TLC Beatrice International Holdings, Inc.

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TLC Beatrice International Holdings, Inc.

9 West 57th Street, Suite 3910
New York, New York 10019
U.S.A.
(212) 756-8900
Fax: (212) 888-3093

Private Company
Incorporated: 1983 as TLC Group, Inc.
Employees: 4,700
Sales: $2.23 billion (1996 est.)
SICs: 2024 Ice Cream & Frozen Desserts; 2086 Bottled & Canned Soft Drinks & Carbonated Waters; 2099 Food Preparations, Not Elsewhere Classified; 5084 Industrial Machinery & Equipment; 5142 Packaged Frozen Foods; 5143 Dairy Products, Except Dried or Canned; 5145 Confectionery; 6719 Offices of Holding Companies, Not Elsewhere Classified

TLC Beatrice International Holdings, Inc. is invariably linked with its late African American founder, Reginald F. Lewis, a Harvard-educated lawyer turned entrepreneur. Known as a hard-nosed dealmaker, Lewis successfully played the 1980s leveraged buyout game; TLC (which stands for “The Lewis Company”) is the resulting legacy of Lewis’s shrewd maneuvers. The company was founded in 1983 as TLC Group, Inc., a holding company for Lewis’s purchase of McCall Pattern Company; he invested $1 million to buy the sewing-pattern firm and sold it in mid-1987 for a 90-to-l gain. Lewis then parlayed those impressive earnings through the late 1987 $985 million leveraged buyout of the international foods division of Beatrice Company. Over the next 10 years, TLC Beatrice was widely known as the nation’s largest black-owned business (as determined by Black Enterprise magazine). The company retained the distinction even following Lewis’s untimely death in early 1993, after which the Lewis family—headed by Lewis’s widow, Philippine-born Loida Lewis—held a majority stake. In late 1997, however, the company sold its food distribution business, which had accounted for 85 percent of 1996 revenues. The sale left TLC Beatrice with a snack-food company in Ireland, ice cream manufacturers in Spain and the Canary Islands, and soft drink bottling operations in the Netherlands, Belgium, France, and Thailand—as a group these businesses generated about $358 million in sales during 1996.

Entrepreneur from Age 10

Reginald Francis Lewis was born on December 7, 1942, in East Baltimore. Growing up in a working-class neighborhood, described by him as “semi-tough,” Lewis early on displayed an entrepreneurial spirit. He got his first job at the age of 10 selling the twice-weekly Baltimore Afro-American, the local black newspaper, and quickly increased his route from 10 to more than 100 customers. When he went away for a summer camp, his mother took over the route with Lewis paying her a salary and pocketing the profits. Soon thereafter, he took on a more profitable route delivering the daily Baltimore News American, and sold his Baltimore Afro-American route to a friend for $30.

During high school, Lewis had several jobs and was a star on the baseball diamond and the football gridiron. Following graduation in 1961, he attended Virginia State University, a traditionally black college, on a football scholarship. During his freshman year, however, a nagging shoulder injury led Lewis to concentrate on academics, forfeiting his scholarship in the process. After graduation in 1965, his attendance at a Harvard University summer law program was impressive enough to lead to his being admitted to Harvard Law School despite less than stellar grades at college and his not having taken the LSAT.

Graduated from law school in 1968, Lewis then joined the prestigious Manhattan law firm Paul, Weiss, Rifkind, Wharton & Garrison and was assigned to the corporate law department, where he gained invaluable experience handling a variety of tasks: setting up corporations, handling securities law filings, preparing joint venture agreements, and working on various transactions involving venture capital deals, mergers, and initial public offerings. But wishing to be on his own, Lewis stayed at Paul, Weiss only until 1970 when he launched his own law firm, which specialized in the venture capital area, primarily in the emerging market for Minority Enterprise Small Business Investment Companies. Known as MESBICs, and operated under the auspices of the U.S. Small Business Administration (SBA), these were venture capital firms formed by corporations or foundations; they invested money—including matching funds from the SBA—into minority-owned businesses. Lewis became one of the leading lawyers specializing in MESBICs; in the process, he gained a great deal of experience in the art of structuring acquisitions through debt financing, experience on which he would draw heavily for his 1980s LBOs.

Lewis continued to do MESBIC work through the early 1980s. Meanwhile—longing to take over and run companies himself, rather than simply helping others to do the same— Lewis began to seek out acquisition targets. In 1975 he attempted and failed to acquire Parks Sausage, a black-owned firm based in Baltimore. Two years later, Lewis began another unsuccessful takeover effort, this time of a Vernon, California-based manufacturer of leisure furniture called Almet. After 18 months of negotiations, the deal fell apart at the last minute. In 1982 Lewis purchased a radio station in the U.S. Virgin Islands, intending to make it the base for a regional Caribbean Basin Broadcasting network. These grandiose plans never materialized, however, as the station was continually in the red, leading Lewis to sell it in July 1986.

TLC Group Formed in 1983 to Acquire McCall Pattern

Just as the peak period for corporate takeovers and leveraged buyouts was beginning, Lewis was finally able to join the fray himself. In 1983 the conglomerate Esmark, Inc. took over Norton Simon Industries, another conglomerate, in a hostile takeover. Lewis learned from a Fortune magazine article that one of the Norton Simon companies that Esmark planned to divest was McCall Pattern Company, a maker of home sewing patterns founded in 1870. With fewer and fewer people sewing at home, McCall was seemingly on the decline—though it had posted profits of $6 million in 1983 on sales of $51.9 million. At the time, McCall was number two in its industry, holding 29.7 percent of the market, compared to industry leader Simplicity Patterns with 39.4 percent.

In mid-1983 Lewis established a holding company, TLC Group, Inc., for his bid to take over McCall. After securing $24 million in financing from investment banking firm First Boston Corp. and putting up $1 million in cash—part of which was secured via personal loans—TLC Group acquired McCall in January 1984. Lewis had finally completed his first LBO.

From the beginning Lewis’s plan was to turn McCall around quickly and then sell it at a profit—thus generating funds for more ambitious takeovers. He did just that. By containing costs, improving quality, beginning to export to China, emphasizing new product introductions—even moving into the production of greeting cards—and focusing on cash flow, Lewis led McCall to its two most profitable years ever in 1985 and 1986, when the company posted income of $12 million and $14 million, respectively. Shortly after an aborted attempt at an initial public offering, Lewis in December 1986 began to cash out his investment in McCall through a recapitalization that generated $19 million for Lewis and other shareholders. Then, an auction resulted in the June 1987 sale of McCall to the John Crowther Group, a U.K. textile manufacturer, with Crowther paying $65 million in cash and assuming $32 million in McCall debt. With the addition of McCall real estate worth an estimated $6 million that they retained ownership of, TLC Group shareholders cleared a total of $90 million from their three-and-a-half year investment of $1 million. Lewis’s share was 81.7 percent of the $90 million.

On December 9, 1988, McCall filed for Chapter 11 bankruptcy protection. Two lawsuits were subsequently filed against Lewis alleging that he had misrepresented McCall’s financial well-being prior to the sale. Lewis won both cases, and also gained a small settlement from a libel countersuit he had filed against his accusers.

Late 1987 LBO Created TLC Beatrice

In April 1986 Beatrice Company, one of the best-known food companies in the country, with a history dating back to the 1895-founded Beatrice Creamery Company, was taken private through a $6.2 billion highly leveraged buyout led by Kohlberg Kravis Roberts & Co. (KKR). Over the next 18 months, Beatrice was stripped of much of its assets to pay down debt. (The final remnants of Beatrice were sold to ConAgra in 1990.) In June 1987—the same month that he completed the sale of McCall—Lewis learned about an auction of Beatrice’s international food operations, which consisted of 64 operating units scattered around 31 countries in South America, Asia, Canada, and Europe, with the units a variety of food distribution and food manufacturing operations. Searching for an internationally active company with a diverse mix of businesses—including some that could be sold following an IPO to pay down debt—as his next takeover target, Lewis quickly determined that the $2.5-billion Beatrice international division fit his criteria almost perfectly and soon pulled together a takeover plan.

Lewis and his associates at the TLC Group quickly put together an initial bid—$950 million—and submitted it to Beatrice in July 1987. They next worked to secure the financing for the takeover, with the help of Drexel Burnham Lambert and its LBO guru Michael Milken, who had been impressed with Lewis’s McCall wheeling and dealing. In order to reduce the amount needed to finance the LBO, Lewis came up with a plan to sell off some of the division’s assets simultaneous with the takeover.

In November, the deal was consummated—with a final price of $985 million, and with the TLC Group becoming TLC Beatrice International Holdings, Inc. upon its completion. Almost immediately thereafter, previously negotiated asset sales were completed which together brought in $430 million: Beatrice’s Canada division was sold for $235 million to Onex Corp., a Toronto-based buyout firm; the Australian operating unit was sold to Cadbury Schweppes Australia for $105 million; and a Spanish meatpacking facility was sold to the Ballve family of Spain for $90 million. Milken and Drexel pulled together $450 million in junk bond financing in return for a 35 percent stake in TLC Beatrice. Lewis, who himself contributed only $16 million in cash, held a majority, 51 percent stake in the company, making TLC Beatrice—whose revenues were now approximately $2 billion following the asset sales—the largest black-owned company in the United States, as calculated by Black Enterprise magazine. Although Lewis disliked the media’s emphasis on his ethnicity, he told Black Enterprise in 1988 that African American entrepreneurs could now aim higher: “I think the sky is the limit. When it comes to African Americans, I think our experience in this country puts us in a position to know that you achieve through very, very hard work, and that’s very much in vogue these days.... I’m often disturbed by the notion of the so-called glass ceiling, but you know, glass can be broken.”

Lewis’s Short, Troubled Leadership of TLC Beatrice

By late 1989 Lewis had sold an additional $438 million in TLC Beatrice assets—including all of its Latin American units and all of its Asian units except for its Bireley’s bottling operation in Thailand—paring the company’s debt down to $100 million and its revenues to $1.1 billion a year. With 15 operating units and 7,000 employees, TLC Beatrice was now primarily a Western European firm. Its biggest operation was that of Franprix, the largest wholesale supermarket distributor in the Paris metropolitan area; others included various European ice cream manufacturers, a snack food maker in Ireland, and soft drink bottling operations in Europe, in addition to the one in Thailand.

In November 1989 Lewis filed a prospectus with the Securities and Exchange Commission to sell 35 percent of TLC Beatrice’s common shares to the public. But a depressed market for IPOs and investor concerns about the enormous sum of money Lewis would gain from the offering—more than a quarter of a billion dollars according to Fortune, and perhaps at the expense of common shareholders—scuttled the IPO. Lewis seriously considered attempting another IPO in 1991, but decided against it, concerned about another failure.

TLC Beatrice’s peak year under Lewis’s leadership came in 1990, when the company posted a sales increase of 31 percent to $1.49 billion and tripled the previous year’s net income to $45.6 million. Despite this success, Lewis—who was often accused of being more interested in making deals than running companies—made several attempts to acquire other businesses in the late 1980s and early 1990s. Most of these were nonfood companies and based in the United States—one of Lewis’s aims was to have a hedge against fluctuations in European economies and currencies. None of the deals came off, however. Among the targets that Lewis made bids for were AmBase, a diversified financial services firm; the remaining domestic operations of Beatrice; and Scovill Apparel Fasteners Group, a maker of zippers (Lewis also seriously considered but never pursued bids for Capital Markets Assurance Corp., a financial guaranty company; the Baltimore Orioles baseball team; Paramount; and Chrysler). According to Lewis’s posthumously published autobiography, “Why Should White Guys Have All the Fun?”, KKR rejected Lewis’s bid for the stripped-down Beatrice even though Lewis submitted a higher offer than the $1.3 billion paid by ConAgra; KKR never even acknowledged Lewis’s bid.

In early December 1992, Lewis was diagnosed with brain cancer and told he had six to eight weeks to live. In mid-January 1993, Lewis announced his retirement from day-to-day operations and created an office of the chairman to assume his duties, appointing his long-time associate and half-brother, Jean S. Fugett, Jr., to the new post. Lewis died on January 19 at the age of 50.

Post-Reginald Lewis Era, 1993-Present

Fugett, a lawyer and former tight end for the Washington Redskins and the Dallas Cowboys of the National Football League, remained as chairman of TLC Beatrice for just one year. Following a year’s bereavement (customary in her native Filipino culture), Lewis’s widow, Loida Nicolas Lewis—an immigration lawyer who had been an informal adviser to her husband throughout his career—took over as chairman on February 1, 1994, at a now-floundering company.

With Europe in recession, TLC Beatrice had posted a net loss of $17 million in 1992 and was barely profitable in 1993, while the company’s resurgent debt of $271 million (as of December 1993) was partially responsible for sharply lower working capital. In response to the company’s problems, Fugett had revived one of Reginald Lewis’s odd diversification ideas—that of acquiring the Baltimore Orioles. This went nowhere, in part because of a revolt by the company’s minority shareholders, particularly the partners who held the Drexel interest in the company—which stood at 26 percent—an entity known as Carlton Investments L.P. Carlton threatened to take their shares public through a partial offering, which they had the right to do beginning May 1993. Loida Lewis’s stepping in to take over as chairman was apparently enough for Carlton to withdraw its threat.

In May 1994, however, Carlton filed suit against the Lewis family for the return of a $22.1 million bonus that was paid to Reginald Lewis in 1992; the bonus had been approved by the TLC Beatrice board as supplementary pay for the previous five years. (Following Reginald Lewis’s death, his 51 percent stake in the company had passed to Loida Lewis and the Lewises’ two daughters, one of whom joined the TLC Beatrice board of directors.) After a long and bitter battle during which Carlton accused the late Lewis of plundering the company’s assets, Carlton and the Lewis family in July 1997 reached a settlement in which the Lewis family agreed to return $15 million to TLC Beatrice coffers.

The ongoing litigation hampered but did not derail Loida Lewis’s efforts to turn the company’s fortunes around. By mid-1994 she had already made several moves aimed at reining in company expenses, including selling the company jet, trimming 250 jobs from headquarters, and reducing general expenses by $25 million. Lewis also sold three underperforming units: in June 1994 TLC Beatrice sold Choky, its powdered drinks operation in France; the following month it sold Premier Is A/S, an ice cream maker in Norway; and in September 1994 it sold its majority interest in Gelati Sanson S.p.A., an Italian ice cream unit. In November 1994 Lewis refinanced a $170 million bank loan, in the process cutting the company’s debt load to about $159 million, with its debt to equity ratio being reduced from 4.9 to 1 to 2.8 to 1. At the same time, Lewis speeded up the expansion of TLC’s Leader Price discount, entirely private-label, supermarkets, which had debuted in France in 1991 and had proven to be extremely successful. In mid-1994 there were 135 Leader Price stores across France; this figure would nearly double over the next three years.

By early 1997, Lewis had earned glowing reviews in the press for her management of TLC Beatrice. She had successfully increased profits and cut debt substantially. It appeared that she was positioning the company for another IPO attempt. In the spring of that year, however, Lewis placed the company’s food distribution business in France—250 Leader Price and 400 Franprix stores—up for sale. Among the reported reasons for the sale were the growing consolidation of the food industry in France, and a new French law restricting the size of future stores, which increased the value of existing stores. In September 1997 TLC Beatrice sold its French stores to Saint-Etienne, France-based food retailer Casino S.A. for $459 million (FFr2.8 billion) plus repayment of an intercompany loan of about $114 million (FFr700 million). That the price paid was a premium was evident in that the French food stores sold for 25 times operating earnings, as compared to the average figure of 14 for American food companies of similar size at that time.

The food operations sold comprised 85 percent of TLC Beatrice’s 1996 revenues, leaving the company with a group of operations that generated only $358 million in 1996 sales. These operations included Tayto Ltd., a snack food company in Ireland; ice cream makers in Spain, Helados La Menorquina S.A., and in the Canary Islands, Interglas S.A.; and four soft drink bottling operations: Sunco N.V. in Belgium, Frisdranken Industries Winters B.V. in the Netherlands, St. Alban Boissons S.A. in France, and Bireley’s in Thailand. Lewis used some of the proceeds from the sale to further reduce company debt. As of early 1998 it was unclear what Lewis’s next moves might add to the short yet fascinating history of TLC Beatrice.

Principal Subsidiaries

Sunco N.V. (Belgium); Interglas S.A. (Canary Islands); St. Alban Boissons S.A. (France); Tayto Ltd. (Ireland); Frisdranken Industries Winters B.V. (Netherlands); Helados La Menorquina S.A. (Spain); Bireley’s (Thailand).