Meet Edwin Bohl of Hermann, Missouri. He, like Larry Weikel and Belinda Schell, knows all about the future.
The place to begin Bohl's story is in 1988 with a company called Interco,Inc., a once successful Fortune500 conglomerate whose products included some of the best-known names in American retailing: Converse sneakers, London Fog raincoats, Ethan Allen furniture, Florsheim shoes. In that year the investment banking firm Wasserstein Perella & Co. set out to reorganize St. Louis-based Interco , a company with scores of plants operating in the United States and abroad.
Interco could trace its origins back more than 150 years. It was one of the country's largest industrial employers, with 54,000 workers. It had annual sales of $3.3 billion. It had paid dividends continuously since 1913.
In the summer of 1988, a pair of corporate raiders out of Washington, D.C., brothers Steven M. and Mitchell P. Rales, targeted Interco for takeover, offering to buy the company for $64 a share, or $2.4 billion. To fend off the Raleses, Interco 's management turned to Wasserstein Perella, which came up with a plan valued at $76 a share. Interco obviously did not have that kind of cash lying around. So the plan called for the company to borrow $2.9 billion.
The financial plan was the sort that Wall Street embraced with great enthusiasm. Supporters of corporate restructurings insisted that debt was a positive force, imposing discipline on corporate managers and forcing them to keep a tight rein on costs. Said Michael C. Jensen, a professor at the Harvard Business School, who was one of the academic community's most vocal supporters of corporate restructurings,
"The benefits of debt in motivating managers and their organizations to be efficient have largely been ignored."
As it turned out, Interco failed to be a textbook model for the wonders of corporate debt. Instead of encouraging efficiency, it compelled management to make short-term decisions that harmed the long-run interests of the corporation and its employees. Within two weeks of taking on the debt, Interco closed two Florsheim shoe plants — and sold the real estate. Interco announced that the shutdowns would save more than $2 million. That was just enough to pay the interest on the company's new mountain of debt for five days.
At the Florsheim plant in Paducah, Kentucky, 375 employees lost their jobs. At the Florsheim plant in Hermann, 265 employees were thrown out of work. None was offered a job at another plant.
Hermann is a picturesque town of 2,700 on the Missouri River, about seventy miles west of St. Louis, Settled by Germans from Philadelphia in the 1830s, it remains heavily German. The town's streets are named after noted Germans. The local telephone book reads more like a directory from a town on the Rhine than one on the Missouri. As might be expected from such a heritage, the deeply ingrained work ethic served the town's largest employer well. Beginning in 1902, that employer was known down through the years simply as " the shoe factory ."
It was a model of stability for the town and one of the manufacturing jewels of the International Shoe Company, later Interco , its owner. Because of the factory's efficient work force, whenever Florsheim wanted to experiment with new technology or develop a new shoe, it did so at Hermann. The plant had a long history of good labor relations. And it operated at a profit. So why, then, did Interco choose to close the factory.?
Listen to Perry D. Lovett, who was city administrator of Hermann when the plant shut down and who discussed the closing with Interco officials:
"We talked to the senior vice president who was selling the property and he told me this was a profitable plant and they were pleased with it. The only thing was, this plant and the one in Kentucky they actually owned. The other plants they had, they had leased. The only place they could generate cash was from the plant in Hermann and the one in Kentucky.
"He said it was just a matter that this was one piece of property in which they could generate revenue to pay off the debt. And that was it. That brought it down."
In short, a profitable and efficient plant was closed because Interco actually owned — rather than leased — the building and real estate. And the company needed the cash from the sale of the property to help pay down the debt incurred in the restructuring that was supposed to make the company more efficient.
Hardest hit by the closing, Lovett said, were the older people:
"Here were folks who had never worked anywhere else.... They had gotten out of high school and they went to work in the shoe factory."
So it was with Edwin Bohl.
Bohl began as a laborer in 1952. "I think I started for seventy cents an hour," he recalled. Except for two years out to serve in Korea, he worked at the plant, rising to a supervisory position, until its closing thirty-seven years later.
The announcement of the shutdown came without warning a few weeks before Christmas of 1988. There was a meeting that morning, Bohl remembered, in which there was talk about increased benefits and changes in the way shoes were made.
"They had given me a bunch of new chemicals, " he said, "that I was to use in the finishing department. They had told us that everything was looking good."
A company executive was supposed to fly in from Chicago that same morning. No one said exactly why, but his plane was delayed.
"The minute we came back from lunch," Bohl said, "they called us supervisors together.... The man read us the papers and said there were no jobs held for anybody.... They told us they had to close the plant because of the restructuring.... They had to raise money.... They told [us] it was not because of the quality. We were rated the top in quality and cost.... We had no idea this would happen."
Unexpectedly, Edwin Bohl found himself on the unemployment rolls at the age of fifty-eight. He was given a choice: He could wait until he reached retirement age and collect his full pension. If he did so, he would have to pay for his own costly health insurance. Or he could take early retirement, with a sharply reduced pension, and the company would continue to pay his health insurance.
"I sacrificed 29% of my pension to get it [the health insurance]' he said, adding, "If I hadn't taken early retirement, my insurance would have been sky high. You really didn't have much choice."
Later, Bohl, who was earning $19,000 a year at the shoe factory, found part-time work in the local Western Auto store. The job paid $4 an hour. By 1992, he was making $4.75 an hour.
Lamented Bohl's wife, Geraldine:
"We thought this would be the best time of our life. Now he doesn't know when he's going to get a day off. You either take a poor retirement and have your insurance, or have your retirement and pay for high insurance."
As for Bruce Wasserstein and Joseph Perella, whose firm collected $9 million in fees for arranging the restructuring that left Interco with $2.9 billion in debt — which ultimately forced the company into United States Bankruptcy Court — they have a somewhat different perspective of their efforts at reshaping corporate America. In February 1989, Perella modestly assessed his firm's contributions for the Wall Street journal.
"No group of people — not just me and Bruce — ever accomplished so much in such a short period of time in Wall Street's history."