Universal, one of the first companies in U.S. history to fend off a hostile takeover attempt, celebrates its 100th anniversary.
By Timothy S. Donahue
Few companies survive for 100 years. Less than 800 companies in the U.S. are estimated to have made the century mark. According to USA Today, just 23 private firms in the U.S. have audited financial statements dating back 100 years or longer. This year, Universal, the world’s leading global supplier of leaf tobacco, joins the club of companies to have achieved the milestone.
The accomplishment says a lot about the company’s vision, strategy and culture, according to George C. Freeman III, who joined Universal in 1997 and has served as its chairman and CEO since 2008. “You have to be strong to stay in business that long. It’s also about people,” he says. “You have to hire and cultivate good employees. Our longevity would not be possible without our employees. They are our most valuable asset and continue to be the reason for our success.”
It was a different time. When Universal was founded as Universal Leaf Tobacco Company in 1918, the world was preparing for the end of World War I, and a young heavyweight boxer from the U.S. named Jack Dempsey knocked out Carl Morris in 14 seconds. Mississippi became the first state to ratify the 18th Amendment (which declared the prohibition of alcohol) of the U.S. Constitution, and “Tarzan of the Apes” premiered at Broadway Theater in New York City.
In 1927, Universal was listed on the New York Stock Exchange. By the 1960s, the company had expanded its operations onto four continents and developed economies of scale through the investment in “super factories.” Then, in 1977, Universal faced its greatest challenge to date: defending itself from a hostile takeover attempt waged by Congoleum Corporation.
According to a 1977 article in The New York Times, Congoleum made a $153 million cash offer (more than $648 million in today’s money) to the directors of Universal. A week later, Universal filed suit to enjoin the takeover. After eight months in court, Congoleum withdrew its offer and agreed not to seek control of Universal. It was one of the first successful defeats of a hostile takeover attempt in American history. Freeman calls it “one of the most significant moments in Universal’s history.”
The following year, David C. Moore, Universal’s current senior vice president and chief financial officer, joined the company as “green market” bookkeeper for one of its subsidiaries. He has been with Universal for 40 percent of its existence. This year, Moore will retire from the company. He says it’s difficult to recall what the world was like back in 1978, but he remembers a simpler time—when a man’s word was his bond.
“A handshake constituted a binding agreement,” says Moore. “The business was more seasonal, and the international production of leaf tobacco had not taken on the importance that it commands today. Fortunately or unfortunately, we all traveled the world without the benefit of laptops, tablets, the internet, email or smartphones.”
George Freeman III and David Moore
Global growth
What hasn’t changed, and what Moore says attracted him to the tobacco industry in the first place, are all the decent, ethical, hardworking individuals that he has encountered throughout the world. “As my career winds to a close, I would like to thank all of those wonderful folks throughout the tobacco industry, past and present, for what has been a very enjoyable and rewarding experience,” he says.
By the 1990s, Universal had continued to expand its operations throughout the world. The company was constantly updating its focus, adapting to change and capitalizing on opportunities, according to Moore. It exited tobacco markets in Korea and Thailand, while expanding its operations into Eastern Europe and Tanzania. In the 1990s, the company continued to expand its activities in Africa, Brazil and Turkey and became the world’s leading merchant of Dark Air-Cured tobacco.
According to Freeman, when he joined senior management in 1997, the company’s biggest issue was that its senior and regional management teams were operating somewhat autonomously. “We needed to start working together and working as a more global organization. I think we have done that and done it well,” he says. “If you look at our company today, I believe you’d characterize it as having strong, local management with strategic global coordination. Our regions complement each other instead of competing with each other. It seems so obvious, but it took a while to convince everyone.”
Alongside the demise of the U.S. tobacco export markets and the rise of markets in Brazil (for flue-cured) and Africa (for burley), another significant moment in Universal’s recent history occurred when the company began its Mozambique operations. “We had the opportunity to start a market from the ground up,” says Freeman.
In 2006, Universal opened a new leaf tobacco processing facility in Tete Province and continued to invest heavily in the production of the crop. Following the end of the country’s civil war, Universal began to see great potential in Mozambique—a country that grew to become Africa’s second-largest burley producer, behind only Malawi. “Mozambique has been a great success for our company. In Mozambique, we’ve had the opportunity to develop a compliant product that is highly desired by many of our customers,” says Freeman.
The next 100 years
Today’s tobacco environment is complicated. Declining use and a tightening regulatory framework provide significant challenges for Universal to overcome in the next 100 years. Universal will continue to focus on its successful strategy to meet the industry’s rapid changes, according to Freeman. He says that as cigarette volumes come down and regulation increases, manufacturers will increasingly focus on sourcing from the major production areas (such as Brazil and Africa). Universal already has significant operations in those areas and is well-positioned to capitalize on these opportunities.
“Flue-cured is grown in 71 countries today, and we offer a wide array of services,” says Freeman. “In addition, we offer scale: Volumes are everything. The more volume, the more efficiencies and the more cost reduction for our customers and ourselves. I think we are seeing this happening right now in Brazil.”
Moving forward, the company will maintain its commitment to remaining the world’s leading tobacco leaf supplier. Freeman says this means continuing to make investments in Universal’s core business and taking advantage of growth opportunities in the tobacco sector. “At the same time, we will look closely at adjacent industries and markets where we can leverage our assets and capabilities to ensure we are positioned to grow,” he says.
Seeking opportunities to continue to prosper in a mature industry, Universal has been investing in other smaller-scale tobacco-related businesses. In 2013, the company initiated a joint venture with the creation of AmeriNic, which produces liquid nicotine for electronic nicotine-delivery systems. “AmeriNic’s products are manufactured in an FDA [U.S. Food and Drug Administration]-compliant facility in North Carolina, USA, under stringent United States Pharmacopeia standards,” says Freeman.
Additionally, Universal’s wholly owned subsidiary, Global Laboratory Services, provides testing for crop-protection agents and tobacco constituents in seed, leaf and finished products, including e-liquids and vaporizers. “Analytical services include chemical compound testing in finished tobacco products and mainstream smoke,” says Freeman. “We are continually working with our customers to ensure that we meet their needs for both their traditional and next generation products.”
As the global tobacco market becomes more challenging, Moore says that for Universal to remain relevant it must maintain its focus on customer service and customer satisfaction. “As we have in done in past, we need to be forever focused on recognizing trends as they occur, adapting to change and capitalizing on opportunities,” he says. “The most challenging issues facing the industry today are finding ways to improve supply chain efficiency, sourcing simplification and promoting sustainable agricultural production.”
Freeman adds that the company also needs to hire great people—people just like David Moore. “First and foremost, our success is based on our employees and building strong relationships with our customers, our farmers and each other,” says Freeman. “Operate with integrity. Never stop innovating. Always support the communities where you operate.” Moore smiles and says, “Those words exemplify exactly what Universal is all about.”
