I will admit I do have a bit of a bias since I was regular buyer of Harry & David’s products for about 20 years, and that is my disclaimer.
Now to the heart of the matter. Leverage. Debt. Borrowing. Call it what you will, but over the past 20 years it was what “everyone did.” I still remember to this day my finance professor in grad school expounding on why companies needed to use leverage to maximize profits. But what we’ve seen over the past few years in many industries – including ours — has been criminal.
Back to Harry & David. Wonderful company. Wonderful product – but more importantly they were the region’s (Medford, OR) largest seasonal employer. And had been for many years. Now that H&D is bankrupt, who knows what will happen. And the reason is basically one we’ve seen for years. Company becomes successful. Original owners want out – so they sell the business. If the new owners don’t care for the business other than for the cash flow – it is more than likely doomed. In this case a purchaser of the business (Yamanouchi Pharmaceutical) sold it to a New York buyout firm (Wasserstein & Co.) who highly leveraged the deal in 2005 with a bond sale while rewarding itself and its investors with $82.6 million. OK, everything is fair in love, war and business – but what did these guys do to make the company stronger. Did they provide additional products for their customers? Improve the business proposition? Take care of their employees? Not one darn thing. What the company had was more debt, more risk (I remember that from grad school as well), and when the economy collapsed, soon there after so did H&D. Now the individuals of Medford are paying the price and those of us who looked forward to their gift baskets or pears, may no longer have that opportunity. Oh, and the guys on Wall Street are laughing all the way to the bank.