In good years, FedEx (FDX) landed DC-8 cargo planes at the airport in Medford, Ore., to haul away Royal Riviera pears, Moose Munch caramel popcorn, and fruit baskets from Harry & David. The planes would start arriving before the December holidays, when the company shipped most of its products, says Bill Hoke, Medford's deputy city manager. Hoke doesn't recall seeing any of the cargo planes last year. Sales at Harry & David, controlled by New York buyout firm Wasserstein & Co., began to slump in 2008 as people cut back on gifts during the recession. The company, whose orchards have been a Medford fixture for more than a century, filed for bankruptcy protection on Mar. 28 after failing to make interest payments on about $200 million of debt.
Hoke and other residents of Medford are now wondering what will become of the region's largest seasonal employer. Each fall, Harry & David hires 6,000 workers to help its permanent staff of 2,000 pick, pack, and ship fruit around the world. "They pay on the lower end of the scale, but a lot of people depend on that second job," Hoke says. People return year after year to jobs at the company, he says, squeezing in shifts around regular jobs or helping a main breadwinner stockpile cash for the holidays.
These days, extra cash is in short supply in Medford, a town of about 75,000 straddling I-5 in southern Oregon. The unemployment rate stood at 12.9 percent in January, compared with 11.1 percent for Oregon as a whole and 9 percent for the U.S. that month. "The last couple of years were brutal," says David Thorndike, vice-president of marketing at Medford Fabrication, which makes metal components for power plants and attachments for earth movers and other construction equipment. "There's not a whole lot of positive news for industry around here."
Peter Buckley, a Democratic state representative whose district includes the Medford area, places blame for the bankruptcy squarely at the feet of Wasserstein. The buyout firm, founded by the late Bruce Wasserstein, bought Harry & David in 2004 from Yamanouchi Pharmaceutical, then Japan's third-largest drugmaker, for about $230 million.
In 2005, Wasserstein sold $245 million in bonds in Harry & David to pay off debt from the takeover and reward itself and other investors with an $82.6 million distribution, according to the company's regulatory filings. Later that year investors took out an additional $19 million. Wasserstein and others had put up $82 million in cash for the purchase. "They recouped their investment," Buckley says. "They made millions. It was an unfortunate decision for them to gamble with so many people's lives." Wasserstein had no comment on the bankruptcy, according to a spokesman.
Some Harry & David employees did well before the bankruptcy. The company set aside $605,000 for executive officers and "key employees" as part of a management retention plan, according to a regulatory report filed on Feb. 24, just a month before the company sought protection from creditors. Selected employees will receive cash payments equal to 13 percent to 29 percent of their salaries, the company said.
Harry & David has been a fixture in town since Harry and David Rosenberg took over the family pear orchards after their hotelier father's death in 1914. During the Depression they began pitching their Comice pears to business leaders as gifts, according to the company's website. Harry & David introduced its Fruit-of-the-Month Club in 1938. In Medford, the local baseball stadium—used by high school players—is called Harry & David Field. "It's a fantastic facility," said Brad Hicks, chief executive officer of the Medford/Jackson County chamber of commerce. "Harry & David has been a cornerstone of our community."
In recent years the company expanded beyond its expertise in fruit and began to sell wine, chocolate, and flowers. It also opened more than 100 stores and bought smaller competitors: In 2008, under Wasserstein's watch, it took over Cushman Fruit, which started in 1945 as a single store in West Palm Beach, Fla., and grew into a mail-order shipper. "They may have tried to get into the retail store strategy too aggressively," Feldman says.
The company's loss widened to $39.2 million in fiscal 2010 from $20.2 million a year earlier on $426.8 million in sales, down 13 percent over the period. "It does seem like they're the top of the discretionary list" for consumer purchases, so Harry & David was vulnerable in a recession, says Joe Feldman, a retailing analyst at Telsey Advisory Group in New York.
Now the fate of Harry & David is in the hands of Kay Hong, a managing director at Alvarez & Marsal, a corporate restructuring company in New York. Hong, a graduate of Harvard Business School, replaced Steven Heyer as CEO in February. Hicks of the chamber of commerce says he is asking people in Medford to support Harry & David as it goes through its reorganization: "I'm encouraging everyone in our community to go buy some more Moose Munch."
The bottom line: A local politician blames buyout firm Wasserstein & Co. for the bankruptcy of Harry & David, which is a blow to the Medford economy.