Nostalgia & History > Con∙glom∙er∙ate: IC Industries & William B. Johnson.

Some years back I borrowed from a library, "Con∙glom∙er∙ate," a 1992 book about IC Industries and William B. Johnson. I thought I might read it again and instead of getting it from the library I figured I might hit up the used book market for my own copy. And now, for a mere $12.49 with shipping, I have a copy that was autographed by Johnson. Johnson died April 24, 2013 after suffering a stroke three days earlier which would be on or about April 21. So if the date next to the signature is correct (obviously written by someone else) then he signed it less than a week before the stroke. Anyone familiar with his signature who can say it looks genuine? There was little difference in the price asked by this seller versus other selling plain copies. It looks like he may have already been ailing.

---

---

Not to be confused in any manner with his predecessor Mr. Johnston.

When I worked for the ICG the name Wayne Johnston was still much respected.
William Johnson not so much. Under his direction the railroad diversified into
other industries such as Midas Muffler, soft drink bottling, hosiery, etc.

This led to the quip that the "nylons run early and the trains run late".

"Diversified" is a nice way of saying that any money that can be squeezed out of
the railroad will be spent on getting out of the railroad business. Let the railroad
dry up and let the wind blow it away. I suppose people like this were the hero of a
then young gun like EHH.



Edited 1 time(s). Last edit at 01/13/18 05:56 by Englewood.

The book contained an addendum sheet. No copyright notice (which doesn't mean it's not) but I doubt they'll mind my reproducing it here via OCR.

---

The reader will remember that from 1966 to 1987 1C Industries accomplished about 1OO acquisitions — many small and medium sized ones, and five major ones. In the same period there were several dispositions, and at the end of my 21 years as CEO, the company was comprised of six major subsidiaries: The Illinois Central Railroad, Pneumo-Abex, Pepsi-Cola General Bottlers, Midas, Pet Incorporated, Hussmann, and the joint venture of the Illinois Center Complex. I resigned my position as a result of a stroke on March 22. 1987.

My successor was Karl Bays, who was elected CEO on July 1, 1987, but who died in the office on November 6, 1989. Karl was succeeded by Jim Cozad on January 1, 1990. Jim resigned his position on November 15, 1992. The next CEO was Bruce Chelberg, who resigned on November 30, 2000, to make way for Robert C. Pohlad at the time of the effective date of Whitman's acquisition of PepsiAmencas. At the same time, Whitman changed its name to PepsiAmeicas. Pohlad remains the CEO. Archie Dykes, a long time Director of I.C. Industries and Whitman, became Chairman.

One purpose of this addendum is to bring the reader up to date on what happened to the six major subsidiaries. Under Karl Bays, 18% of Northfield Laboratories was acquired for $30 million in June 1988. Also, Orville Kent, a producer of salads and other foods, was acquired for $200 million and was added to the Pet food group. At about the same time, the company bought back I.C. common shares from Karl Pohlad for $400 million, thus extinguishing a threat of an unwanted acquisition by him. On December 1, 1988, the name of the company was changed from I.C. Industries to the Whitman Corporation, and 1.1 million shares of restricted stock was distributed to a small group of executives, including Karl himself, who received 300,000 shares.

On December 3 I, 1988, the Illinois Central Railroad was spun-off to the shareholders, following the payment of $84 million to the Federal Railroad Administration for the retirement of its preferred shares, and 26 million tor settlement ol litigation against the railroad. The ownership of the railroad was subsequently transferred to The Prospect Group of New York in March of 1989, bv means of a tender offer at $20 per share, which represented a premium of 43%. I then accepted an invitation to become the first Director of the new independent railroad. On July 1, 1999, the railroad was sold to Canadian National Railroad for $2.35 billion, which marked the end of my 34 years of service at the "IC".

Pneumo-Abex was sold in August, 1988 for $1.2 billion dollars, resulting in a gain of about $1.2 billion dollars. Pet Incorporated was spun-off to the shareholders on April 1, 1991. Two more major subsidiaries were also spun-off, namely Midas and Hussmann, on January 30. 1998.

In summary, while Pneumo-Abex was sold for cash and other considerations, the Railroad, Pet, Midas and Hussman were all spun-off to shareholders in non-taxable transactions. The result was that Whitman came to have only one subsidiary, Pepsi Cola General Bottlers. That subsidiary was expanded by the late 1987 purchase of RKO Bottlers for $420 million; at the same time, 20% of the outstanding Pepsi stock was sold to PepsiCo of Purchase, New York for $ 177 million plus two more franchises. On May 20, 1999, the Whitman shareholders voted to approve a management proposal to change the relationship to PepsiCo in multiple transactions whereby Pepsi Bottlers surrendered part of its franchises but received other franchises in the US and Europe. As part of that changed relationship Whitman assumed some $300 million in debt and PepsiCo became the owner of 39% of the outstanding stock of Whitman.

The reader will remember that I.C. Industries and ICRR became the owner of 83 acres of very valuable Chicago real estate as a result of a decision by the Illinois Supreme Court in 1967 (pp.71 et seq). On August 2,1999, Whitman announced that it entered into negotiations to sell its Illinois Center properties for $42 million and took an after tax charge of $36 million to reduce their book value.

The investment in Northfield is still owned, but its value has been written down to some $10 million. Whitman obviously had other assets, but the six big subsidiaries were now reduced to only less 61% of one. On the other hand, it was estimated that the gross revenues for Pepsi-Cola General Bottlers would grow from $1.5 billion to $2.3 billion per year — then came the acquisition of PepsiAmericas

At the end of the year 2000, what was Whitman — now Pepsi Americas had 1.67 million share outstanding, and the shareholder equity was $ 1.450 million or 51 cents per share. The net sales of the new company was $3.1 billion, the total assets were $3.336 billion, and the operating income on a pro forma basis was $275 million. PepsiCo is still the major shareholder of the combined corporation.

It is now obvious that "Con-glom-er-ate" is no more. At one time — in early 1987 — I and a number of my associates had a vision of building a major corporation which would be a permanent landmark on the American business scene. While we made great progress during my 21 years as CEO, that early dream was destined not to happen,

However, we did create the beginning of a very large soft-drink bottling company in private enterprise More importantly, we brought relative wealth to many good people and their families — people who only needed vision, leadership and organization. Perhaps that was worthwhile.

W.B.J.

(Different typeface)

PS PepsiAmericas grew to become the second largest manufacturer and distributor of Pepsi Cola products with assets of $4.9 Billion in 2008. On August 4, 2009 PepsiAmericas announced its agreement to be fully merged in PepsiCo and the merger was consummated in February of 2010. The merger marked the end of I.C. Industries.

Conglomerates in the sense of a collection of very disparate businesses were a fad of the 1960s, pushed by investment banks and the MBA schools. With the near-collapse of Jack Welch's General Electric, there are few classic conglomerates left. Will have to see what becomes of Berkshire Hathaway. These days, businesses tend to aggregate across adjacent sectors such as AT&T-Time Warner, if it happens.

Something like Berkshire Hathaway is almost like a mutual fund. I'm sure there are other factors but if you want to be invested in multiple businesses that have zero synergy and whose management takes a hands off approach other than making sure (hopefully) good people run each business, I don't see much difference.