Uncertain Road for U-Haul : Family members have fought for control with fists and lawsuits. Now, founding father Leonard Shoen says enough is enough.
Leonard Shoen, founder of the U-Haul truck-and-trailer-leasing empire, said he realized just how bitter his family’s feud had become when he saw his sons taunt, grab and finally punch each other recently at the company’s annual meeting.
After reflecting on the rancorous meeting, Shoen said, he has abandoned a proposal under which all 12 of his children would serve on the company’s board of directors instead of just four of his sons. Shoen had hoped that his plan would end a bitter rivalry that has pitted brother against brother and--at times--forced him to choose sides.
At issue is whether the next generation of Shoens will retain control of U-Haul or whether it is time for the family to let go.
“I have now come to the conclusion,” Shoen said in an interview, “that the company must be sold--that’s the only way to stop the animosity. I don’t know how it could be solved any other way. I don’t want this (fighting) to go on for generations.”
The battle for control of U-Haul involves the kind of vitriol and family backbiting common in episodes of television’s “Dallas” and “Dynasty.” On one side is former U-Haul President Samuel W. Shoen, who said he was hit by one his brothers at the annual meeting March 4 in Reno. On the other side is Edward J. (Joe) Shoen, chairman of Amerco, U-Haul’s parent company. Both have allies among their siblings and have sued each other in federal and state courts.
At stake is the destiny of one of America’s most visible companies. Founded by Leonard Shoen in 1945, the firm now has nearly 100,000 trailers and 60,000 trucks--all bearing the orange logo that has made the U-Haul name synonymous with do-it-yourself moving.
Headquartered in Phoenix, U-Haul has 1,100 rental centers, 7,000 independent agents, about $800 million in annual sales and--along with its major competitor, Miami-based Ryder System--dominates the field of truck and trailer leasing in the United States. The company has had an impressive earnings rebound since a dip in 1987.
But U-Haul has an uncertain road ahead. The leasing market could change, analysts say, And courts may ultimately decide which faction will control the corporate board that steers the closely held company.
The faction led by Dr. Sam Shoen--members call themselves “outsiders”--have filed a lawsuit challenging an Amerco board decision last July to issue 8,099 new shares of company stock and sell them to five top executives under a special “Key Employee Stock Plan.” The suit accuses the board of issuing the shares, which diluted the value of other stock, in order to protect and entrench itself.
The outsiders controlled about 51% of the stock before the sale but just 47% afterward. The insiders--four Shoen brothers, a sister and the five executives--obtained a combined controlling interest of slightly more than 50% as a result of the deal, the suit says.
The suit says Joe Shoen and the board sold the 8,099 new shares to the executives after Leonard, Sam and six other siblings banded together and expressed interest in the possibility of selling the company. Leonard and Sam said they wanted the board to at least consider a $1-billion buyout offer from another company. The seven also called for representation on the board.
“They (Amerco’s board) bootstrapped themselves into a majority position by selling the stock,” said Sam, a physician who resigned as president of U-Haul in 1987 after disagreements with Joe. “If this is not illegal, any board could issue stock to any party and lock themselves into a safe position.”
However, Joe Shoen’s “inside” faction contends that its actions were legal and that they were taken to preempt a possible takeover. The board cites a series of Sam Shoen’s activities, beginning in 1987, and characterizes them as secret efforts that could have led to the sale of U-Haul. As a result, when the board approved the plan to issue stock to the five executives it believed that “Dr. Sam and the dissident plaintiff shareholders were in the final stages of carrying out their hostile takeover/sale of the company,” it said in court documents.
The factions confronted each other in January in an Arizona court that ruled against a request by Sam Shoen and his “outsiders” for a temporary restraining order on the contested sale of the stock. A trial on the legality of the transaction is still pending. The factions met again at the March 4 annual meeting that ended in violence, according to some witnesses.
However, the animosity between the two groups appears to involve more than conflicts over who runs the company. Some of the trouble stems from differences over the company’s strategy, industry analysts say.
The marketing strategy began to change dramatically after the 1973 energy crisis led to the closing of many gas stations that operated as U-Haul dealers, prompting Leonard Shoen to open stand-alone outlets. The company also began to diversify, renting everything from motorized surfboards to videocassette tape players, besides its traditional trucks and trailers.
Revenue rose--reaching $799 million in 1987. But profit fell. Burdened by debt from its diversification and losing ground on the truck-rental front to rival Ryder, U-Haul recorded only $2 million in net income that year, compared to $42 million three years earlier.
The family schism began when Joe began reversing U-Haul’s direction shortly after Leonard--pressured by some family members to retire--stepped down in 1986. Joe established a “back-to-basics” program which, among other things, eliminated the surfboards. For the nine months ending Dec. 31, the company reported revenue of $664 million and net profit of $46 million, Gary Horton, U-Haul’s treasurer, said.
Has Regained Lead
“We’re very sound financially, and things are on an upswing,” he said. “It’s a result of getting back to basics and doing what we do best.”
The resurgence has impressed some analysts. After allowing Ryder to pull even, U-Haul has regained a slight lead in the truck and trailer rental market, according to John Lenckos, an analyst at Duff & Phelps in Chicago.
“The company has turned things around,” Lenckos said. “But any lawsuit takes management somewhat away from day-to-day operations. And this is no exception.”
Graeme Anne Lidgerwood, an analyst at First Boston, sees another possible problem--a drop in demand for truck and trailer rentals, which thrive on job movement prompted by periodic rises in unemployment. If the nation’s economic expansion and the resulting low unemployment continue, demand for trucks and trailers could slacken, she said.
“You have excess capacity--reflecting the growth of Ryder and U-Haul--and signs of a sloppiness in demand,” she said. “Rental companies may have to change their strategies.”
Leonard Shoen, who calls the back-to-basics strategy shortsighted, still believes in his diversification plan and says it was designed to keep the company healthy in a changing economy.
But he no longer wants to struggle over strategy, saying: “I’ve concluded that the company must go.”
