Dart Container, one of the biggest US manufacturers of disposable cups, has struck a $1bn deal to buy rival Solo Cup, in a sign of consolidation in a sector that has struggled during the economic downturn as consumers have cut back on discretionary spending.
Dart said it had no plans to drop Solo’s distinctive red plastic cups, which are often a staple of American summer barbecues and college parties. “Dart expects to continue offering products under the Solo brand – including the iconic red Solo cup,” the company said.
Dart, which is based in Mason, Michigan, and Solo, which is headquartered in Lake Forest, Illinois, are both privately held.
Solo, which has $1.6bn in annual sales, bought Sweetheart, another competitor, in 2004 for $917m. However, Solo failed to integrate the acquisition and struggled under the debt it had assumed to buy the company. Within two years, the botched deal pushed the company into a loss-making position.
Vestar Capital Partners, a New York private equity firm, put up $240m to help finance the Sweetheart deal, and in 2007 exercised an option to take a one-third stake in Solo. Leo Hulseman, Solo’s founder, maintained majority control. Vestar slashed capacity, closing plants and cutting more than 1,000 jobs.
Given the history of the Sweetheart deal, Dart was keen to stress that following the latest acquisition, integrating the two companies would be critical. “A top priority is bringing together the talents and skills of employees from both organisations,” the company said on Wednesday.
Robert Dart, chief executive of Dart, noted that unlike publicly traded companies “where short-term results often are of paramount importance to investors”, as a private company Dart “is able to make decisions and investments that are long term in nature”. Mr Dart added that “the company has the time, and will take the time to integrate Solo in a thoughtful, analytical manner”.
The deal is expected to close by the third quarter, pending regulatory approval. Evercore Partners and Goldman Sachs advised Solo Cup. Ernst & Young Corporate Finance advised Dart.