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Business Observer Friday, Dec. 10, 2004 17 years ago

Dropping Anchor

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A lawsuit claims insiders at Tampa bottle maker Anchor Glass made out in an IPO while investors went down with the stock.

Dropping Anchor

By Francis X. Gilpin

Associate Editor

Anchor Glass Container Corp. sold more than $100 million of stock last year in an initial public offering. That fall, the Tampa company reported a 7% increase in sales of glass bottles to Anheuser-Busch Cos. Inc. and other beverage purveyors.

iThis was an exciting quarter for Anchor,i Richard M. Deneau, the companyis then-president and chief executive, commented at the time. Anchor Glass closed 2003 by declaring a dividend for public stockholders, 4 cents for each share of common stock.

On that basis, Davidco Investors LLC bought 50 shares of the stock for $15.98 a piece last winter. That was two cents below the $16 IPO price, although the stock had gone almost $2 above that mark since the offering.

This yearis third quarter was also a busy time for Anchor Glass o but for different reasons than a year earlier.

Last month, the glassmaker disclosed a nearly $6 million quarterly loss. Other bad news included Deneau getting the boot and Anchor Glass closing a Pennsylvania plant. Simultaneously, the company announced restructuring charges estimated at $50 million and production cutbacks that would reduce earnings by as much as $6 million this quarter.

Dividend payments were suspended to conserve cash. Anchor Glass shares, which had traded above $15 as recently as June, nosedived to below $5. Merrill Lynch & Co. recommended clients dump them.

Davidco Investors isnit taking the Anchor Glass slump lying down. It has gone to federal court to accuse Anchor Glass, Deneau and his successor, Darrin J. Campbell, of puffing up results while corporate insiders partially sold out of the stock before the price collapse.

The Davidco Investors lawsuit was filed by the Boca Raton office of Milberg Weiss Bershad & Schulman LLP, one of the nationis top class-action litigators. The complaint in Tampa federal court provides an interesting study of the rights and responsibilities of corporate turnaround artists and of those who hope to profit by enabling them.

The major investor in Anchor Glass, distressed-asset buyer Stephen A. Feinberg, does appear to have made millions of dollars since 2002, when he brought the company out of bankruptcy reorganization only to file for a public offering within a year.

But do little investors deserve much sympathy for plowing their money into an Anchor Glass?

After all, the company should never be confused with the blue chips. Anchor Glass is Americais third-largest glass bottle manufacturer. But it toils in ia mature, low-growth industry,i as its executives acknowledge in regulatory filings. Anchor Glass has been dragged through bankruptcy court twice by a succession of owners. Those include Tampa Bay Devil Rays managing partner Vincent J. Naimoli. (See iCheers?i GCBR, Oct. 24-30, 2003.)

Yet it has survived to rack up more than $46 million in annual losses since 1999.

The Davidco Investors stake in Anchor Glass is tiny, but the investment group might not be quite the epitome of the little guy. The little-known concern seems to be doing more suing than investing lately.

Along with the Anchor Glass complaint, Davidco Investors is the lead plaintiff in securities lawsuits filed in Arizona and California.

The Arizona suit names Phoenix Coyotes co-owner Jerry C. Moyes, who is accused of artificially inflating his Nevada trucking companyis stock to avoid a margin call. Moyes had pledged the stock to secure $200 million in financing for the National Hockey League franchise, according to that suit.

All three of the lawsuits by Davidco Investors have been initiated since June.

Maya S. Saxena, a partner with Milberg Weiss, didnit return a GCBR call seeking comment. Milberg Weiss and two other law firms representing Davidco Investors in the Tampa lawsuit are handling the investment groupis other cases, too.

An affidavit from a Davidco Investors executive attached to the Tampa complaint denies the investment group bought Anchor Glass stock at the direction of the attorneys or merely to have legal standing to sue.

The lawsuit, filed last month, claims Anchor Glass worked in collusion with executives Campbell and the now-ousted Deneau to withhold adverse corporate information from the investing public. Not until the third-quarter results were announced on the morning of Nov. 5, just before the opening of daily trading on the Nasdaq where Anchor Glass is listed, was ithe truthOrevealed,i according to the Davidco Investors complaint.

Feinberg owns about 60% of Anchor Glass common stock through Cerberus Capital Management LP and affiliates. Feinberg is senior managing director of Cerberus Capital. The New York investment firm specializes in creditor investing and has about $11 billion under management.

The Princeton-educated Feinberg gained control of Anchor Glass in the summer of 2002. Cerberus pumped $80 million into Anchor Glass to get it out of Chapter 11 bankruptcy proceedings. Anchor Glass also borrowed another $20 million from Ableco Finance LLC, whose president and CEO is Feinberg.

Regulatory filings show Ableco was repaid in full the following February, with $400,000 in interest, when Anchor Glass did some pre-IPO borrowing. The September 2003 IPO put more money back into the pockets of Cerberus, the filings show.

Of the $128 million raised by the IPO, $85.3 million went to redeem an entire class of preferred stock that Cerberus had acquired for $75 million during the bankruptcy reorganization a year earlier.

In the Tampa lawsuit, Davidco Investors cites the preferred stock redemption as one way that iinsiders cashed out.i The suit also points to last Mayis sales of more than $4 million in Anchor Glass stock by Campbell, Deneau and another top executive. The shares were still valued at the time between $14 and $15.

As of Dec. 6, Anchor Glass had yet to respond to Davidco Investors in court. Through a spokeswoman, the companyis general counsel declined comment.

Notwithstanding a few positives highlighted by Anchor Glass in press releases, however, the companyis struggles should have been plainly obvious to astute investors.

The companyis latest annual report to the federal Securities and Exchange Commission shows Anchor Glass lost $26 million in 2003 after posting its sole yearly profit of the new century in 2002. Sales decreased by $5.7 million in 2003 and operating cash flow went down by about $50 million.

Deneau, 57, of Tampa, already had surrendered the title of president to Campbell in August. Deneauis forced retirement from the CEO post last month came with a lump sum payment of the remaining balance on his $400,000-a-year employment contract, which was to expire next summer.

Anchor Glass has portrayed Deneauis dismissal and the restructuring charges as temporary setbacks. That view and another recent development would seem to weaken any claim by Davidco Investors that its Anchor Glass investment is permanently impaired.

Brewer Anheuser-Busch has renewed a contract with Anchor Glass for another five years. The deal, which starts next month, is expected to generate $1 billion in fresh sales of beer bottles to Anchor Glassi biggest customer through 2009.

Anchor Glass stock has recently recovered to around $7 a share.

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