Acquisitions-Final Thoughts
In 1975, RJR Tobacco was interested in an Atlanta company, Aromatics International. Kim Keiser negotiated the purchase of that business and went to Atlanta to run it. There were conflicts with the owner who stayed with the company for some time. Dealing with entrepreneurial owners of acquired companies was a problem, not only in Aromatics but in many others as well. Again, a culture clash between a large organization and an entrepreneurial one that had been run by a single powerful and often charismatic leader. The former owner he did not want to leave, not an uncommon occurrence when someone has built a business that they feel is one of their children.
Aromatics were in flavors and fragrances and RJR had an experimental farm, Avoca, working on flavors with exotic peppers and the like. The R&D group believed it would be a good vehicle to help them market their products.
Kim worked hard at the business, tightened expenses, dealt with management issues and ran the company profitably for five years, but the synergies never developed. Aromatics did not fit with a major corporation. Finally, the CEO and COO call Kim to RJR headquarters and told him that he had done a good job, but he needed to sell the company and return to RJR. It was a classic case of a business that had potential but was not a fit for RJR simply because of its much smaller size.
Kim Keiser and Rex Baker sold it to a competitor in Indiana. The new owner, for whatever reason, closed it, likely integrating it into their own company.
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In our zeal during the late 60s and early 70s to diversify, it is now amusing and somewhat embarrassing to think of all the industries that we studied as potential acquisitions. These included the Marx Toy Company, maker of the big wheel; Hartz Mountain, birdseed; Roberts Farms, a huge private farm in California; real estate in Myrtle Beach; Occidental Petroleum; and probably others that I never heard about.
Roberts Farms – probably the largest farm in the U.S. It was 200,000 acres located near Bakersfield, California. It grew English walnuts, vegetables, and grapes. Roberts proposed that RJR buy the farm and open a winery. Hollis Roberts the owner, was probably over-leveraged with debt. I heard that he later went broke after getting involved with Arnholt Smith, the controversial S&L operator in southern California.
Malcolm McLean tried hard to get Ty Wilson, CEO of RJR Foods at the time, to buy his 120,000-acre farm in eastern NC, but Ty had already seen enough of Malcolm’s “good deals” by observing Sea-Land. That farm was never profitable. My Uncle Kenneth Hoots was acquainted with McLean’s First Colony Farm. He knew the problems with trying to farm on that large a scale in swampy eastern North Carolina. He said Malcolm’s sales strategy should be to get it all planted in corn, and then in the late spring when it looked great, “Give it a damn good selling to somebody who don’t know nothing about farming.” That’s what Malcolm tried with Ty Wilson, but it didn’t work.
Rodney Strong offered RJR his winery for about $5MM as I recall. But by then time a slight bit of sanity prevailed in these acquisitions. I figured that based on its cash flow, the owners should pay RJR $1 million to assume their debt. Rodney Strong went on to make his winery a success, personally becoming a legendary figure in the California wine community.
And one of my favorites – the Marx Toy Company. In the early 1970s, we had a flirtation with Louis Marx, the owner. Marx made the Big Wheel, the Duncan Yoyo, and other toys. Marx was a bigger than life character. He had been on the cover of Time. His company was highly visible but marginally profitable. He wanted to sell it for $30 million. In 1968, I went to New York to work with him for a few days. He was apparently under the mistaken impression that I could make a decision on this, but we soon abandoned the prospect of buying Marx. In 1972 Quaker Oats bought Marx Toy for $54 million. The company struggled and in 1975 a British conglomerate, Dunbe-Combex-Marx bought it. In the early 80s, this latest owner declared bankruptcy, and Marx disappeared.
Along the way, we also considered Hartz Mountain Bird Seed, the Figgie Company (predecessor of Tyco), and Occidental Petroleum (Armand Hammer would have been an interesting RJR board member in contrast to the traditional local tobacco men who already had to contend with one entrepreneur in Malcolm McLean), and more.