Under the contract, Anchor is supposed to provide 16-ounce glass bottles for Snapple and other Cadbury beverages, as well as containers for certain Motts Inc. products, through 2008.
Anchor claims the contract has caused the company "substantial losses" and will continue to because the terms do not let it recoup the rising costs of natural gas, electricity and other raw materials used to make glass bottles.
"This contract is so bad for Anchor . . . we're better off not having it," said Rob Soriano, whose law firm, Carlton Fields, represents Anchor in the bankruptcy case.
Soriano said Anchor had little choice but to try to void the contract because attempts to renegotiate the contract have been unsuccessful. He said Anchor's best leverage is that Cadbury has few alternatives from which to choose. Only a handful of other companies make glass bottles and jars in the United States. A Cadbury spokeswoman declined to comment.
If Anchor cancels the contract, bankruptcy law permits Cadbury to seek damages. However, such damages are assigned a low priority in the long line for repayment and may not be repaid in full.
Anchor is trying to renegotiate contracts with other customers, including No. 1 client Anheuser-Busch, which accounted for nearly half of its revenues last year.
The threat to cut off Cadbury's bottle supply could hit Salem, N.J., hard. Anchor's plant there, one of eight nationwide, is reportedly the Cadbury contract's primary supplier and the city's largest employer, with about 350 workers.
According to Today's Sunbeam, a local newspaper, the Salem City Council approved tax breaks and other incentives Tuesday to help Anchor keep the factory humming.
Anchor filed for Chapter 11 bankruptcy protection on Aug. 8, its third such filing in the past decade. The company is seeking to shave its existing debts, renegotiate contracts with customers and suppliers and get $125-million in financing in order to return to financial health.
A number of potential hurdles stand in Anchor's way. Last week, for example, the company narrowly avoided being cut off by a supplier that provides 65 percent of its soda ash, a critical ingredient in the making of glass containers. Anchor owes the company several million dollars and is as much as a year behind on some of the payments.