January 1, 2007

Esmark Deal is No Turkey

What does a steel company have in common with a Butterball turkey? It's all in the name.

Esmark Inc. these days is known as the brash Chicago Heights, Illinois, metals industry consolidator that in November won control of troubled steelmaker Wheeling Pittsburgh Corp. after an eight-month takeover battle.

But if you were around Chicago and the corporate world during the 1980s, you may recall that Esmark was the meat packer, originally known as Swift & Co., that owned Butterball and other food brands such as Hunts tomato sauce, Wesson oil and Peter Pan peanut butter. It was headed by Donald Kelly, a tenacious dealmaker from Chicago’s South Side who sold Esmark to rival Beatrice Co., then helped raise $6.2 billion to buy and dismantle the empire in what was then the biggest leveraged buyout on record. Forbes magazine estimated at the time that Kelly walked away with more than $100 million.

It turns out that Kelly, who raised his family in Chicago suburban Western Springs, Illinois, was a friend of Robert Bouchard, a former Inland Steel Co. executive whose sons attended elementary school with Kelly’s sons. When Bouchard’s son James, a former executive at U.S. Steel Corp., and his brother Craig, a former bank company executive, decided to launch a company to acquire steel distributors, they asked Kelly as a courtesy if he would mind if they used the moribund Esmark name. The brothers knew Esmark, in its day, enjoyed a strong reputation, and believed the brand was still recognized and had value.

“I said, ‘Certainly not,’” recalls Kelly, now 84. “‘I hope you’re as successful as we were.’” James Bouchard says the steel distributor applied to the state of Delaware for use of the legal name in 2003, and the trademark was approved last year by the U.S. Patent and Trademark Office.

Kelly says he made a small investment in the new Esmark, which will be disclosed in Securities and Exchange Commission filings as part of the company’s takeover of Wheeling Pittsburgh.

The Bouchards certainly had a chance to learn from the master. Kelly rose through the ranks of Swift and became president of the meat packer in 1973, when it was renamed Esmark. Over the next decade, he purchased more than 60 companies.

He is most remembered for a showdown with James Dutt, the imperious Beatrice CEO who outbid Kelly for control of Esmark in 1984. When Dutt was overthrown in a palace coup the following year, Kelly teamed up with leveraged buyout firm Kohlberg Kravis Roberts & Co. to take Beatrice private. The company was subsequently dismantled to pay off debt during the “Barbarians at the Gate” era of junk bond-financed takeovers.

The Bouchards aren’t swashbucklers on the same scale yet, but Wheeling Pittsburgh marks their 10th deal in the quest to build a regional steel company. Bouchard says he drew inspiration from Kelly, who delegated profit and loss responsibility to division managers while retaining responsibility for financial decisions and keeping overhead lean. “I tried to incorporate this vision into our new Esmark,” Bouchard says.

For his part, Kelly says he’s talked with the brothers, “but they’ve done it on their own.” “They were wise in their selection of targets,” he says.

With the Wheeling Pittsburgh acquisition, Bouchard expects revenues to climb to $3 billion this year from $4 million in 2003 and $625 million last year.

As for the purveyor of all things turkey, Butterball was sold to Nebraska-based ConAgra Inc. in 1990—part of the final liquidation of Beatrice food operations.

ConAgra last year sold the iconic brand to a joint venture owned 49% by Virginia’s Smithfield Foods.

—Judith Crown