Whitman Corporation

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Whitman Corporation

3501 Algonquin Road
Rolling Meadows, Illinois 60008
U.S.A.
(708) 818-5000
Fax: (708) 818-5045

Public Company
Incorporated: 1962 as Illinois Central Industries, Inc.
Employees: 14,868
Operating Revenues: $2.5 billion
Stock Exchanges: New York
SICs: 2086 Bottled & Canned Soft Drinks; 3585 Refrigeration and Heating Equipment; 3714 Motor Vehicle Parts & Accessories

Whitman Corporation, known until 1988 as 1C Industries, is a Chicago-based firm that owns and operates the largest independent Pepsi bottler company, the largest franchise for car services, and one of the leading manufacturers of refrigerators in the world, along with several other manufacturing divisions. Pepsi General, with factories located in the Midwest and Southeast portions of the United States, provides Whitman with approximately 40 percent of its revenues. Midas repair shops, with over 2,500 outlets worldwide, and Hussmann refrigerators, with operations in Canada, Mexico, Britain, and licensees in the Far East, provide approximately 20 percent and 30 percent respectively of the parent company’s revenues.

Whitman has a company history dating back to 1851, when a group of European bankers decided to take advantage of the growing railroad business in America. Initially, the railroad, named the Illinois Central, was operated only inside Illinois, but just after the U.S. Civil War the company began a vigorous expansion plan, incorporating more than 200 railroads into its system. By 1867 the railroad had crossed the Mississippi into Iowa, eventually stretching southward through Kentucky, Tennessee, Arkansas, Alabama, Mississippi, and on to New Orleans. Additional Illinois Central lines ran to South Dakota, Minnesota, Wisconsin, Indiana, Missouri, and Nebraska. For more than a hundred years the Illinois Central Railroad hauled freight and passengers up and down the Mississippi Valley and throughout the northern portion of the Midwest.

On August 31, 1962, the railroad was incorporated as Illinois Central Industries, Inc. And under William Johnson’s leadership the company had a new goal—diversification. The Johnson blueprint called for the building of a consumer and commercial products conglomerate by using company cash and stock to buy other businesses, and company tax credits to shelter their earnings. With the single-mindedness typical of its president, the company began methodically to work toward that end.

The first dramatic step was taken in 1968 when the company ventured into the nonrail business, purchasing the Abex Corporation. Formerly known as American Brake Shoe and Foundry, the company produced brakes, wheels and couplings for railroad cars, brake linings for cars and trucks, hydraulic systems for airplanes and ships, and specialized metal castings for industrial uses such as sugar mills and locomotives.

Sixteen years after this initial acquisition, Johnson bought the Pneumo Corporation, a Boston-based aerospace, food, and drug company, for $593 million. The Pneumo purchase was viewed as a means of increasing overall revenue. The subsidiary also provided income from its military contracts, and gave credence to Johnson’s theory of growth through acquisition. Over a year later he orchestrated the merger of Abex and Pneumo, forming the Pneumo Abex Corporation.

In 1970 Illinois Central Industries diversified into the real estate business by becoming a major partner in the Illinois Center. The Center is a complex of office buildings, hotels, and condominiums that sprawls across 83 acres of lakefront property in downtown Chicago. In another real estate transaction, the company sold land it owned in New Orleans so that the city could build its athletic stadium, called the Superdome, on the site. Illinois Central Industries maintained ownership of 11 adjoining acres for future developments that included the Hyatt Regency hotel. The company has also developed an array of industrial parks in or near Fort Lauderdale, Memphis, and New Orleans.

This diversification toward real estate came at a time of increasing debate over what role the traditional railroad business should play in the evolving structure of the company. The faltering railway operations, on the one hand, were aided by a merger with the Gulf, Mobile, and Ohio Railroad, which was a combination of several railroads including: the Gulf, Mobile, and Northern, the Mobile and Ohio, and the Chicago and Alton. The merger was formally completed on August 10, 1972, and the new line was named the Illinois Central Gulf Railroad by the parent company.

The sale of some of the company’s prime property, on the other hand, indicated movement away from continuing the railroad business. Indeed, by the late 1970s Johnson vacillated back and forth, placing the railroad for sale on the market and then removing it. Eventually, the piecemeal sale of the line proved immensely profitable and solidified Johnson’s reputation as an astute businessman.

When the railroad was first placed on the market, no serious purchaser stepped forward, mainly because Johnson had let the railroad deteriorate through lack of maintenance. Johnson then decided to dismantle the line and sell it part by part. This process was greatly aided by capital improvements and rail deregulation during the mid 1980s, and Johnson netted handsome profits for his company.

As Johnson’s strategy of diversification unfolded, the company changed its name in 1975 to 1C Industries, Inc. Three areas of business were identified as important and company acquisitions fell into these categories: consumer products, commercial products, and railroad activities. The holding company was structured around decentralized management and a growing list of subsidiaries that maintained primarily autonomous operations.

In the consumer products group, a 1978 acquisition brought in the Pet Company, the St. Louis, Missouri, firm that produces evaporated milk. Since then the company has expanded into a variety of food products, including Whitman Chocolates and Old El Paso, the best selling brand of Mexican foods in the United States. The enterprise has grown to 30 owned and eight leased manufacturing plants located in the United States and six foreign countries.

The Hussmann Corporation, a manufacturer of refrigeration equipment for food retailers and processors, composed an important branch of IC’s commercial products group. In the early part of the 1980s Hussmann suffered a slump in sales and profits, but by 1984 the subsidiary regained its profitable standing and earned about $44 million before taxes. Later that same year, Hussmann acquired Riordan Holdings, Ltd., a London-based producer of food refrigeration equipment, which served to heighten Hussmann’s overseas profile. There are 20 Huss-mann-owned and ten leased manufacturing facilities in the United States, Mexico, the United Kingdom, and Canada, as well as three owned and 95 leased branch facilities in these same countries (excluding Mexico) that sell, install, and maintain Hussmann products.

The Pneumo Abex Corporation currently manufacturers products that fall into three basic components: aerospace, industrial, and fluid power products. There is stiff competition, particularly in the aerospace business, but 1C regards the competition as a challenge to invest more of its dollars and technology in the field, enabling it to compete with larger firms such as Cleveland Pneumatic Company. Industrial products include braking materials for the automotive original equipment and replacement outlets, and safety equipment for recreational vehicles, trucks, and automobiles. Products are manufactured for use in mining, earthmoving, steel making, and food processing, to name a few. Canadian and U.S. railroads are markets for the iron and composition brake shoes, cast steel wheels, and custom-made track work manufactured by Pneumo Abex. Fluid power products include complete hydraulic systems that are used in construction and mobile equipment, industrial and marine machinery, materials-handling equipment, off-shore drilling and nuclear power plants. This division also manufactures products for aerospace and general aviation markets from 33 plants in the United States and 16 abroad.

When market analysts examine William Johnson’s formula for corporate success, which entails pruning acquisitions of all but their most profitable divisions, they most often look to Pet, the largest subsidiary in Whitman’s $1.8 billion consumer division. One year following the acquisition of Pet, its pre-tax profits almost tripled to an estimated $85 million in 1984, on a revenue increase of 33 percent. Part of Johnson’s carefully crafted plan involves selling low-return operations. Over a six year period, 22 of Pet’s units, with sales totalling $400 million, have been sold in order to funnel money into Pet’s more profitable products.

Pepsi-Cola General Bottlers is the second largest franchise bottler of Pepsi-Cola beverages in the United States, claiming the greatest share of the soft-drink market in Chicago, Cincinnati, Kansas City, and Louisville. This branch of Whitman’s consumer products group also handles other soft-drinks, including Dad’s Root Beer, 7-Up, Dr. Pepper, Orange Crush, Canada Dry, and Hawaiian Punch. In 1984 Pepsi General garnered only minimal profits, partly because of heavily discounted prices and partly because both Pepsi-Cola and Coca-Cola introduced new products to the consumer. However, for the next two years Pepsi General’s sales growth averaged seven percent, outstripping the industry’s as a whole.

Another of Whitman’s major consumer product holdings is Midas International, a company that makes and installs automotive exhaust systems, suspension systems, and braking systems through approximately 2,000 franchised and company-owned Midas shops in America, Canada, England, France, Australia, Belgium, Germany, Austria, Panama, and Mexico. Originally specializing in replacement mufflers, Midas has broadened its range to include repairing and replacing brakes and shock absorbers at about 95 percent of its outlets. The expansion of services accounts for the estimated nine percent profit growth shown during 1985 through 1986.

When Johnson retired in 1987, the new leadership was committed to continuing his strategy for the company. Under chairman Karl D. Bays, 1C Industries changed its name to Whitman Corporation in 1988 to emphasize its focus on consumer goods and services. Part of this strategy included selling over 65 companies, such as the Pneumo Abex aerospace operation and spinning off the remnants of its Illinois Central Railroad holdings to shareholders. Management also decided to sell most of its real estate holdings. Yet during the same time, Bays went on an acquisition rampage and purchased nearly 100 new companies, including Orval Kent salad products and Van de Kamp’s frozen seafood products. When Bays died in November of 1989, Whitman was well on its way toward a reorganization of its product lines.

Whitman’s board of directors appointed James W. Cozad, an Amoco vice-chairman, to take Bays’ place. Cozad was determined to transform Whitman into an even tighter organization, and immediately announced another restructuring of the company. His strategy was to encourage Whitman’s growth by focusing on Pet Inc., Pepsi-Cola General Bottlers, and Midas International, while selling Hussmann and its manufacturing facilities for supermarket refrigerators. But sales for both Pet and Hussmann decreased substantially due to greater market competition, and Cozad was forced to take Hussmann off the market when no acceptable offer to purchase it was forthcoming.

Undismayed, Cozad embarked on a new reorganization strategy. He decided to concentrate on just three businesses, Pepsi-Cola bottlers, Midas International, and Hussmann refrigerators. As a result, Whitman spun off Pet Inc. to its shareholders and lost such well-known brands as Old El Paso, Progresso, and Whitman Chocolates. At the same time, the company eliminated a significant number of jobs in order to reduce its longterm debt of $1.9 billion.

When Whitman changed leadership in 1992, with Bruce Chelberg replacing Cozad, there was no disruption in the development of the company. Chelberg put all his energy into developing the three core businesses of Whitman: Hussmann upgraded its operations throughout its domestic and foreign facilities; Pepsi-Cola General Bottlers doubled production capacity at its Chicago plant, installed state-of-the-art canning equipment, and entered into a joint venture with Grayson Mountain Water to produce a new one-calorie beverage; and Midas International continued to expand its international car service network with new outlets in Mexico and Europe.

Under Chelberg’s direction, all of Whitman’s holdings have fared well. Pepsi-Cola’s operating profit increasing by 18 percent in 1993, led by its core brands of Pepsi-Cola and Diet Pepsi. Midas operating profits for 1993 were up seven percent from the previous year, with sales steadily increasing in Mexico. Hussmann operating profits were down, but demand for supermarket refrigerators appeared to be on the rise in Britain,

Mexico, and Canada. With its operations so successfully diversified, Whitman should remain profitable even if one or even two of its core businesses begin to exhibit problems.

Principal Subsidiaries:

Mid-American Improvement Corp.; Hussmann Distributing Co., Inc.; 1C Equities, Inc.; 1C Leasing, Inc.; Illinois Center Corp.; Illinois Central Gulf Railroad Co.; La Salle Properties, Inc.; South Properties, Inc.; 1C Products Co.; Bubble Up Co., Inc.; Dad’s Root Beer Co.; 1C Industries International; ICP Holding Corp.; BIH Foodservice, Inc.; Midas International Corp. The company also lists subsidiaries in the following countries: Australia, Austria, Bermuda, Canada, Denmark, France, Italy, Japan, Mexico, The Netherlands, Sweden, Switzerland, United Kingdom, Venezuela, and West Germany.