Plant closing is tale with ironic Md. twist

August 29, 2007|By JAY HANCOCK

Next month, Hedwin Corp. will shut down its Indiana factory and lay off 60 employees. Seems like another story of greedy shareholders, foreign imports and good American manufacturing jobs moved offshore.

Except there aren't any greedy shareholders. Foreign imports aren't a problem. And the jobs aren't moving to Shanghai. They're going to Baltimore: Hedwin is filling 40 positions here.

Sometimes the brush portraying U.S. manufacturing as a victim of cut-rate imports and stock-option-gobbling CEOs gets swept too broadly. Hedwin's problems have to do with energy, raw materials and normal business turbulence.

The lesson: Even a lack of bogeymen such as Wall Street and overseas sweatshops sometimes isn't enough to spare a business from having to make hard decisions.

The Baltimore company, which makes plastic-lined shipping containers, is owned by its 350 employees, including the ones about to be laid off. When costs spiked recently and customers refused to accept higher prices, Hedwin faced a grim choice: Cut costs by shutting down a plant, or risk losing the company.

Hedwin's banks "were putting a lot of pressure on us," says chief executive David Rubley, speaking from the headquarters in Baltimore's Medfield neighborhood. A big profit decline put the company in default of its agreements with lenders, and "basically, they could have taken over the business," he said. "Rather than let them do that, we thought we'd better close Indiana," cut costs and pay down debt.

It probably wasn't an easy decision. The company prides itself not just on issuing stock to workers but offering decent pay and benefits, too.

Hedwin's medical plan includes dependents and pays 80 percent of costs, says Rubley. It has a 401(k) retirement scheme on top of the stock-ownership plan, which also acts as retirement financing. There is a traditional pension plan for veteran employees, although Hedwin has stopped offering it to new hires.

The lowest-level workers make more than $12 an hour after passing a probation period.

And unlike some employee stock setups, in which the rank-and-file own peanuts and top bosses hold huge portions, Hedwin's plan is the kind Congress intended when it gave such arrangements big tax benefits.

Lower-level workers own more than 60 percent of the company, says Rubley. Senior machinists and mechanics hold shares worth something like $50,000 each, he said. (Workers can't cash out company stock until after they leave or retire, and then only over several years.) A lender owns warrants for another 15 percent. Executives own more stock than rank-and-file workers, but they put up cash to buy many of the shares.

After a Belgian owner put Hedwin up for sale four years ago, executives created an employee stock ownership plan, borrowed money, got loan guarantees from the state of Maryland and bought the company in the name of the workers.

Most of its business involves selling polyethylene-lined cardboard boxes for liquid chemicals and food. One of its biggest accounts uses them to ship sake -- Japanese rice wine -- in 20-liter containers. Customers are across the United States, although few are in Maryland.

Asian manufacturers have tried selling cheaper competing containers on the West Coast, but they haven't caught on and "we're not under attack yet" from imports, says Rubley.

Everything went OK at first after the buyout. Last year, however, "things kind of fell apart," said Rubley. "This year is even worse."

Health care costs doubled. So did the cost of electricity. And so, over several years, did the cost of resin to make the plastic liners, whose raw material is petroleum.

What to do? Hedwin could have cut costs by reducing pay or benefits for all employees, but that would increase the risk that key people would leave and still might not be enough.

By moving operations in La Porte, Ind., to Baltimore, the company will get rid of its Indiana lease expense as well as the cost of administrative jobs that overlapped with those in Baltimore. It seems to be the least of several evils.

"If it had to happen, this is a good time for it to happen because almost all of our major employers are in a hiring mode," almost ensuring that laid-off Hedwin workers who want jobs will find them, says La Porte Mayor Leigh Morris.

The laid-off workers get "a very generous severance," said Rubley, although he wouldn't be specific. They also still have Hedwin stock, which they can't begin to redeem for several years.

If the plant's closure causes Hedwin's value to rise, they'll benefit along with employees in Maryland and California who still have jobs.

None of this is to say that import competition and jobs shifting overseas aren't big factors for U.S. factory employment, which has declined by 2 million in recent years.

But they aren't the only factors. It's a tough economy out there. Sometimes marketplace realities are the only bogeymen you need.

jay.hancock@baltsun.com

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