American Colloid Co.

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American Colloid Co.

1500 W. Shure Co.
Arlington Heights, Illinois 60004-1434
U.S.A.
(708) 392-4600
Fax: (708) 506-6199

Public Company
Founded: 1924 as Bentonite Mining and Manufacturing
Company
Employees: 2,400
Sales: $265 million
Stock Exchanges: NASDAQ
SICs: 1459 Clay & Related Minerals, Not Elsewhere Classified; 2821 Plastics Materials & Resins; 4213 Trucking Except Local

American Colloid Co. is a leading U.S. manufacturer of materials, such as absorbent polymers and bonding agents, consumed in mineral, environmental, and consumer products industries. Its offerings range from cat litter and absorbent polymers used in diapers to bentonite clay used in metal casting and for other industrial applications. The company operated 37 production/ research facilities throughout the world in 1995 and was posting record profits, largely as a result of innovative new products.

American Colloid Co. was built on a single product; bentonite clay. Although various types and grades of Bentonite clay were in existence, the material that American Colloid began selling in the early 1900s was located in deposits as deep as 100 feet in the northern plains of the United States. That clay was formed from volcanic ash that, over millions of years, was transformed into a highly-absorbent, paste-like substance. Native Americans used the clay in several applications, including as a soap for buffalo hide, an ingredient in soils for decorative plants, and possibly even as a dietary supplement during pregnancy. Later, settlers began using the clay to seal log homes, pack inflamed horses hooves, and grease wheel axles.

In the late 1800s a Wyoming rancher named William Taylor sent some of the clay that he found on his ranch to the University of Wyoming to be studied. He first dubbed the clay “Tay-lorite,” but soon thereafter changed the name to “Bentonite” because he had found it near Fort Benton. In the early 1900s that deposit became one of the first commercial Bentonite mines in the world. The substance was originally mined from the earth’s surface by horse and wagon, shipped to Chicago, milled into a fine powder, and processed into a skin-wrinkle cream called “Denver Mud”—the clay was still a chief ingredient in beauty mask products in the 1990s. Bentonite was later utilized in the manufacture of laundry detergent, asphalt, and insulation. Because few other commercial uses were known for the absorbent material, the Bentonite industry languished for several years.

It was eventually discovered that Bentonite could be used in foundries to improve the quality of molding sands used to manufacture metal castings. That important discovery was followed by the realization that Bentonite was a useful additive to the slurry applied as a lubricant to oil and gas well drills. Among the few Bentonite mining companies that emerged early was the Bentonite Mining and Manufacturing Company, which was located in the gold-mining town of Deadwood, South Dakota. The company was formed one night in 1924—by a group of frustrated gold miners in a local tavern—and was extracting Bentonite from nearby deposit shortly afterward.

Enter Paul Bechtner, an entrepreneur, inventor, and workaholic with a background in the foundry industry. Bechtner was born in Wisconsin in 1882, served in a stateside cavalry unit during World War I after typhoid nearly took his life, and then started a chicken farm in his home state. When he tired of that venture, he took a job with a sand company, quickly rising to the position of vice-president and then promptly quitting in 1922. Next, he was employed by a metal casting company, where he worked on developing better foundry molds to make engine blocks for the burgeoning automobile industry. After experimenting with numerous additive and bonding materials, Bechtner became convinced that Bentonite was superior to all other materials. Armed with that knowledge, Bechtner left his job and headed west.

Bechtner struck a partnership with the founders of Bentonite Mining in 1927. The two parties each agreed to contribute $15,000 to form two new companies; American Colloid Company, which would be headed by the original founders, and American Colloid Company Sales Division, which would buy Bentonite from its sister company and sell it in the East for a profit. The name “Colloid” was derived from the Greek ‘kolloid,’ meaning glue-like, and the English ‘colloid,’ which defined a degree of fitness. American Colloid built its first plant in Upton, Wyoming, in 1928 adjacent to the original mining facility. Bechtner named the Bentonite material that he sold “Volcay,” referring to its volcanic origin, and he even advertised that “Bentonite is our sole product.”

Bechtner had finally discovered his niche. Indeed, during the 1930s and through the 1950s he became a sort of apostle of Bentonite (Volcay). He worked relentlessly, often from early morning until late at night, to build the business. During the start up, Bechtner effectively lived out of his Ford, traveling non-stop to promote his product before setting up shop in a Chicago apartment. Then, when he wasn’t on the road he was writing literature and responding to customer inquiries in an effort to build American Colloid’s client base. At a rate of about two tons per hour, the South Dakota mine generated about 740 tons of Bentonite during its first full year of production. As a result of Bechtner’s sales push, that figure bolted to more than 3,000 tons in 1929. And demand was growing.

The Great Depression slowed American Colloid’s growth. To make matters worse, a fire destroyed the Upton plant. But the enterprise managed to survive the downturn and even to record meager profits during most of the 1930s. In fact, Bechtner managed to turn the misfortune into a positive experience. When he and his crew were surveying the fire damage, one of the men angrily picked up a handful of Bentonite clay and hurled it against a burned wall. The clay stuck to the wall extremely well, sending Bechtner’s mental gears into motion. Within several weeks he had filed a patent covering the use of vermiculite bonded with Bentonite as insulation. He then sold the patent to help pay for reconstruction costs. Although output rose during the early 1930s to more than 4,500 tons, American Colloid struggled. At one point, when the company was on the edge of bankruptcy, an investor named John Owen paid just $5,000 for 17 percent of the organization’s stock to keep it afloat.

By 1935 American Colloid’s shipments had grown to the point where a second processing plant had to be built. The second plant was capable of producing granular and powder Bentonite products, for which demand was growing. By 1936, American Colloid was shipping 9,000 tons from the new plant and about 8,000 from the old facility. Also in 1936, the sales and production divisions of American Colloid merged to form a single company; American Colloid Co. In the late 1930s, the company began mining and processing “southern” Bentonite clay in Mississippi. Southern Bentonite clay, found primarily in Mississippi and Alabama, was similar to material in the plains states, but the former had significant amounts of calcium rather than sodium and swelled much less when exposed to moisture. Southern Bentonite was found to be favorable to plains clay in many foundry applications, although combining the two materials often produced the best effect.

By 1940 American Colloid was selling more than 35,000 tons of clay annually. Because of the U.S. war effort, that figure leapt to 60,000 in 1941. Unfortunately, the company’s profit growth failed to keep pace with output, largely because of increased competition from new Bentonite manufacturers. As competition increased, the company’s profit per ton plunged to 20 cents. Worse yet, in 1941 fire again destroyed the Upton plant. American Colloid quickly rebuilt as its order backlog swelled. Three years later, however, a third blaze wreaked havoc and again leveled the Upton plant. Again, American Colloid rebuilt. Soon after the plant reopened, however, demand plunged with the end of the war. Bechtner and his discouraged associates struggled for a few years to reposition the company for growth in the postwar era.

Fortunately, a major new market opened up for American Colloid in the late 1940s. Because a competitor’s patent expired, American Colloid was able to start selling Bentonite as an ingredient in oil-drilling lubricants. That new product line quickly took off and the company was forced to expand its manufacturing operations and headquarters to keep up with demand. Despite a fourth fire—this time at the Mississippi plant—and a 1954 tornado that wrecked the rebuilt facility, the company steamed into the mid-1950s with record revenues and profits. Boosting sales were new minerals being mined and processed by Bechtner’s team including lignite/leonardite, a type of low-grade coal used in the petroleum industry and later as a fertilizer. To keep pace with gains, the company opened another plant in Mississippi in 1957.

Paul Bechtner died from a stroke in 1961 at the age of 79. Until his death, he had been intimately involved in the leadership of the company, overseeing its growth from a single plant to the world’s largest Bentonite producer with sales throughout the world. Bechtner was succeeded by Everett Weaver. Weaver had joined the company straight out of high school in 1940. After a two-year stint in Europe during the war, he had returned to American Colloid to develop the company’s marketing program for the oil well drilling industry and to manage some manufacturing plants. He was also joined at the company by his younger brother, Bill. Everett was hand-picked by Bechtner to lead the company and assumed the chief executive slot in 1960.

Under Weaver’s direction, American Colloid continued to flourish. The company opened a new Alabama calcium Bentonite processing center in 1961. In 1965, moreover, the company inaugurated its first overseas production plants, which were located in Germany and England. Also during the early 1960s, Weaver purchased a trucking company as part of an effort to vertically integrate the company and reduce distribution costs. Everett Weaver handed off some of the day-to-day control of American Colloid to his brother, Bill, in 1968. Before doing so, he added a new production facility in Wyoming, initiated a distribution agreement with a Japanese company that eventually became American Colloid’s biggest overseas customer, and broke ground for a new production facility in Illinois. That new facility reflected American Colloid’s increasing emphasis on the growing well-drilling market.

The Weaver brothers continued to expand the company’s reach overseas in the 1970s. In the early 1970s they oversaw the creation of divisions in Spain and Australia, for example. They also purchased a foundry blend-processing center in Detroit that allowed the company to create new products in demand by the foundry industry. Throughout the 1970s the brothers helped to boost the company’s international exposure and to raise sales and profits. Importantly, American Colloid benefited from growing demand for its lubricating mud products from oil and gas drillers. That increase was largely a result of the OPEC oil embargo that began in 1973 and buoyed the U.S. oil industry through the early 1980s.

Indeed, American Colloid’s revenues went from $20 million in the early 1970s to more than $100 million by the decade’s end. During the same period, the company’s work force increased from 450 to more than 1,000. By the early 1980s, at the height of the oil industry boom, American Colloid was shipping more than 80,000 tons of its clay-based gel each month. To keep up with growing demand, the organization invested millions of dollars in new facilities. At the same time, American Colloid began a concerted effort to diversify its product lines to include specialty, high-margin items. The Weaver brothers relinquished hands-on control of the company when it was at its height in terms of sales and profits. That left Roy Harris, who became chief executive in 1981, holding the bag when the bottom dropped out of the U.S. oil industry.

Because American Colloid had become so dependent on the oil industry, but also because of a downturn in its industrial and export divisions, the early 1980s dealt an ugly blow to the company. Almost instantly, orders from the company’s oil accounts stopped. American Colloid’s management was stunned by the almost unimaginable drop in business. Sales plunged from $134.3 million in 1981 to $77.3 million in 1986. As management scrambled to cut costs and pay its bills, the company’s work force shrunk from 1,250 to just 475 during the same time period. American Colloid was eventually forced to shutter its gleaming, eight-year-old, state-of-the art Bentonite plant in Malta, Montana.

Roy Harris, one of the last top executives to have worked with Bechtner in the early days, stepped aside in 1985. He was replaced by John Hughes, who would face the task of revitalizing American Colloid and leading it onto a new path toward growth and prosperity. The hard-charging, outspoken Hughes had joined American Colloid straight out of college in 1965 as a research chemist. Almost from the start, he had pressed top management to reduce its dependence on the oil well market. In fact, it was he who had pushed for American Colloid to diversify into other specialty products derived from Bentonite, rather than commodity goods, during the late 1970s. As he rose through the ranks, Hughes became known as a workaholic, and some executives had even left the company upon discovering that they would be required to report to him.

After the oil market crashed, Hughes was tapped to help engineer the company’s consolidation and work force reduction. His efforts during that period only added to his intimidating presence within the company. Still, Hughes aggressive, hard-driving style was exactly what American Colloid needed during the mid-1980s to turn it around. Just as important as his management style and personality, though, was his strategy. “When he first started ... John had a dream: to develop a line of specialized products and decentralized management,” explained Everett Weaver in the May 1989 Business Marketing. “He doesn’t waste time when he knows what he wants to do,” Weaver said.

Indeed, Hughes didn’t waste time. In 1986 he moved the company’s corporate offices to Arlington Heights, Illinois, demolished the Malta plant, sold the plant in Germany, and opened a new polymer processing operation in Wyoming. The company raised cash in 1987 by going public for the first time, and Hughes launched aggressive new cost-control and quality initiatives. As American Colloid slashed costs and reorganized during the mid-1980s, Hughes pursued his goal of developing a diverse mix of high-margin specialty applications for Bentonite. To that end, the company set up several relatively autonomous industry-specific divisions designed to attack key market niches. The units usually had about 12 people, depending on the market, and were headed by a profit manager. For example, American Colloid’s desiccant division was set up to develop and market clays used to absorb moisture in packaging. Similarly, in 1988 American Colloid purchased Absorbent Clay Products, Inc., a cat litter company in Illinois. Other Bentonite niches included winemaking and new uses in the fertilizer industry.

An important new arena for American Colloid beginning in the late 1980s was an absorbent powder that it sold primarily to manufacturers of diapers and feminine products. The powder was first developed in Japan for the drilling industry, but American Colloid managed to get rights to the product in all countries but Japan and was marketing the powder for new specialty applications. The amazing powder was capable of expanding to hold more than 40 times its volume in water, making it potentially useful in a range of applications that Hughes believed American Colloid could develop and market. An added benefit of the polymer was that it could be shipped much more inexpensively than Bentonite. In 1987, Hughes set up a subsidiary—Chemdal Corp.—to produce and market the superabsorbent polymer. A separate European division of that subsidiary was established in England in 1989.

Also in 1989, American Colloid purchased a feed processing operation in Pennsylvania. Meanwhile, the company continued to cut operating costs and to update manufacturing facilities. The results of Hughes’s strategy were quickly visible. After falling to a 1980s low of $77 million in 1986, revenues shot up to $85 million in 1987 and then to $111 million in 1988; the oil well industry accounted for less than ten percent of those sales. Profits rose similarly, jumping 21 percent in 1987 and then 20 percent in 1988 to a healthier $4.6 million. The profit gains reflected Hughes financial goal of raising sales at double the rate at which operating costs increased. As demand for American Colloid’s new products surged, revenues continued to climb to $125 million in 1989 and then to nearly $150 million in 1991.

Early 1990s gains were largely the result of the success of American Colloid’s superabsorbent polymer division, Chemdal. That division was churning out 20,000 tons of product annually by 1993 after more than doubling sales to $31 million between 1990 and 1992. The kitty litter division was also posting gains. At the same time, American Colloid’s Bentonite operations were enjoying steady sales and profit jumps, and they continued to account for the bulk of the company’s income. As American Colloid expanded production capacity and bolstered product lines, sales reached $265.4 million in 1994, far surpassing the company’s revenues during the oil-industry peak of the early 1980s. Meanwhile, net income rose 17 percent to more than $15 million.

Going into the mid-1990s, American Colloid was operating three major product divisions: 1) minerals, which encompassed traditional metalcasting and oil drilling markets for Bentonite, as well as cat litter and other specialty Bentonite products; 2) absorbent polymers, which had grown to account for about 25 percent of company sales by 1994; and 3) environmental materials—the smallest product division—which produced ground-water chemicals, building materials, wastewater treatment products, and other environmental products. The company was operating manufacturing facilities throughout the world and was selling its products in more than 60 countries.