Shamrock Counts on Buyout of Soya Firm to Work Like Charm

It was a little more than a year ago that Hollywood came to the land of the Hoosiers to produce one of the oddest corporate marriages.

The leading role was played by Shamrock Holdings, an acquisition-hungry investment firm owned by the family of Roy E. Disney, Walt’s nephew, that enjoys close ties to the movie business and is cozy with some of Wall Street’s most influential players.

The object of its affections was Central Soya, a staid, $1.5-billion-a-year soybean processor that is headquartered here, a northeast Indiana town of 169,000 whose main distinction is having the grave of folk hero Johnny Appleseed.

Despite those obvious differences in corporate culture, Shamrock led a partnership that paid $350 million and assumed $75 million in debt to buy Central Soya in a deal that illustrated the Burbank-based company’s growing appetite for cyclical businesses that are out of favor with many investors.

The acquisition also reflected the rising influence of Shamrock’s president and chief strategist, Stanley P. Gold, a 44-year-old former entertainment lawyer who has built an investment conglomerate that manages nearly $400 million in assets and that owns or controls businesses with $2 billion in annual revenue.

Gold, an intense, bespectacled man who nervously chews on cigars without smoking them, quit practicing law last November to devote all of his time to expanding the Roy Disney family empire. Until the Central Soya acquisition, it was largely a collection of television and radio stations.

Recently, however, the company has made its presence felt on Wall Street, forging close ties to Drexel Burnham Lambert, the leading investment banker in the corporate takeover trade. Shamrock backed the unsuccessful effort by Texas oilman T. Boone Pickens Jr. last year to buy Unocal as well as GAF’s failed attempt this year to acquire Union Carbide.

Gold dismisses his reputation as an emerging corporate raider. Even so, directors of the Chicago advertising company of Foote, Cone & Belding wasted no time passing an anti-takeover measure earlier this year after Shamrock disclosed that it bought more than 5% of the company’s stock. Gold, who insists that Shamrock’s stock purchases were simply an investment, initially threatened to launch a proxy fight but later backed off.

Although Shamrock’s acquisition of Central Soya was termed friendly by both sides, it was widely perceived on Wall Street as a “bear hug,” a deal that was pushed by Shamrock after it bought nearly 11% of Central Soya’s stock.

Shamrock lately has looked for cyclical businesses in areas such as agriculture and energy that are depressed now--Central Soya still is struggling--but have products essential to the economy. In June, for instance, Shamrock took control of Enterra, a sickly oil services firm that is moving from suburban Philadelphia to Houston.

The company’s recent investments joined an extensive list of holdings including three television stations, 12 radio stations, large commercial real estate interests and a stock portfolio with big stakes in advertising, entertainment and sugar concerns. The company also manages Roy Disney’s 3.5% stake in Walt Disney Co., where two years ago Roy Disney, Gold and the Bass family of Fort Worth ousted the previous management.

Reputation for Paternalism

Named for a Roy Disney racing yacht, 8-year-old Shamrock is based in the terraced Shamrock Plaza office building one-half block from the Burbank Studios and a chip shot away from the Lakeside Country Club.

Central Soya, by contrast, keeps its headquarters in the Fort Wayne National Bank building in downtown Fort Wayne, a quiet riverfront town whose skyline is pierced by more than a dozen church spires. In the 52 years since Central Soya was founded by the late Dale W. McMillen Sr., the company has developed a reputation in the city for paternalism. Employees today still marvel at how McMillen would greet workers at his factories by name.

Gold insists that Central Soya, which crushes soybeans into oil and meal, fits perfectly into the collection of businesses that Shamrock is trying to assemble over the next few years. Whether these companies are into soybeans, energy or broadcasting is incidental, he argues. What counts is if they’re in businesses that will yield profits into the next century for Roy Disney’s heirs.

“We make no bones that there is no synergy between soybean processing and a radio station,” Gold said. “We don’t kid ourselves.”

To get what he wants, Gold has shown a willingness to take risks and borrow heavily. Although it has trimmed its debt substantially, Shamrock still has to retire about $205 million in so-called junk bonds, the low-rated, high-yield bonds used to finance the Central Soya acquisition.

The debt will be paid off through Central Soya, which survived as a corporation after the Shamrock-led partnership took it over. As a result, its interest expenses soared more than fivefold from a year earlier to $32.4 million in the nine months ended May 31, according to documents filed with the Securities and Exchange Commission. The higher interest expenses helped drag down Central Soya’s earnings by 73% to $3.3 million over the nine months, on revenue of $1.0 billion.

Slashed Management

To cut expenses, Gold slashed layers of Central Soya’s top-level management. In all, about 200 people, mostly executives and staff working at Central Soya’s corporate headquarters, were dismissed, cutting $10 million in administrative expenses.

Gold also sold two corporate airplanes and trimmed executives’ salaries, putting many on incentive bonus plans. For $130 million, he sold Central Soya’s sluggish branded foods division that produced burritos, margarine, foods served in institutions and a line of Cajun-style foods.

Some accuse Gold and Shamrock of playing hardball. Four top executives, who allege that they were fired without cause after Shamrock took over, have filed a $3.1-million suit against Central Soya in federal court in Fort Wayne, charging that the company reneged on promised severance benefits.

Part of those benefits, they maintain, were supposed to be paid if Central Soya was acquired. Lawyers for both sides say, however, that Shamrock has declined to make the payments because Central Soya technically survived the merger. Shamrock also maintains that the executives want some other benefits that exceed what they were promised.

Shamrock also irked officials of the United Steelworkers union, which represents workers at the Decatur plant 23 miles south of Fort Wayne, by tapping $50 million in surplus money in Central Soya’s pension fund. Union officials argue that the funds should be used to safeguard workers’ pensions. Gold has replied that companies commonly use surplus pension funds and said that no worker will lose pension money.

Although he has no formal business school training, Gold is a voracious reader who draws much of his management philosophy from best-selling business books. He’s made some of them, such as UCLA Prof. William Ouchi’s “Theory Z” and “In Search of Excellence” by Thomas J. Peters and Robert H. Waterman, required reading for his managers.

A 1960 graduate of Van Nuys High School, Gold earned his bachelor’s degree in political science from UCLA and a law degree from USC, eventually becoming managing partner of the law firm of Gang, Tyre & Brown in Hollywood.

In 1974, Gold met Roy E. Disney, a shy, private man who is the son of the late Roy O. Disney, the financial whiz behind the Walt Disney studio. Gold represented Roy E. Disney in an Oregon real estate deal, and the two became business associates and friends. Gold began devoting increasing amounts of time to Disney’s businesses until making it his full-time job last year.

Gold acknowledges that Central Soya employees and Fort Wayne residents were wary of him. He has tried to counter that by keeping his promise to maintain Central Soya’s headquarters in Fort Wayne, renting a home in the city and contributing to local charities. Gold also left in place most of Central Soya’s middle managers and employees.

“We told them Californians weren’t going to run this company and that it would continue to be run by Hoosiers. They took us at our word, they watched us and I think anybody who is fair at looking at the situation for the year will find out that’s exactly what happened,” Gold said.

To take over as president and chief executive, however, Gold recently brought in David H. Swanson, 43, a former Continental Grain executive who grew up in Wisconsin and Minnesota. Gold remains chairman.

Union officials in Decatur, despite being bothered by Gold’s handling of their pension funds, say Shamrock and Gold remain a mystery.

“A lot of us have been afraid that Shamrock is going to treat this as a business venture and not a long-term investment. The fear is that they might eventually sell the company piece by piece until there’s no more Central Soya. But it’s still too early to tell,” said Daniel Miller, vice president of Local 15173 of the United Steelworkers, whose contract with Central Soya in Decatur is up for negotiation next year.

Gold said Shamrock wants to run Central Soya as a long-term holding, although he doesn’t expect to be as personally involved now that Swanson has arrived. Instead, he plans to focus on turning around Enterra, where he also is chairman, along with studying possible Shamrock investments in retailing and foreign companies.

Despite Central Soya’s heavy debt and competition from abroad, Gold says it is healthy and bringing in cash. Further, he says, since Shamrock isn’t a public company, it doesn’t have to worry as much about current market conditions because it is under no pressure to turn in increased earnings every quarter.

“If we aren’t worried about the price of our stock and we make enough money to pay out bondholders, then ultimately the assets will grow,” Gold said. “When you add up the ups and downs it comes out to a very respectable return.”

SHAMROCK HOLDINGS’ BUSINESSES Shamrock Holdings, a Burbank investment company owned by the family of Roy E. Disney, manages nearly $400 million in assets. The companies Shamrock either owns or controls together have annual revenue of about $2 billion and employ 4,500 people worldwide. AGRICULTURE Central Soya of Fort Wayne, Ind. This soybean-processing company has more than 65 operations worldwide. Shamrock Capital, a group 65% owned by Shamrock Holdings that also includes British financier Jacob Rothschild, acquired it in July, 1985, by paying $350 million and assuming $75 million in debt.

ENERGY Enterra Corp. of Houston. Shamrock took control of the oil services company early this year after buying 23.5% of the company’s stock and moved its headquarters to Houston from Radnor, Pa. The company’s primary business is renting out equipment for drilling oil and gas.

BROADCASTING Shamrock Holdings, through its Shamrock Broadcasting subsidiary, owns the following stations: Radio: KABL-AM/KABL-FM, San Francisco WHB-AM/KUDL-FM, Kansas City KMGC-FM, Dallas KZFX-FM, Lake Jackson (Houston area), Texas WCXI-AM/WWWW-FM, Detroit WFOX-FM, Gainesville (Atlanta area), Ga. WTKN-AM/WWSW-FM, Pittsburgh KQKT-FM, Seattle (pending acquisition) Television: KITV, Honolulu KEYT, Santa Barbara WTVQ, Lexington, Ky.

OTHER MAJOR INVESTMENTS Foote, Cone & Belding, a Chicago-based advertising firm in which Shamrock has a 7.2% stake. Holly Sugar, a Colorado Springs beet sugar firm of which Shamrock owns 6.6%. Walt Disney Co., the Burbank-based entertainment giant. Shamrock manages Roy Disney’s 3.5% stake. Commercial real estate holdings in the Southwest, accounting for about 5% of Shamrock’s assets.

Source: Shamrock Holdings