined revenue. With inflation, that should have come close to doubling.
But the company that Morgan Stanley divested had sales of $858 million in 1988 -- and they were sliding.
In Wilmington, Mass., on a frozen winter day in 1989, dozens of people gathered outside, next to a newly restored Sweetheart sign, to have their picture snapped. Aware of the widespread employee morale problems, executives who had taken over the troubled company produced a video of better times to come.
In some ways, good times have come to Sweetheart Holdings Inc., which owns the remainder of the Fort Howard cup business.
On an operating basis, the company has begun to make money, although its bottom line last year was worse than ever because of heavy debts and write-offs. The focus has moved from manufacturing to responsiveness -- and customer service has improved. Pay packages for salespeople have been fattened, and the company brought in managers with substantial experience in cup production and packaging.
"The old Sweetheart was a phenomenal company," says Mark Levin, president of Marstan Industries, one of the nation's largest distributors. "Fort Howard had changed the company's whole posture. You felt you were on an opposite team; you were adversaries. The new Sweetheart is going back to the way of the original. It's much more customer-oriented, much more concerned with not only its problems, but yours."
Selective hiring has started, and Sweetheart's employment is up about 10 percent, says Chief Executive R. Philip Silver. Lily's former factory in Springfield, Mo., for example, has been adding workers, allowing some of those laid off at the nearby Zenith television plant street to get new jobs.
Still, any euphoria is tinged with a tough reality. Sweetheart's gross income (net sales minus cost of sales) was $105 million in 1991 -- down from $210 million when Maryland Cup was sold. Meanwhile, annual interest expense has increased more than sixteen-fold. And the competitors that entered the market while Sweetheart floundered still abound. The company may not be able to survive alone.
Retirement health care benefits, long promised to employees, have been stripped away. Charitable contributions are handled out of Chicago, and Mr. Silver isn't involved. The company again is encouraging employees to give to the United Way, but the generosity of the past is, well, past.
Despite the rebound in hiring, the company provides about a third fewer jobs than Maryland Cup did. And more than half the facilities that existed a decade ago have been shuttered. Some were small and old, including the operations occupying the original Massachusetts plant begun by Uncle Joe.
Others, like the Wilmington plant a few miles away, were only a few decades old and had been modernized. At the time of Fort Howard's purchase, that plant had 1,400 employees -- including the first one hired.
But under Fort Howard, product development stalled. Just getting approval to build machinery for a product took longer than making a product had in the past, employees say. The final blow came about two years ago, when McDonald's abandoned the clamshell package for hamburgers because of environmental concern over plastics. Sweetheart, caught flat-footed, had no innovation to replace it.
By the time the doors closed at Wilmington, conditions had badly deteriorated. Rather than repair major leaks in the roof, the factory supplied buckets to catch the dripping water. Workers were encouraged to leave, and about 1,000 did so.