Mergers in Toledo
Connin, Larry & Randall, Ronald
The laissez-faire attitude of the Reagan administration unleashed a wave of corporate mergers, takeovers, and buyouts that has made some financial whizzes wealthy, transformed the face of...
...KKR brought its financial wizardry to the buyout and walked off with the $60 million fee, but left on the 0-I books $3.62 billion in long-term debt...
...The effects of the restructurings of the large companies are now rippling through Toledo's advertising/public relations industry...
...At the end of 1988, Sheller-Globe Corporation announced that it would move its corporate headquarters to Detroit in the wake of a $1 billion leveraged buyout (LBO) by United Technologies and Gibbon, Green, van Amerongen...
...In sum, 0-I is a cash-starved company on the brink of disaster...
...the holding company that bought Trustcorp) offered a virtually empty festival marketplace as a gift to the City of Toledo...
...We do know that the rhetoric about "meaner and leaner" firms resulting from corporate restructurings does not create new jobs...
...The Bush administration appears committed to the same laissez-faire approach...
...Whether the takeover was friendly or unfriendly, successful or unsuccessful, the results were about the same—companies (or divisions of new companies) heavily indebted, profitable units sold, headquarters relocated, and numerous employees laid off...
...Today, 0-I cannot match the amounts that Neg wants to put into picture-tube research...
...Too bad for the cities...
...In addition to these firms, the Toledo area houses operations for Ford, General Motors, Chrysler, and Jeep...
...Until recently, it was home for six Fortune 500 firms, and there are two more nearby—a large number for a city of just over three hundred and fifty thousand...
...The most dramatic episode in the restructuring of corporate Toledo involved the city's largest company...
...construction of a park and a boat harbor, a public parking garage, and an underground walkway from the 0-I building to the parking garage...
...The least understood and most neglected consequence of the nation's corporate restructuring is the devastating impact that merger mania is having upon our industrial cities...
...Not only has 0-I reneged on the job promise, but the financial arrangements for the world headquarters building teeter on the edge of the same financial abyss as the company...
...These industrial giants have become a major economic burden on the community...
...Although not officially enunciated, the policy clearly is, "If there is a buyer for a division, 0-I will sell it...
...In December 1989, Society Corp...
...If a takeover increased the wealth of stockholders in the target company, it was a success...
...Champion Spark Plug, the world's largest spark plug manufacturer...
...SUMMER • 1990 399...
...But no sooner did Toledo see light at the end of the 1981-82 recessionary tunnel than the takeover artists took over...
...Cooper is moving the Champion headquarters to Houston...
...The Fortune 500 firms should be engines of economic growth...
...The city's Fortune 500 firms, once dominating the employment picture, now dominate the unemployment picture...
...After threats that the 0-I headquarters might move, Toledo responded with a package of incentives, including a twenty-year property tax abatement for a new headquarters building on the most desirable downtown property...
...A significant number of layoffs have occurred in this sector...
...The 0-I takeover was extremely friendly for 0-I's top management: Robert Lanigan remained as chief executive officer and was rewarded with $3.868 million in salary and other compensation, substantially above his previous earnings and $2 million ahead of his nearest corporate competitor in Toledo...
...Instead, 0-I is trying to pay off junk bonds...
...It cannot afford to think about the future...
...And beyond the devastating loss of jobs, the mergers and buyouts, or their threat, have robbed the city of a vital pool of charitable giving and leadership in the community...
...The Reagan view of the takeover binge was simple...
...Champion Spark Plug Co., the world's largest spark plug manufacturer, was purchased by Cooper Industries, Inc., a Houston-based conglomerate, for $700 million in July 1989...
...How long the company will last after the LBO is problematic...
...The city is in trouble because its Fortune 500 (mostly former Fortune 500) firms are in retreat: • Owens-Corning Fiberglas avoided a hostile takeover bid by the Wickes Cos...
...A four-star hotel was subsequently constructed next to the 0-I world headquarters on land once owned by the city...
...In the late 1970s, plans were unveiled to rebuild the central business district...
...For example, the Fortune 500 firms spawned a significant advertising/public relations and accounting industry in Toledo...
...With the approach of the postindustrial, knowledgeintensive, service-producing society, Toledo appeared well positioned for the 1980s...
...The hotels and the retail projects were counting on the trade of an expanding labor force in the downtown area, along with an increased flow of tourists and businesspeople...
...It created a partnership for the building and leases space from the partnership...
...Of the approximately twelve thousand manufacturing jobs lost between 1978 and 1986, we can trace over nine thousand two hundred of them directly to downsizing and plant shutdowns by Toledo's six largest firms...
...Three of the city's Fortune 500 companies have their roots in the glass industry: Owens-Illinois (04), Libbey-Owens-Ford (LOF), and Owens-Corning Fiberglas...
...Nearly five hundred white-collar employees left the Toledo World Headquarters after accepting a 1987 severance package...
...The mayor announced in 1978 that 0-I would add three hundred jobs with the completion of the world headquarters building and that one thousand three hundred jobs would be created in Toledo over the years as 0-I brought in new operations...
...Under extraordinary pressure, city council members delivered the package of incentives with a sigh of relief, thinking they had dodged economic disaster...
...Interest payments are killing the company...
...Considerable debate developed over the financing of the helicopter pad atop the public parking garage...
...Trustcorp had gambled heavily on a revitalized Toledo economy, which depended upon the continued growth of the Fortune 500 firms...
...Consider Toledo, Ohio...
...The three remaining Fortune 500 firms have direct ties to the auto industry...
...With the 0-I management's culpability in the takeover and the resultant white-collar layoffs and downsizing of the firm, some Toledoans recall the enormous tax breaks they gave to the company just a few years earlier—in 1978—to keep it here...
...widening, reconfiguring, and improving streets...
...We have allowed this wave of takeovers and buyouts to sweep across America with such speed that we can hardly keep up with the new names of businesses, let alone understand its impact upon society...
...Although each has moved to different product lines, they were responsible for the city's claim to be "the glass capital of the world...
...The 0-I LBO was notable for several reasons...
...A longtime and very knowledgeable person in the glass industry recently said, "0-I is no longer 398 • DISSENT Notebook contributing to the next wave of glass technology...
...Money has been made via "asset rearranging" by Wall Street brokers, investment bankers, and corporate lawyers...
...0-I is using less and less of its building...
...If the price is right, it will sell...
...A few years ago, 0-I brought an infusion of research and technology to its television products by selling half the division to a Japanese firm, now the 0-I Neg TV company...
...Early in 1989, another two hundred fifty in the World Headquarters accepted— some voluntarily and some under coercion—a severance package offered because the company was desperate for cash...
...Instead, downtown employment plunged by 20 percent...
...Libbey-Owens-Ford Company, once the largest employer in the Toledo area, sold its glass operation and its name in 1986 to the Britishowned Pilkington Brothers for $353 million...
...They should attract regional headquarters and the accompanying services— research and development, accounting, engineering, banking, advertising, public relations, and communications...
...The Toledo experience demonstrates that many takeovers have not added to the viability of the American economy...
...The tax abatement alone is worth about $1 million per year...
...A new office building stands empty...
...lArith five of the city's six Fortune 500 firms hit hard by buyouts or reorganizations in the 1980s, their contribution to local economic growth weakened dramatically...
...Some analysts count on the service sector to provide jobs to replace the loss of manufacturing jobs...
...To facilitate sales, each division has become a separate company, with the 0-I Group serving as a holding company...
...in 1986 after many painful, evasive steps, including the sale of profitable divisions, taking on a $2.5 billion debt, and laying off 480 research employees...
...Other items included demolition of existing structures and site preparation...
...The tremendous debt obligations force immediate decisions unfortunate in the long run...
...0-I had no trouble selling off a wealthy division like Forest Products Division...
...But the financing is not working...
...After the sale, the remaining divisions reorganized around their nonglass operations in hydraulic equipment and plastic molding, creating a new entity known as Trinova, with approximately two hundred local employees...
...When many of its loans soured, it went on the auction block...
...But the damage to Toledo has been done...
...Dana Corporation is the largest auto-parts manufacturer in the world...
...Management turned its attention almost obsessively to the bottom line of the quarterly statement and jettisoned most future-oriented research...
...The likely result is that cash-starved 0-I will sell its remaining half to Neg and abandon this promising technological area...
...In February 1987, Kohlberg Kravis Roberts (KKR) purchased Owens-Illinois, ranked 116 on the 1987 Fortune 500 list...
...As John Maynard Keynes put it, "When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done...
...In 1987, the Banking, Housing and Urban Affairs Committee, chaired by then-Senator William Proxmire, estimated that approximately eight hundred thousand jobs had been lost because of these restructurings...
...Discounting the tremendous growth in the fast-food business and other low-paying service jobs, the results in Toledo are not encouraging...
...The company is now trying to sell off divisions in order to meet LBO costs...
...In this environment, working a mandatory fifty to sixty hours a week is increasingly resented by the staff...
...If corporate restructurings are allowed to continue as they did during the Reagan years, the future of many cities will be like that of Toledo...
...The takeover was distinctly unfriendly for hundreds of employees...
...In its $3.66 billion acquisition, KKR paid itself a $60 million advisory fee, the largest such fee in history until it broke its own record with the $100 million it paid itself in its leveraged buyout of RJR Nabisco...
...This lent credence to newspaper reports, in the words of one employee, that "they weren't trying to protect us from a takeover, they were setting us up for one...
...The laissez-faire attitude of the Reagan administration unleashed a wave of corporate mergers, takeovers, and buyouts that has made some financial whizzes wealthy, transformed the face of American business, and wreaked havoc with many industrial cities in the Midwest and Northeast...
...and Sheller-Globe Corporation, an international supplier of automotive parts...
...The research facilities of the large firms should generate innovations leading to new jobs for skilled technicians and professionals...
...In June 1989 Society Corp., a Cleveland-based bank holding company, acquired ownership of SUMMER • 1990 • 397 Notebook Trustcorp, Toledo's largest bank, with $5.9 billion in assets...
...A major casualty of their declining presence was a twenty-year effort to revitalize the downtown area...
...Now takeovers, achieved and failed, are tearing apart the economic fabric of the area...
...0-I is stuck with paying $400 million a year in interest...
...Most stores and restaurants at the downtown festival marketplace struggled unsuccessfully to survive...
...After losing more than $59 million in 1988, 0-I reported a staggering $74.5 million loss in the first half of 1989...
...But for the remaining divisions, 0-I is desperately seeking buyers...
...Toledo has been much more than a blue-collar, industrial town...
...Right now, 0-I subleases space to other firms at less than cost...
...With the exception of the glass-container company, which is considered 0-I's "bread and butter," everything is on the auction block...
...Even more notable than the lucrative financial arrangements for the top players is the current condition of this once-great company...
Vol. 37 • July 1990 • No. 3
