Vestar Earns 18 Percent On Sale Of Solo Cup

Vestar Capital Partners appears to be poised to earn about 18 percent return on its $1 billion sale of Solo Cup Co. to Dart Container, a person with knowledge of the situation told sister Web site peHub. The deal, announced on March 21 and expected to close in the third quarter, appears to bring an end to the firm’s eight-year involvement with the troubled manufacturer of plastic cups.

Vestar’s investment dates from 2004, when Solo Cup was trying to buy Sweetheart Cup in a $917 million deal. Vestar, which has offices in New York, Denver and Boston, buys both minority and controlling stakes. It targets companies in consumer, financial, health care, diversified industries, plus media and communications.

Solo brought in Vestar to help finance its acquisition of Sweetheart. A report in The Deal said Vestar injected $216 million (other press reports say the firm put in $240 million, but that is said to include other co-investors). Vestar, for its investment, got 33 percent of Solo’s preferred stock and gained the right to appoint a majority to the company’s board if Solo failed to perform. The family of Leo J. Hulseman, Solo’s founder, retained control. In late 2006 as Solo’s losses continued to grow, Vestar gained control of Solo’s board. The firm owned 33 percent of Solo, Reuters has reported.

Vestar and Solo did try to cut costs, The Deal reported. Beginning in 2007, the Lake Forest, Ill.-based company shuttered three North American factories, cut more than $300 million in long-term debt and unloaded unprofitable operations. But sales didn’t improve. Solo posted $1.6 billion in sales for the 12 months ended Sept. 26, 2011, down nearly 24 percent from $2.1 billion in 2007, The Deal said.

Vestar is expected to record a $38 million, or 18 percent gain, on its 2004 investment in Solo Cup, The Deal reported, a number that peHub confirmed. The Hulseman family, which own two-thirds, will collect less than $60 million for Solo. Vestar, meanwhile, is getting $254 million, the story says.

The Deal maintains that Vestar’s gain is small but because the firm holds preferred stock, Vestar will be first in line to get paid, the source said. “An 18 percent return is pretty positive,” the source said. And, with the successful realization of Solo, Vestar will have returned more than $2 billion to investors over the past 2.5 years.

(Luisa Beltran is a senior writer for peHub.)