Food package firms OK pact Sweetheart Cup Co., Fonda Group Inc. to combine operations

January 01, 1998|By Sean Somerville | Sean Somerville,SUN STAFF

Sweetheart Cup Co., which employs more than 2,000 people at its Owings Mills headquarters and factory, will sell 48 percent of its voting stock in a deal that will combine many operations with Vermont-based Fonda Group Inc., officials said yesterday.

The deal also calls for Sweetheart's primary shareholder, American Industrial Partners, to give the Fonda Group management responsibility over the company. The agreement is aimed at expanding opportunities and cutting costs at the two companies that make disposable food packaging.

"It essentially will be business as usual for Owings Mills," said Dan Carson, Sweetheart's general counsel. "Owings Mills is our largest facility and will remain so. There won't be anything changed here as a result of this. It won't tend to grow or shrink in any way."

Hans Heinsen, chief financial officer of Fonda, said it was premature to comment on decisions that could affect employment.

Sweetheart, a maker of paper and plastic cups, plates, utensils and food containers, reported a net loss of about $47 million on sales of $886 million last year -- a huge reversal from the $5.7 million profit in 1996. Fonda, which makes disposable paper plates, trays, tray covers and napkins, had net profit of about $3 million on $252 million in sales.

In a complex transaction, a new holding company formed by the Fonda Group will buy 100 percent of the outstanding stock of Fonda. SF Holdings, whose name is made up of the first initials of both companies, will also buy 48 percent of the voting stock of Sweetheart Holdings Inc. and all of a new class of nonvoting common stock. As part of the deal, SF will issue its own preferred stock to Sweetheart shareholders.

At the conclusion of the deal, which is expected during the first quarter, SF Holdings will control 90 percent of all Sweetheart shares outstanding. The companies would not disclose the financial terms of the deal.

American Industrial Partners, which is to retain 52 percent of the voting shares, will control three seats on a five-member Sweetheart board. Fonda will have two seats.

"Significant actions" will require the vote of four directors,

Sweetheart said in a filing with the Securities and Exchange Commission. "AIP basically wants people from SF holdings to come in and help manage the company," Heinsen said.

Carson said Fonda officials will "have a very senior role in the management of Sweetheart."

According to the SEC filing, the deal will give executive roles to Dennis Mehiel, chairman and chief executive of Fonda, and Tom Uleau, Fonda's president.

The role of Sweetheart President and Chief Executive Officer William F. McLaughlin has not been determined. "We've got to sort out a lot of details before the closing," Heinsen said.

McLaughlin, who could not be reached for comment, said in a statement that the deal should help both Fonda and Sweetheart. He cited "customer and product synergies, as well as manufacturing and administrative efficiencies."

Sweetheart, with about 7,500 employees in the United States and Canada, also has major manufacturing facilities in Chicago; Springfield, Mo.; Dallas; and Toronto.

Fonda, based in St. Albans, Vermont, has about 1,600 employees, with plants in Wisconsin, Pennsylvania, Florida, New York and Indiana.

Officials of both companies termed the deal more as a joint venture or an affiliation than a merger.

"Both companies will continue to exist as separate entities," Heinsen said. "We both see a lot of benefit to joining forces. We're in the same business."

But the companies compete only in a couple of markets, with few overlapping products. "We've known each other for a long time," Heinsen said. "I can't even tell you who approached whom first."

Sweetheart, one of Baltimore's five largest employers, was bought by AIP in 1993. The company adopted a strategy of boosting profits, shrinking the work force and spinning off a healthy company in a public stock offering by 1997 or 1998. AIP turned the company around in a year, making 1994 Sweetheart's first profitable year since 1989.

Speculation about a takeover grew in 1996, when McLaughlin said that the company had received "unsolicited expressions of interest" from outsiders.

Sweetheart, founded as an ice cream cone-making business, said in October that it would sell its Eat-It-All cones unit and concentrate on making paper and plastic products.

Pub Date: 1/01/98

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