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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

March 28, 2011 at 10:15 AM

What a pair: Harry & David and Wall Street

Another legendary Pacific Northwest company in trouble, this time with Harry & David’s filing today for Chapter 11 bankruptcy protection. A commenter on the New York Times site wrote, “Hairy & Dead. Who knew selling pears for 20 bucks a piece wasn’t a sustainable model?” And in a recession, at that.

But the story is more complicated and one doesn’t have to look far to find the hands of the Wall Street playerz. Medford, Ore.-based Harry & David hasn’t been a local firm for some time. In 2004, it was sold by Japan’s Yamanouchi to Wasserstein & Co., the private investment outfit founded by Wall Street deal titan Bruce Wasserstein. Its debt at the time was zero, but Wasserstein had added $200 million of debt by the time the Great Recession hit.

The New York Post reported in 2004: “Wasserstein & Co. is attracted to (parent) Bear Creek because of its strong, well-known brand names, such as Harry & David — by far the biggest name in direct marketing, food and gift products — and the company’s stable cash flow. But the company is currently experiencing only modest growth. Wasserstein & Co. seems to be betting it can change that.”

In boom times, these firms are masters of buying companies, stripping them down and taking them public at a handsome profit. Debt and leverage are part of the tool kit, not least because they are profitable to the banking partners. It didn’t work that way with Harry & David. Two rounds of layoffs and the replacement of the CEO with a turnaround specialist couldn’t overcome the burden of interest payments and, finally, yet another weak holiday season. None of it was sustainable.

The Chapter 11 filing is of the pre-packaged recipe, where bondholders will convert debt into equity. UBS and Ally Financial, the company’s lenders, wlll supply $100 million in financing to keep operations going. So Harry & David may rise again. Whether it can find renewed customer appetite to support its size and the aspirations of its owners is an open question. This is creative destruction, or at least destruction.

Today’s Econ Haiku:

The good news today

Consumer spending rises

But do you buy that?

Comments | More in Harry & David, Northwest companies

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