Sweetheart's price: $441 million American Industrial to cut company's debt

June 25, 1993|By Ian Johnson | Ian Johnson,New York Bureau

NEW YORK -- American Industrial Partners has disclosed that it is paying $441 million to buy Sweetheart Holdings Inc., the former Maryland Cup Corp., in a debt-cutting deal that could be completed by the end of July.

According to the details of the plan, which were disclosed Wednesday in a filing with the Securities and Exchange Commission, American Industrial is to buy the company from Morgan Stanley Group Inc. and terminate an existing contract with Chicago-based Horrigan Silver Inc., which was hired by Morgan Stanley to run the company.

Sweetheart employs 2,500 in Owings Mills and makes nationally recognized products like Eat-It-All ice cream cones and Lily cups.

American Industrial will pay for the deal by selling $300 million in Sweetheart bonds and by investing an additional $107 million of its own capital. The remainder comes from General Motors Corp. employee benefits plans, which are investing through First Plaza Group Trust.

American Industrial will own 66.3 percent of Sweetheart. The General Motors benefit plans will own the other 33.7 percent.

The sale price effectively retires Sweetheart debentures held by Morgan Stanley, pays off financial consultants and terminates the management contract with Horrigan Silver. The resulting savings in interest would allow Sweetheart to invest in new products.

"Management believes that deleveraging the company . . . will reduce the capital constraints under which the company has operated for the past several years," the SEC filing said.

This "will enable the company to expand its development of new products, as well as to invest additional capital in production processes with the objectives of improving manufacturing efficiencies and lowering production costs," it said.

The SEC documents indicate that the sale will not affect a lawsuit filed by several hundred former Maryland Cup employees, who claim they were wrongfully denied medical and retirement benefits.

The filing shows that American Industrial will be responsible for the suit, though the new management, in an analysis of the cases, said it was "vigorously defending this matter" and that the suit "will not have a material adverse effect on the company's financial condition."

American Industrial officials declined comment on any aspects of the deal yesterday, saying the registration with the SEC to issue the bonds does not allow them to make public statements.

The purchase would double the size of American Industrial, a partnership of former business executives which has bought five other industrial companies across the country with annual sales of more than $500 million.

The Sweetheart deal is in keeping with other American Industrial acquisitions, which emphasize recapitalizing successful but debt-laden industrial companies that were squeezed because of the 1980s leveraged-buyout fad.

In Sweetheart's case, a series of leveraged buyouts and mergers over the past 10 years have turned the once-dominant cup maker into a debt-laden company, which had $838 million in revenues last year.

The SEC documents showed that if the purchase plan had been completed as of last year, outstanding debt would have been cut to $379.7 million from $621 million, which in turn would have sliced annual interest payments to $37.7 million from $64.6 million.

The lower interest payments will free Sweetheart to develop products that it currently doesn't have the cash to make, the filings claim.

Besides the infusion of investors' money, the deal provides for Morgan Stanley to write off a loan that had been made to Sweetheart in 1990. The investment bank announced a $29 million pretax charge last month to eliminate the loan from its books and set aside $70 million for loans, probably associated with Sweetheart, that might not be repaid.

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