Pennwalt Corporation

Three Parkway
Philadelphia, Pennsylvania 19102
U.S.A.
(215) 587–7000

Public Company
Incorporated: September 25, 1850 as Pennsylvania Salt
Manufacturing Co.
Employees: 9,901
Sales: $1.108 billion
Market value: $660 million
Stock Index: New York

Five young Quakers started the Pennsylvania Salt Manufacturing Company in 1850 with a small budget and a great deal of hope. They combined their conservative outlook with some calculated risks and that early philosophy has been the trademark of this diversified chemical corporation ever since.

The two primary founders of Pennsylvania Salt, George T. Lewis, a commission merchant, and Charles Lannig, a manufacturer, combined their resources with three other Philadelphia Quakers to begin the process of producing alkalies from salt. At the start of this venture the partners had in their favor $100,000 in capital, a plant located on a salt deposit near Pittsburgh, and a patent for the process. The future looked promising, but after five years of attempting to manufacture salt and its derivatives, the group despaired of making the company a success. Although operating expenses were draining the company’s resources, the partners decided to give the company one final try. That gamble paid off, and the company soon made a name for itself.

The first success of the company was not in salt production however. Around 1856 the company started selling lye soap for household use, and the idea was an instant success. In 1856 the company reported its first profitable year. Due to the success of the soap manufacturing business, Pennsylvania Salt Manufacturing was able to finance the restructuring of its salt processing system.

Pennsylvania Salt Manufacturing Company is notable for many innovations within the industry. In 1865 the company had begun to use some of its other raw materials. Specifically, cryolite, which is a natural fluoride of sodium and aluminum that was used at the time as a whitener in the production of glass and ceramic ware, became an important addition to the company product line. In 1864 the company signed a contract with the Danish government to obtain cryolite from the only known site in Greenland. The company was also the first to ship liquid chlorine (1907) and anhydrous hydrofluorine acid for the use in high-octane aviation fuel (1931) by tank car.

During World War II the company signed a contract with the U.S. government to manufacture synthetic cryolite. This government contract was primarily responsible for increasing the company’s earnings from $9.5 million in 1939 to $26 million in 1944. In addition, unlike many companies of this time, Pennsylvania Salt did not have to reconvert its products for war time usage.

After the war the company implemented a progressive policy of research and development which led to an increased use of raw materials that diversified the essentially one-product business. By 1945 the company was manufacturing a wide range of chemicals for use within the aluminum, glass and ceramic industries, and the chemical manufacturing and farm operations industries, including such items as chlorine and chlorine compounds, acids, disinfectants, germicides and insecticides, soap and bleaching compounds, and weed killers.

The company policy of adding new products, developing new processes and expanding its facilities was established to solidify its earning potential in the years after the war. By 1950 Pennsylvania Salt was experiencing a faster rate of growth than before the war. In addition, Pennsylvania Salt could boast that it had plants located throughout the United States, including the east, midwest, south and northwest.

In 1950 Pennsylvania Salt celebrated its 100th anniversary; it was one of the oldest companies in the chemical business. It had established a reputation for being one of the “soundest firms” in the industry, with a “conservative” and “well-heeled” image. This solid reputation is exemplified by the company’s report to its shareholders in 1878 that its credit rating was one of the best in the industry, and that it was a company that paid cash for everything it purchased. In 1947 Pennsylvania Salt called on its shareholders to support a share issue plan for a $7.5 million facility expansion program. This was the first time that the company had ever issued preferred stock shares, and this move symbolized a new direction for the firm.

Leonard T. Beale was president during this time and is credited for establishing new priorities for the company, not only through financing schemes, but also in terms of diversification. Beale was elected president in 1928 and continued in that post until 1949 when he was appointed chairman. Beale’s management strategy included diversifying the company by acquiring dairy sanitation specialty lines, a laundry and dry cleaning compound manufacturing firm, and a chlorate plant in Portland, Oregon.

Beale’s diversification policy was continued by William P. Drake who was appointed chief executive officer in 1955. Drake was interested in moving the company away from the commodity cycles that harmed its earnings and into specialty chemicals. Under Drake’s direction the company diversified even further into equipment manufacturing lines, and he also emphasized new product research. Within a ten year period sales doubled to $144.4 million in 1964.

The company name was changed in 1957 to Pennsalt Chemical Corporation, although the company had been referred to as Pennsalt for many years preceding the change. At this time, Pennsalt was lagging behind the larger chemical companies such as Du Pont that had made nylon, Teflon, and Dacron household words. While Pennsalt was not able to compete with the larger corporations, it was busy putting significant amounts of money and personnel behind more than 600 products that had limited markets. These limited markets were of no interest to the “giants” of the industry and so Pennsalt was able to use them to its earning advantage.

Drake’s philosophy was one of combining thriftiness with a sense of daring, a philosophy that was shared by the founders of the company. If he saw a profit in a product then Pennsalt would sell it. This philosophy led to the company’s diverse line of products in the late 1950’s and throughout the 1960’s. The company’s plan at this time was a strong emphasis on improvement, expansion, and product additions.

Drake diversified even further by moving into the processing equipment industry in 1962 with the acquisition of Sharples Company, a manufacturer of centrifuges, and in 1963 with the absorption of I.J. Stokes Corporation, a $23 million producer of tabulating machines, plastic molding machines and high-vacuum equipment. These acquisitions were the first step toward diversifying the company in order to maintain a competitive edge against the larger chemical firms.

In addition, Pennsalt was establishing an international presence, through both its expansions and acquisitions. In 1960 Pennsalt had only a single chlorine and caustic plant in Mexico, but with the acquisition of Sharpies, Pennsalt inherited plants in England, France and Germany. At the same time, the company was acquiring a Dutch chemical and plastic concern. By 1965 Pennsalt had four chemical plants, and 11 equipment or combined plants in Western Europe, Mexico and South America.

Drake’s interest in quality rather than quantity made 1964 a notable year in terms of research and development. Eighty new chemical products were released. Some of the most significant products were fluorine-based refrigerants, aerosol propellents, and foaming agents called Isotron. In the plastics field, another important product was Kynar 500, a paint additive that provided durability to outside wall finishes. Kynar 500, in particular, was a product that would provide significant financial reward to Pennsalt in the years to come.

Although Pennsalt had shown itself to be a promising company under the direction of Drake, the late 1960’s spelled near-disaster for the company, even though sales increased from $79.8 million in 1957 to $268 million in 1968. The steadily rising earnings suddenly dropped off in the late 1960’s. The cause of this crisis was blamed on the two large acquisitions and a depression in the basic chemicals market.

One of the acquisitions made in the late 1960’s was S.S. White Dental Manufacturing Company, which gave Pennsalt an important position in the dental products field, but drained Pennsalt’s resources because the acquired company needed significant modernization of its facilities. The dental health products business would later turn out to be poor investment. At the time, however, Drake was interested in moving the company away from a dependency on the chemical industry, and its highly volatile cycles, which hurt the company’s earnings.

Another important acquisition of this period was Wallace and Tiernan, a chemical, equipment, and health care concern that added related, but noncompetitive product lines to Pennsalt. Upon the merger the company changed its name to its present title of Pennwalt Corporation. Drake viewed Wallace & Tiernan as a company that would add to the existing product mix without creating a reliance on any one product to increase the company’s earnings. At the time of the merger, each company was dependent on the chemicals industry as its primary source of earnings, but the merger also added to the equipment and health care groups as well.

Along with the downswing of the chemicals market and the acquisition of S.S. White, which needed significant modernization, there were also management problems that appeared as a result of the merger with Wallace & Tiernan. Drake stated that the company had experienced a “bellyful of acquisition indigestion” because of the problems presented by management changes. Some executives died, others retired or quit; by the end of the merger only three of the original management team of Wallace and Tiernan were left. However, with the average age of the top management at 51, Drake was confident that some of the original executives would be around to witness the implementation of the 10-year plan: “We’ll have our youth and vigor and still have some gray-haired expertise.”

The problems experienced in the late 1960’s came to an end by 1973 when Pennwalt went through a turnaround phase. The chemical operations began to pay off, even though Drake had earlier reduced the dependency on the chemical group to 55% of the company’s earnings. Yet even though the chemicals group, the original product of the company, had reversed Pennwalt’s streak of bad luck by 1978, Drake was looking at pharmaceuticals to provide the company’s significant earnings by 1980.

Upon Drake’s retirement in 1978, Edwin E. Tuttle took over as president. Tuttle was no stranger to the company; he had first arrived at Pennwalt in 1951, six years before Drake was named president. Tuttle was fresh out of Harvard’s MBA program when he joined the financial division of Pennwalt. Tuttle moved up through the company, both in the financial division and as assistant to the president in 1957, and again in 1961. With the acquisition of Sharples Company, Tuttle became secretary-treasurer of the company for a year and a half before returning to Pennwalt. Tuttle’s management style was patterned after the direction set by Drake—smart acquisitions that would maintain the company’s growth, with particular emphasis on the acquisitions of pharmaceutical companies, considered by both men to be the direction of Pennwalt’s future.

In 1981 Tuttle began a restructuring program that focused on diversifying the company in “leadership areas.” What this meant was that the company began divesting itself of some of its less profitable subsidiaries. In particular, the dental business had shown itself to be a disappointment and by 1985 S.S. White Dental Corporation was sold because it was not “consistent” with the company’s “long-term strategic plans.”

The pharmaceutical industry was the main interest during this restructuring program. Tuttle predicted that Pennwalt’s $82 million pharmaceutical operation of 1982 would increase to $250 million by 1986. Part of Tuttle’s enthusiasm for the pharmaceutical industry was based on the development of the time-release decongestant capsule known as PennKinectic CD2. This product was used in such over-the-counter drugs as Allarest products. Tuttle saw this new product development as an opportunity to sell the technology to other companies in order to raise the cash to support the research and development efforts of Pennwalt’s pharmaceutical efforts. Tuttle was not concerned with having to compete, once more, with the larger companies in the pharmaceutical industry, but his $250 million prediction fell short. In 1984 the pharmaceutical division earned only $109 million. At the time, Tuttle blamed the slow growth on the difficulty of getting FDA approval for Pennwalt’s controlled-release drugs.

While the pharmaceutical industry appeared to be a new direction for the future growth of Pennwalt, the chemical operation was still proving its value. By 1983 Pennwalt saw a halt to three straight years of failing profits. In 1982 the chemical operations were 60% of the company’s $1.06 billion sales. In addition, the company was pursuing an ambitious expansion plan with a $60 million Kynar-brand plant in New Jersey.

By 1985 Pennwalt had closed its Michigan chlorine soda/caustic unit because of a poor midwestern market. Besides implementing cost-cutting measures in the subsidiaries, Pennwalt implemented another restructuring program that included employee layoffs. In his 1985 annual message, President Tuttle explained that this restructuring was being done in order to “provide solid growth in future earnings.” Emphasis was on more efficient use of resources and a future focus on high-return businesses.

Pennwalt’s future depends on management’s ability to successfully restructure the company and make sound acquisition investments that will complement Pennwalt’s existing subsidiaries. Pennwalt’s long and productive history, with its philosophy of conservative risk taking, will undoubtedly play an important role in any future decisions made by management.

Principal Subsidiaries

Automatic Power, Inc.; Cook’s Industrial Lubricants, Inc.; Delaware Chemicals Corp.; Mayo Products Co.; Pennwalt, Inc.; Pennwalt Foreign Sales Corp.; Pennwalt International Corp.; Western Hemisphere; Pennwalt International Sales Corp.; Turco Products, Inc.; Turco Purex Industrial Corp.; Wyandotte Southern Railroad Co. The company also has subsidiaries in the following countries: Belgium, Canada, France, Italy, Mexico, The Netherlands, Netherlands Antilles, Spain, Switzerland, United Kingdom, and West Germany.