FMC Corporation

1884–1950

FMC Corporation is a leading producer of industrial and specialty chemicals and maintains interests in defense systems, gold mining, and its historical base, machinery and equipment. Having grown to include a diverse group of products and industries in the early 1990s, the conglomerate was struggling to achieve better organization and healthier returns from its businesses.

The roots of the FMC Corporation lie in the John Bean Spray Pump Company established in California in 1884 when Bean invented the hand spray pump. Over the next 34 years, he built his product into the preferred pump in the region. Another prosperous local firm in the 1920s was Frank L. Burrell's cannery. The two merged in 1928 to form the John Bean Manufacturing Company, which changed its name to the Food Machinery Corporation the next year. From this manufacturer of simple food production equipment the diverse FMC was to grow.

Bean, not a businessman by nature, passed the management of the company on to his son-in-law, David Christian Crummey, at a fairly early point in time. Upon the merger, control passed on to his son, John David Crummey. While the younger Crummey was a strong voice leading the firm, the hand of another man was evident in the company's actions. This man was Paul L. Davies, Crummey's son-in-law, who left a banking vice-presidency to become vice-president of Food Machinery. The policies of growth which Davies put into effect kept the company financially healthy throughout the Depression. Davies recognized the cyclical nature of purely agricultural businesses; they depended too much on crop fluctuations. In 1933, therefore, the firm began to expand by purchasing the Peerless Pump Company, whose inexpensive pumps were in high demand during these lean years. This was the beginning of a policy of diversification which was to bring the company into increasingly varied and prosperous areas.

Food Machinery not only survived the Depression, it prospered, and emerged in the early 1940s prepared for the consistent growth which was to characterize it under Davies. An aggressive and energetic man who worked 12 hour days, Davies used diversification as both a means of expanding the company's market and a hedge against cyclical weakness in any one branch. In 1943, the company made its first foray into the chemical market by acquiring the Niagara Sprayer and Chemical Company, a strong independent manufacturer of insecticides and fungicides. This move was followed by the 1948 acquisition of Westvaco Chemical Corporation, which produced industrial chemicals. The Niagara merger left Food Machinery in the position of producing not only sprayers and pumps, but the chemicals to put through them; the later merger, upon which the company became the Food Machinery and Chemical Corporation, expanded their chemical product line even more.

Alongside this chemical expansion, Food Machinery's equipment division prospered in the 1940s due to the Second World War. Some months before the United States entered the war, Food Machinery began producing the "Water Buffalo," an amphibious tank which provided important troop mobility over the next crucial years. Other products were adapted for wartime uses as well, such as the orchard sprayer, which was to be used for decontamination purposes if necessary, and nailing machines which produced ammunition boxes at an exceedingly high rate.

After the war, the company's production line returned to its earlier emphasis, although defense contracts continued to play an important role in FMC's operations throughout the twentieth century. With the war ended, however, the company was at no loss for customers. Wartime reductions produced a market for expensive and technologically advanced food processing equipment, and Food Machinery's business grew. Other existing products were adapted to peacetime uses as they had been in war, with sprayers, for example, being turned to firefighting uses. A drop in earnings occurred the year after the Westvaco acquisition, but by 1950 the company was back on its prosperous track. Davies continued to put money both into diversification and into research and engineering which led to new products and continued growth.

FMC's profits fell to $39 million from their 1968 level of $75 million.

1950–1978

Every year between 1950 and 1966 the Food Machinery and Chemical Corporation (which changed its name to the FMC Corporation in 1961) showed a financial gain, and the company was a favorite of investors. Their trend toward diversification continued, most notably with the purchase of the American Viscose Corporation in 1963, despite opposition from the antitrust division of the Justice Department. Davies' vigor, vision, and talent for profitable purchases provided a strong center for the company's rather loose management through 1966. In this year, Davies decided to retire. His strategy was to avoid overstaying his productive years and to leave a strong successor. The man who replaced him as chief executive officer, who had assumed the presidency some few years back, was engineer James M. Hait. It was Davies' intent to leave this hand-picked officer to continue the company's expansion and growth.

In 1967, FMC's financial growth came to an abrupt halt. While Hait would remain chairperson until 1971, he was replaced as chief executive officer in 1967 by Jack M. Pope. This year also marked the company's relocation of its headquarters to Chicago and its acquisition of the Link-Belt Corporation, an equipment manufacturer which quickly proved to have antiquated plants and serious financial difficulties. This purchase, along with the 1963 Avisco acquisition, became a draining point for FMC's finances, instead of increasing its profitability.

In 1968, with Pope as its leader, FMC did show a brief resumption of its upward growth trend. However, this improvement on the books proved largely due to an accounting change, and the health of the company was not restored. The growth which had paid off so strongly for Paul Davies was too much for his successors. Even toward the end of Davies' administration, the loose reins under which he had run the company had been a bit too loose for its ever-increasing size. Now, under new management, the control necessary for an improved financial condition was lost. The status of the company declined among investors as its finances weakened. By 1973, FMC stock had fallen from $44 per share to $15.

By the end of the decade, Paul Davies' company was experiencing severe financial difficulties. Its management was unable to maintain profitability. The synthetic fiber branch was losing money, and the recession of 1970--71 caused even the strong machinery division to suffer. FMC's profits fell to $39 million from their 1968 level of $75 million. It was at this point that the company appointed a third successor to Davies, one who would finally bring FMC back to financial prosperity. This successor was a Harvard Business School graduate who had been with FMC for 20 years, Robert H. Malott.

From the time that Malott took control of FMC, it was clear that it would not be an easy task to revive the company. Obviously a change in management strategy was called for in order to turn around the company's decline. For Malott, that change began with a recentralization of management. The company's size and relatively loose management procedures had contributed to its decline, so Malott reorganized FMC by consolidating the many branches of the company into two groups for better administrative control.

Realizing that the mere continuation of former company policy was an unworkable strategy, Malott approached his first years as chief executive officer with a different set of policies. Between 1972 and 1978, FMC disposed of 20 product lines that were either immediate financial drains or were soon to be in danger. This was one step that Hait and Pope had apparently been unwilling to take, but it gave new life to the company. Chief among these sales and closings was the 1976 sale of the fiber division. Price cutting in the synthetics market and competition from cotton and polyester (FMC produced primarily rayon) had made this one of the chief money drains and one of Davies' few untimely purchases. Malott ended this losing struggle by selling the division to the newly-formed Avtex Fibers Inc. He also made other timely decisions, such as the 1976 closing of a pulp mill in Alaska, in the face of strict environmental controls that were about to be imposed. His evaluation of these branches and concentration on the three core areas of industrial chemicals, defense equipment, and machinery provided the first step toward FMC's recovery.

1970–1986

Malott's financial policies also began to revive FMC during this period. One such policy was his refusal to reduce prices when faced with competition. Instead, Malott cut production, keeping profit margins up. Another keynote of Malott's financial management was his aggressive capital spending. His outlays in research and development made it possible for new products to be developed. In addition, in the two years prior to 1976, FMC put $400 million into high growth areas, such as petroleum equipment and specialty chemicals. The profitability of Malott's policies was almost immediately apparent; by the spring of 1976, with a personnel increase of only 1,000 workers, Malott raised sales from $1.3 billion to $2.3 billion, a much-needed $1 billion increase.

By 1976, FMC's great comeback was obvious. In an April article, Forbes magazine called the corporation "a stronger, better run company than it was in its heyday." Even with the company well on the road to full recovery, however, Malott continued to revise FMC policy. In 1977, Malott began to decentralize the administrative control of the company in order to facilitate faster growth. The diversification of the company itself suggested somewhat decentralized management, now that it was financially stable. Malott divided the company into nine well-defined groups, centering around their chemical, equipment, and specialty products. The situation differed from earlier times in that final decisions still rested with top management and close communication was to be maintained. Lower managers were being trained to think in terms of a world-wide market. This restructuring was to lead the company into its next significant period of growth and expansion.

The years between 1977 and 1980 were not, however, marked solely by unchecked growth. As in any industry, fluctuations were seen in the demand for FMC products. Four of the nine groups remained the strongest: defense equipment, petroleum equipment, industrial chemicals, and agricultural chemicals. Much of the strength of this last category came from the sales of Furadan, a popular pesticide for protecting corn, sugar cane, and some 18 other crops. Fluctuations in chemical markets were one reason that FMC, by 1980, was not reporting a financial return at hoped-for rates.

While management was bringing FMC back to prosperity, there were also periods of intense public scrutiny. As the government became more interested in environmental issues, for example, some of FMC's procedures were called into question. Alleged pollution from such chemicals as carbon tetrachloride gave rise to cease-and-desist orders and plant closings throughout the mid- to late-1970s. FMC was also involved in the major controversy over phosphates during the first half of the decade. In 1970, the company was the second largest producer of the chemicals, which caused premature aging of natural water sites. Court battles on the subject continued through 1975, when a Chicago ordinance banning the chemicals was upheld. Such environmental conflicts, while not damaging the company directly, forced additional internal changes in production.

FMC also became the primary contractor for an advanced armed personnel carrier called the Bradley Fighting Vehicle, developed during the 1970s to counter the introduction of a similar but less sophisticated Soviet model called the BMP. In the early 1980s, the Bradley was criticized for a lack of battlefield survivability. FMC and Pentagon officials responded that even the most heavily armored tanks were not impervious to attack, but nonetheless began to investigate ways to improve the Bradley. About 3,000 Bradleys were delivered, each capable of defeating enemy tanks and other fighting vehicles while moving at high speeds in any kind of weather.

Despite such conflicts, FMC continued its growth and expansion during the 1980s. Plans for new acquisitions were announced in 1984, and, the following year, FMC's stock standing was upgraded to "attractive" by an analyst specializing in chemicals firms, who had for a decade seen the field as only a fair risk. Profits and returns increased to record levels and long-term debt was insubstantial, an equation that drew the attention of corporate raiders in the 1980s. Amid concerns about a possible hostile takeover, CEO Malott planned a general restructuring of the entire company. Management's recapitalization effected a leveraged buyout. The company borrowed $1.8 million against its own assets, and paid public shareholders (who owned about 82 percent of FMC) $80 cash each in exchange for a 15 percent stake in the company. Management declined the cash to raise their cumulative share to 35 percent. The plan, which was okayed by shareholders in May 1986, saved FMC from outside takeover but saddled it with debt.

1986–1994

At the same time, FMC became embroiled in the insider trading scandal of 1986, when investor Ivan Boesky used illegally gained information about FMC's restructuring to turn a profit of $975,000. In the process, according to the company, his influence cost FMC some $225 million in additional recapitalization costs.

In the late 1980s, Malott expanded FMC into gold mining. While prospecting for antimony, a flame retardant chemical, the corporation discovered gold and elected to develop the resources under a new subsidiary, FMC Gold. In 1989, the company acquired Meridian Gold from Burlington Resources through an exchange of stock. By the end of the decade, FMC Gold contributed 25 percent of the conglomerate's annual revenues and helped offset declining defense income as the Cold War ended.

Malott retired in 1991 at the age of 65, turning over a business he regarded as "dull" to FMC President Robert Burr. In the 1990s, industrial chemicals (26 percent of 1993 revenues and 17 percent of operating income) were sluggish, as detergent manufacturers continued to remove FMC's phosphates from their products. The defense segment (25 percent of sales and 43 percent of income) continued to suffer as well, as competition from a cheaper Russian tank combined with Defense Department cutbacks to herald FMC's halting exit from that industry. Early in 1994, FMC created United Defense, L.P., a joint venture with Harsco Corporation's Combat Systems, to control its defense unit. FMC Gold's primary mine "played out" in 1993, and in spite of the precious metal's strong performance that year, the subsidiary ran in the red, losing $50 million on operations. FMC's remaining machinery business contributed 23 percent of revenues but just two percent of operating income in 1993.

Specialty or "performance" chemicals were FMC's mainstay, contributing 23 percent of sales and 25 percent of operating income. FMC continued to lead the world in the production of cellulose gel, a fat replacement for food products marketed under the Avicel and Novagel brands. The company was also the leading manufacturer of agarose, a product used in genetic research, as well as phosphate ester flame retardants.

In May 1994, Dyan Machan, writing for Forbes, characterized FMC as "an untidy conglomeration of disparate businesses." She also quoted analyst Paul Rayman, of S.G. Warberg Securities, who called FMC "a hangover from the 1960s--a company with little strategic focus, betting on losing businesses." Nevertheless, Burt outlined three "fundamental strengths and future strategies" in his 1993 letter to shareholders: "strong positions in attractive markets"; "high returns and excellent cash flow through the economic cycles of the markets in which we operate"; and "a long-term strategy to increase FMC's historic growth rates by making investments that will increase growth in our major markets at returns above the cost of capital."