by Maureen Flanagan
From a small, struggling, bankrupt bakery, Four-S Baking Company has become a profitable employee-owned business and industry leader in the metropolitan Los Angeles area. For many years a provider of bread, rolls, and other baked goods to restaurants and institutions, Four-S was restructured in 1994 with a $7 million working capital loan raised by American Capital Strategies, Ltd. (NASDAQ: ACAS), giving its 350 employees majority ownership in the company. Three years later, under new management, the company partnered again with ACAS to buy the number one supplier of white bread in the Los Angeles market, bringing Four-S into the retail marketplace with the strongest brand in the region and doubling the size of the company.
The fortunes of Four-S have aptly been called a phoenix rising from the ashes. Founded as Good Stuff Food Company in 1983, Four-S grew to be the top provider of breads in the Southern California institutional market. However, in the 1990s, losing market share and laden with debt, it slid into Chapter 11 bankruptcy. Responding to a possible liquidation, ACAS proposed an employee stock ownership plan (ESOP) that would give employees ownership of 75% of the company in exchange for a 25% cut in wages and benefits. The employees, most of whom were members of the Teamsters, Bakers or Machinists unions, had the difficult choice between a pay cut or the demise of the company and loss of their jobs. Despite personal financial hardship, the union members voted to accept the necessary concessions and work with ACAS to save the company.
With the increase in cash flow from the wage cuts, Four-S paid off its creditors and began to modernize the new employee-owned company. However, after a profit during the first year of the ESOP, it continued to struggle with problems inherited or deferred from its bankrupt days: company trucks that were old and unsafe, bakery equipment that needed repair, and costly environmental controls that needed to be installed. When the cost of flour reached record highs in 1996, the company again encountered financial difficulties.
Seeking new direction at the top, in September 1996, American Capital proposed to the company's Board of Directors that they hire a new President and CEO: Harlan Rimer, formerly a general manager of Interstate Brands Corporation's (IBC) Dallas, Tex. plant. A 33-year veteran in the bakery business, Rimer was hired and quickly brought in a new, industry-savvy management team who reduced operating costs and increased prices, strengthening the company's bottom line. In doing this, they positioned Four-S to buy Weber, which was being sold by IBC to solve anti-trust problems arising from its 1995 merger with Continental Baking Company. To put the deal together, Four-S partnered with ACAS who funded $6.1 million in senior debt, subordinated debt, and preferred equity as part of a $19.8 million total financing package. This was also the first investment ACAS made after it became a publicly held buyout and specialty finance company in August 1997.
For Four-S, the Weber acquisition opened up new markets, dramatically strengthening business by bringing the company into the retail marketplace with the number one market share white bread in Southern California. Business almost doubled and annual sales were projected to rise two-fold after the first year. In addition, the company hired more than 60 new drivers, offering jobs to Weber drivers who would have otherwise been unemployed. (All of the newly hired employees will participate in the ESOP and become employee owners.) Only a few months after the merger, Four-S drivers -- retrained, wearing new uniforms, and driving new trucks -- expanded their routes to deliver a wider variety of breads to supermarkets and other retail outlets in addition to their long-standing institutional customers.
The merger proved to be a real success story for all Four-S employees, many of whom wondered if their company would be worth anything when they became owners. After the acquisition, workers received an immediate 10% pay raise. They will also receive another 5% raise a year later and an overall 27% increase over three years, in addition to improved medical benefit programs. Another major benefit is the increased value of the company's stock: the 300,000 employee-owned shares rose from $5.4 million in 1996 to $9.6 million in 1997, an average of $27,000 per employee.
Four-S President and CEO, Rimer, says that he is now beginning to realize the benefits that employee ownership brings to a company. "Our employee owners undertook a task that would have been overwhelming to other companies I have been associated with, and they were some of the largest in our industry. Since Four-S employee owners were long-range thinkers, with an equity stake, they knew Weber's was going to be beneficial to them and to their families' futures and worked very hard to make the transition a huge success. Today because of their dedication and commitment, our company is positioned to become a market leader in Southern California and we should prosper for years to come."
