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TLC's Final Act.

For a decade this billion-dollar behemoth was among the most successful leveraged buyouts. Its curtain call serves as a model for black wealth creation.

ENTER THE MIDTOWN MANHATTAN OFFICES OF TLC Beatrice International Holdings Inc. these days and the atmosphere is funereal. The corridors of the nation's largest black-owned food-processing and distribution concern are filled with packed boxes; rows of offices are empty. Absent are the scores of employees scurrying to complete assignments. Gone is the energy, so palpable that it seemed to bounce off the walls, of a company known in its heyday for wheeling and dealing.

These are the final days of TLC Beatrice. Compare them to bringing down the curtain on a Broadway show that has had a series of bravura performances. The house that deal maker par excellence Reginald F. Lewis built had an incredible 12-year run and is currently in the midst of its last act: complete divestiture.

The history of the only BE 100s company to break the billion-dollar sales barrier is the stuff of great drama: a man of humble beginnings triumphs against the odds; a company is resurrected after death and financial crisis; and an entrepreneurial model of African American wealth-building thrives. TLC's tale, as well as BLACK ENTERPRISE'S exclusive interview with Loida Nicolas Lewis, the founder's widow and the company's savvy, soft-spoken CEO, and her right-hand man, Reynaldo P. Glover, executive vice president and general counsel, offer a rare glimpse into the birth, growth and dismantling of a global business empire. Says Lewis: "Selling the company was the toughest thing that I had to do. I had great reluctance to put the entire company on the block. But I felt that it was now time to complete the work of my late husband."

Adds Glover, "History will show that Reginald Lewis was able to open the deal, but because of his untimely death, Loida closed it. We left TLC not in a distressed manner but on our own terms. We decided when and how we were going to close this business. We went out on the top of the cycle."

It all started with the deal.

ACT I: THE ART OF THE DEAL

Today, the story is legend. Twelve years ago, it was a phenomenon. In 1987, through deal-making savvy and iron-willed tenacity, 44-year-old Lewis bagged the proverbial elephant: Beatrice International Foods Cos., a manufacturer of processed meats, dairy products and beverages. The Harvard-trained lawyer had first demonstrated his prowess years earlier by launching an investment firm, the TLC Group, and completing the $22.5 million acquisition of New York-based McCall Pattern Co., a home-sewing products and publishing operation. In trademark fashion, Lewis would flip the then-113-year-old company for $90 million, netting $50 million in profits in the process. (By 1987, TLC Group was No. 6 on the BE INDUSTRIAL/SERVICE 100 list with revenues of $63 million.)

In purchasing Beatrice, Lewis teamed up with Michael Milken, the legendary junk bond king and senior executive of Drexel Burnham Lambert, the maverick investment bank of the '80s. Lewis used high-yield debt, or "junk bonds," to acquire the company in a $985 million leveraged buyout, beating out such powerhouses as Citicorp, Pillsbury and Shearson Lehman Brothers. At the time, it was the largest offshore transaction ever and, with $1.8 billion in gross sales, TLC Beatrice became the first black-owned company to crack the billion-dollar ceiling. (As TLC Beatrice, it held the top position on the BE 100s for 11 years, growing to $2.2 billion in sales on the 1998 BE INDUSTRIAL/SERVICE 100 list).

After completing the transaction, Lewis didn't have time to stand on ceremony. In fact, he was uncomfortable being labeled "the Jackie Robinson of deal making." He was a man who wanted to be measured by performance, not race. "To carry around the notion that if I fail, it's going to mean that no other black person will ever have a similar opportunity, or that if I succeed, it's going to open a floodgate of opportunity for other black Americans, misses the point," he said at the time. "If our work is perceived as an indication that we can function in a global, competitive situation, that's nice. But I've always believed that anyway."

Loida Lewis frames the event this way: "Mr. Lewis was able to prove that you don't have to start from scratch and reinvent the wheel. He was able to perform a classic LBO like the white guys."

Whether he wanted to assume the role or not, Lewis became emblematic of the rise of the black financial entrepreneur. TLC represented an institutional model of black business instead of the more traditional, patriarch-controlled family business. After the Beatrice deal, it no longer was viewed as uncommon for an African American entrepreneur to catapult to the upper echelons of the BE 100s by merging with another company or acquiring a division of a Fortune 500 corporation. In fact, one of his former managers, Dumas M. Simeus, would appear on the BE INDUSTRIAL/SERVICE 100 list by 1997. (Mansfield, Texas-based Simeus Foods International Inc. is ranked No. 11 on the 1999 BE INDUSTRIAL/ SERVICE 100 list with $150 million in gross sales.)

Lewis was in charge of a complex, mammoth conglomerate of 64 food-processing and distribution companies operating in 31 countries. Dealing at the speed of light, he gobbled up knowledge of the food business, jetted back and forth to Europe to meet with his new offshore partners and whittled down the LBO debt of $513 million by shedding many of the company's non-European sisters. He sold Beatrice Australia to Cadbury Schweppes Australia, the huge food and beverage concern, for more than $100 million, and Beatrice Foods Canada Ltd. to Onex Corp., a Toronto-based investment firm, for roughly $240 million.

He had failures along the way. He attempted to erase the company's remaining $139 million in long-term debt by raising an estimated $194 million through an IPO of 35% of TLC Beatrice's stock. The offering however, was rebuffed by a volatile market and the perception among analysts and shareholders that Lewis and company insiders would profit disproportionately from the deal. (By 1990, he had managed to pare down corporate debt to less than $80 million.)

By 1992, the brilliant, hard-nosed financier would demonstrate that African American CEOs could play on a world stage and run an organization focused on boosting shareholder value. Lewis, the Francophile with a love for fine cigars, was well on his way to amassing power, success and wealth on an unprecedented scale.

ACT II: PICKING UP THE PIECES WHEN A TITAN FALLS

In January 1993, the unthinkable happened. Reginald Lewis died of brain cancer. His untimely demise stunned the business community and rocked TLC.

Lewis knew months earlier that he was going to die and started taking measures to secure his company and his estate. In late 1992, he formed an "office of the chairman," which was led by his half brother, Jean S. Fuggett, a former football player and attorney who had served as vice chairman of the company. After his death, the Lewis family owned about 55% of the stock and Fuggett was installed as CEO.

But Fuggett's tumult-filled tenure would last almost a year to the day of the death of the titan who forged TLC. The concern's far-flung operations were hurt by a crippling European recession. Currency fluctuations pulled down sales. Fuggett took measures to stabilize TLC through a major restructuring and cost-cutting program, shuttering several plants and unprofitable operations and cutting back the number of employees at both the corporate and operating levels.

But he was constantly nagged by questions and comments from analysts and shareholders who believed he could not fill his brother's shoes nor had the chops to run the sprawling enterprise. Fuggett was asked to vacate the CEO's chair.

On January 5, 1994, the company announced that Loida Lewis, an immigration attorney and her husband's unofficial advisor, was over her bereavement and would take the helm. The action caused the African American business community to wonder whether TLC was still a black-owned entity, since its stock had been redistributed and Lewis was Asian American. However, the Lewis family, including the Lewises' daughters, 21-year-old Leslie and 14-year-old Christina, owned 51% of the shares and retained complete control of the predominantly African American board of directors. (Leslie would eventually become a member of the corporate board.) Said Lewis at the time: "There is absolutely no doubt in my mind that TLC Beatrice is an African American-owned company. This is the legacy of my late husband and I will do everything in my power to advance his vision."

So now it was Loida Lewis' turn to put her imprint on the company. Acting immediately to strengthen the corporate balance sheet, she assembled a team, led by Glover, and implemented a series of rapid-fire decisions. She sold the company plane, cut the corporate staff, moved the company to modest midtown Manhattan digs and hawked noncore holdings to repay debt. Like her husband, she, too, walked the factory floors and listened to managers. Reflects Glover, "Beg and Loida had different styles. Beg was more direct and in-your-face while Loida was more spiritual. In fact, she would open each meeting with a prayer. But they were similar in terms of challenging management to study every nuance, every nook and cranny of a corporate plan or proposal."

As she describes it, Lewis was putting in place her "program of maximizing shareholder value and increasing liquidity."

ACT III: DISMANTLING THE TLC EMPIRE

Loida Lewis says that two years ago she didn't plan to liquidate the company. The process evolved from the value creation model that she developed. "Initially, I thought that we would grow the company through an IPO. Mr. Lewis had always wanted to run a public company," she says. "Our investment bankers' analysis showed that as a company with European operations that sold shares in the United States, the market would not give our stock the value that it deserved. I believed that our steady increase in net profits from $1 million to $19 million over three years would provide us with a strong story to support the offering. Despite our company's strong results, our investment bankers [Goldman Sachs & Co.] concluded that it was not enough."

TLC would have to scrap the IPO.

"We looked at every possible permutation and transaction to meet Mrs. Lewis' mandate of creating value and providing liquidity. We came to realize that the greater value to our shareholders was selling the company in pieces. The driving reality was that we had capital synergies, but not operational synergies," maintains Glover. "Independently, each business was a good business, but when you looked at the portfolio, it was difficult to find anybody who had an interest in paying a premium for companies with no operating synergies or shared corporate philosophy and strategy."

Moreover, contractual obligations forced the sale of TLC's crown jewel, the French Food division. The unit, which represented two-thirds of TLC's sales, included Leader Price, the operator of 250 company-owned and franchised discount supermarkets in which TLC had a 51% stake, and the 400-store Franprix supermarket chain, in which the company controlled 97% of the wholesale operation and 74% of its retail system.

TLC had structured a put-and-call contract with its French partners, which was triggered in July 1997. Under the agreement, the French partners had an option to sell their shares after July 1997 and TLC had the right to acquire them on the same timetable. "We had to do something quickly," Lewis said. "Leader Price was growing by 40% a year, and if we waited until 1998, we would have been obligated to buy out a unit that would have increased in value by $100 million. We decided to sell."

Market conditions also made it an opportune time to put the division in play. The factors: a French law limiting the number of supermarkets in the country, the overall consolidation of the country's food business and the attractive multiples--25 times operating earnings vs. 14 times operating earnings for an American company of similar size--being offered for such concerns.

In one of the largest deals ever in the French food sector, TLC sold the operation to Groupe Casino, a major French food retailer, for $573 million, which included reimbursement for an intercompany loan of roughly $115 million. The company used proceeds from the sale to structure a $175 million cash tender offer for its 11.5% senior secured notes. By December 1997, Lewis had paid down all of the company's corporate debt and TLC had $200 million in its corporate coffers.

The transaction caused TLC's gross sales to drop from $2.2 billion in 1996 to $1.4 billion in 1997--which still enabled it to hold on to its No. 1 spot. The company then slid to the No. 3 position on the BE INDUSTRIAL/SERVICE 100 list when gross sales fell to $322 million in 1998. Today, Mel Farr Automotive Group is the nation's largest black-owned company with $596.6 million in gross sales, while Philadelphia Coca Cola Bottling Co., run by deal maker J. Bruce Llewellyn, became the top company on the 1999 BE INDUSTRIAL/SERVICE 100 list with $389 million in gross sales.

Initially, Lewis intended to operate the slimmed down version of TLC, which controlled a snack company in Dublin, Ireland; ice cream manufacturers in Spain and the Canary Islands; and beverage operations in the Netherlands, Belgium, France and Thailand. But in April 1998, when she met with her management team and investment bankers, she decided to sell the entire company. "We thought that it was time to let these shareholders out," says Lewis "Most leveraged buyouts last three to six years. Our LBO was almost 11 years old."

Lewis considered buying out the existing shareholders, but decided not to engage in such negotiations. At the time TLC completed its sale of the French Food business, it settled a three-year lawsuit with Carlton Investments, the company's largest minority shareholder group, which was composed of former executives from Drexel Burnham. (The company realized a $15 million gain from the settlement.) Carlton had contested a five-year, $22.1 million compensation package paid to Reginald Lewis prior to his death.

Glover puts the move to sell in succinct terms. "We shared Reginald Lewis' philosophy of partnerships--`In together, out together,'" he says.

At first, Loida Lewis sought out a wide array of investors, including African American entrepreneurs ("strategic people in the business whom I consider[ed] friends"), to consume the food company whole. But after some time in negotiations, she found that TLC was more tasty to offshore buyers in slices. She, however, scoffs at the notion that TLC was auctioned because her 26-year-old daughter, Leslie, was not interested in managing the business, as was reported in several business publications. "From the start, we saw the business as a vehicle for wealth creation for Leslie and Christina," she maintains. "We didn't start the business for them to eventually take it over. Leslie became involved because we wanted her to see how our business was run."

By late May, Lewis began the process of selling the remaining pieces after TLC's board approved a plan of liquidation. First, TLC agreed to sell its 65% stake in its ice cream operations in mainland Spain and the Canary Islands to Iberian Beverage Group, producer of some of Europe's leading soft drink brands, for $191 million. In late June, the company then agreed to hawk Tayto, its Irish snack food business, to Cantrell & Cochrane Holdings Ltd. of Ireland, for $116.5 million.

Add up TLC's completed and proposed asset transactions since 1997, and gross proceeds come to a whopping $924.5 million. Not bad for 20 months worth of work.

The next stage of the dissolution process is the distribution of existing cash and the proceeds of asset sales to TLC's shareholders--including the estate of Reginald F. Lewis and Loida Lewis; Carlton Investments; Baupost Entities, the managing general partner of three limited partnerships; and DP Investments G.P. Corp., a New York-based investment firm--minus any corporate expenses and other obligations. "The money will go to shareholders in waves of cash," says Glover. "The first wave will be $275 million from the cash we already have in the bank The next wave will be $110 million from sales of our ice cream operation, and the balance will be paid out as the liquidation progresses. After the big chunks of cash are paid to shareholders, then we make sure that every creditor we may owe money to, directly and indirectly, is paid off. In a liquidation of this size, we are legally given up to three years to wrap up the business, but I suspect that we will not have to take that amount of time to close our books."

Glover says the shareholders--including the Lewis family--will realize "an incredible multiple" on their return per share.

ENCORE: THE POSSIBILITY OF NEW VENTURES

Will Loida Lewis launch another business after TLC? For the time being, your guess is as good as hers. "I believe in taking things one step at a time," she says. "But if I did look at another business, it would be in food. I like basic types of businesses--food, clothing and shelter. I like to be involved in things that people will always need."

But what has disappointed Lewis over the years is there has not been another transaction the size of--or that has dwarfed--the original TLC deal involving an African American entrepreneur. She considers such lack of progress "an indictment of American society."

Her next project appears to be playing a role in creating black entrepreneurs. Lewis has worked with such BE 100s CEOs as Carlton Guthrie of Trumark, the Lansing, Michigan-based auto supplier (No. 68 on the 1999 BE INDUSTRIAL/SERVICE 100 list with $36.2 million in gross sales) and William Buford III of Reliant Industries, the Bedford Park, Illinois-based manufacturer (No. 33 on the list with $73.1 million in gross sales) in creating the Runners Club, an advisory group focused on transforming small black businesses into major players. And, as she was finalizing the sale of Tayto, she announced that the Reginald F. Lewis Foundation and the Lewis family were giving the NAACP $1 million to train high school students to become future business leaders. "More and more blacks are running investment banks and going into finance and business management," she says. "I am remaining confident that there will be more Reginald Lewises who will head billion-dollar organizations."

Black America eagerly awaits such an encore.

The life And Times Of TLC Beatrice

1987: Reginald Lewis makes history by completing a $985 million leveraged buyout of Beatrice International Foods. The largest offshore transaction at the time, Lewis finances it using junk bonds. He renames the concern TLC Beatrice International. BLACK ENTERPRISE is the first business magazine to cover the story, and scoops such publications as Business Week, Fortune and Forbes.

1988: The first year that TLC Beatrice appears on the B.E. INDUSTRIAL/SERVICE 100 list. The company becomes the first black-owned enterprise to crack the billion-dollar mark, grossing $1.8 billion in sales in 1987.

1989: Lewis attempts to take TLC public in an IPO. His efforts are rebuffed by a volatile market and analysts who maintain that Lewis and company insiders will profit disproportionately from the offering.

1993: Reginald Lewis dies of brain cancer. His untimely death rocks TLC and stuns the business community.

1993: Lewis' half Jean S. Fuggett, a former football player and attorney who served as the company's vice chairman, becomes CEO of the company.

1994: After a year of being besieged by a recession in shareholders and analysts about TLC's corporate performance, Fuggett is replaced by Loida Lewis, who assumes the role of chairman and CEO.

1994: Lewis makes her mark on the company by instituting a program of corporate austerity. She sells the company plane, reduces the corporate staff, moves the office to less-expensive quarters and sells noncore holdings.

1997: Lewis consults her investment banker on how to increase shareholder wealth and liquidity. After assessing several different business models, TLC's management team makes the decision to sell the French Food business, which contributes two-thirds of TLC's revenues.

1997: TLC settles lawsuit with Carlton Investments, the company's largest minority shareholder group, which is comprised of former executives from Drexel Burnham Lambert. Carlton contested a five-year, $22.1 million compensation package paid to Lewis before his death.

1999: After 10 years as the top company on the B.E. 100s, TLC, which posted gross sales of $322 million in 1998, drops to the No. 3 sport on the B.E. INDUSTRIAL/SERVICE 100 list.

1999: The board approves a plan of liquidation and, in two separate transactions, TLC agrees to sell the remainder of its holdings.
COPYRIGHT 1999 Earl G. Graves Publishing Co., Inc.
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Title Annotation:complete divestiture; TLC Beatrice International Holdings Inc.
Author:DINGLE, DEREK T.
Publication:Black Enterprise
Article Type:Company Profile
Date:Sep 1, 1999
Words:3474
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