By ROBERT TRIGAUX
© St. Petersburg Times, published February 7, 2001
Tuesday's move by Florida home appliance manufacturer Sunbeam Corp. to file for Chapter 11 bankruptcy surely is another painful signal of a waning economy.
But it also is the end of one more chapter in a rough-and-tumble corporate education for Sunbeam director and longtime Tampa Bay area resident Charles Elson.
Five years ago, Elson was teaching corporate law at the Stetson College of Law in Gulfport when one of America's then-hottest corporate chieftains gave him a call.
Join me as a member of the board of directors of Sunbeam, said "Chainsaw" Al Dunlap, the company's chief executive in 1996. Dunlap was dubbed Chainsaw for his draconian but successful cost-cutting style in turning around ailing companies. Elson had invited Dunlap to Stetson to talk to his students. The young professor and the older executive became friends.
Elson, in his mid-30s, was a passionate proponent of corporate directors putting their money where their mouths are. Directors should invest heavily in the companies they help oversee, Elson preached. That way, directors will be personally motivated to make the company run as profitably for shareholders as possible.
Eager to cross the chasm from academia to business, the Harvard-educated Elson joined the board at Sunbeam. He mortgaged his home to buy 5,000 shares of Sunbeam stock at about $23 a share. A grand experiment in corporate governing (with a $100,000 personal stake on the line) was under way.
In the solid economy of the mid-1990s, Sunbeam's prospects looked good. The company's line of outdoor grills and furniture, its Oster and Mr. Coffee brand of kitchen appliances, its expansion to acquire Coleman's outdoor and camping products and other businesses all seemed to fit well with happy and employed U.S. consumers and their leisure interests.
Wall Street liked the apparently rebounding Sunbeam, too. By early 1997, the company's stock was heading north, past $30 a share. Elson believed Sunbeam's board was engaged and attentive. Dunlap's turnaround efforts seemed to be working.
But in early 1998, Sunbeam hit the skids. The company lost millions in the first quarter. A Barron's article questioned Sunbeam's 1997 profits and funny accounting. Summoned to New York in June to a hastily convened meeting of directors, Elson and fellow board members peppered Dunlap with questions about the company's actual financial health.
Answers seemed vague.
Days later, after a no-confidence vote, the board members called Dunlap at home in Boca Raton to tell him he was terminated. Forced to decide between his friendship with Dunlap and his responsibility to shareholders, Elson made the formal motion to dismiss Dunlap.
The next day, June 14, Sunbeam's directors met with Sunbeam's new CEO, Jerry Levin. He was the former CEO of Coleman and Ron Perelman's hand-picked turnaround manager. Perelman, Sunbeam's second-largest shareholder, was a financier whose fortune was built on leveraged junk bond deals in the 1980s. He controls various companies, including Consolidated Cigar and the Revlon cosmetics group. He is (most recently) married to actor Ellen Barkin.
And until now, he had been notoriously good at salvaging personal profits from investment deals that leave basic shareholders out in the cold. Tuesday's bankruptcy left Perelman (with a 13 percent stake in Sunbeam) one of the biggest financial losers.
Elson felt traumatized by axing Dunlap. Elson and the board even resisted Dunlap's demands that he cash out early on his outstanding options. (Dunlap since sued.) But Levin's new team could not stem Sunbeam's death spiral. Sunbeam was saddled with enormous debt from buying Coleman. Interest rates were rising, adding to debt pressures. The economy was cooling. And competing companies -- including Salton, which hit a home run with consumers by creating a line of grills and appliances named for and hyped by ex-boxer George Foreman -- were out-marketing Sunbeam.
Ever since the board's ouster of Dunlap, Sunbeam has had two constants: lawsuits by angry shareholders and a declining stock price.
The revolt by company investors is especially poignant, given Elson's longstanding belief that corporate boards should exist only to serve shareholder value.
And Sunbeam's stock price? Trading ended at 51 cents a share before the company opted Tuesday for the protection of Chapter 11 bankruptcy. The move shields Sunbeam from overwhelming litigation expenses and debt pressures.
Sunbeam will no longer trade publicly but run as a private company, still run by Levin.
The good news is Sunbeam will continue to operate without layoffs.
The bad news? Banks that agreed to provide Sunbeam with a $285-million credit line now will hold 100 percent of the company's stock. Sunbeam shareholders must wait behind company creditors under bankruptcy law to see if there will be any money left for them. That is unlikely.
For Elson, a six-figure shareholder, the last five years at Sunbeam have undoubtedly been stressful, expensive and a tough stewardship. No longer teaching at Stetson, Elson is now a professor and the director of the Center for Corporate Governance at the University of Delaware. He offered no comment Tuesday.
Florida's Sunbeam has struggled to right itself for many years. Bankruptcy may be just another necessary step on a slow, slow road to recovery.
- Contact Robert Trigaux at trigaux@sptimes.com or (727) 893-8405.