P.O. Box 7813
San Francisco, California 94120
Incorporated: July 20, 1918 as American Factors, Ltd.
Sales: $2.405 billion
Market Value: $501 million
Stock Index: New York London
In 1849 a German ship captain named Heinrich Hackfeld docked his 156-ton boat Wilhelmine in Hawaii after a 238-day journey from Bremen, Germany. After deciding to become a permanent resident, Hackfeld opened a general store which became very popular with the imported laborers who worked on the islands’ isolated plantations. Hackfeld’s small venture quickly expanded into other lines of business, including boarding houses and real estate. Hackfeld later opened a trading house, exporting Hawaii’s primary agricultural product, sugar, and importing building materials. Hackf eld’s company became one of the largest in Hawaii, operating retail stores and hotels, trading a wider variety of products, and purchasing thousands of acres of property. Several years later Hackfeld died and ownership of the company passed to his family.
In July of 1918, soon after the United States became involved in World War I, the American Alien Property Custodian confiscated H. Hackfeld & Company on the grounds that it was owned by “enemy aliens.” All of the company’s assets were taken over by a group of competitors, including Castle & Cook, Alexander & Baldwin and C. Brewer. The company was incorporated and its name was changed to American Factors (a factor is a commissioned agent), and its chain of B.F. Ehlers retailing outlets was renamed “Liberty House.” Under the new management American Factors became more involved in sugar production. Demand for sugar remained high during the Depression and World War II, which kept American Factors profitable and allowed it to continue paying dividends to stockholders.
Although it continued to diversify during the 1950’s, American Factors remained primarily involved with the production of sugar. However, in 1959, the same year Hawaii was made a state, airline companies acquired longrange passenger jetliners which made Hawaii suddenly more accessible to the American vacationer. Just as suddenly, demand for hotel space and land began to increase. As a major landowner American Factors recognized this as an opportunity to exploit its hotel and lodging interests. Many of its existing properties were improved, additional facilities were constructed, and several parcels of undeveloped land were sold to developers at a sizable profit.
Despite its increased involvement in the Hawaiian tourist industry, a great deal of American Factors’ business remained in sugar production. The sugar market had always been cyclical, alternating between periods of strong demand and oversupply. Yet during the 1950’s increased competition lowered profit margins, even when markets were strong. In 1964 low demand for sugar and molasses forced the company’s operating profits to decline by 43% (it still paid a dividend, however). The first of many changes at American Factors occurred on April 30, 1966. The company’s name was changed to Amfac, which was shorter, easier to remember and more “corporate-sounding.”
Henry A. Walker, Jr., a native Hawaiian whose father had served for many years as president of American Factors, was himself named president of Amfac in 1967. The board of directors gave Walker three instructions: enlarge the company, decrease the company’s dependence on sugar, and geographically diversify its operations. In 1968 Amfac purchased the Fred Harvey hotel chain and later acquired the Island Holiday group on Hawaii. Amfac’s Liberty House retail department stores were introduced to the American mainland along with its wholesale distribution network of electrical, medical, industrial and agricultural products. Amfac acquired the family-run Joseph Magnin retail chain for $31 million in 1969. Walker directed the company to sell additional parcels of Hawaiian real estate to help finance acquisitions on the American mainland, which included Pacific Pearl, Wakefield Seafoods and the 1971 purchase of Lamb-Weston, a potato and vegetable processor responsible for a substantial share of American’s frozen french fry and mushroom production.
In 1974 the Federal Trade Commission accused Amfac and other suppliers to the C&H sugar consortium of price fixing. The settlement which resulted cost Amfac several million dollars. Although sugar prices that year were high, it was the last time that Amfac would report a profit on its sugar operations for several years; Congress failed to renew the Sugar Act of 1948, which guaranteed a broader degree of price stability by limiting sugar imports.
After several years of poor performance all 48 stores in Amfac’s Joseph Magnin chain were sold to the Ross Hall Corporation for $35 million. Although Amfac added 18 stores to the chain, increasing sales from $50 million to $83 million, expected profits failed to materialize. Henry Walker told Business Week,”We’re getting out of the women’s apparel business because we find we’re not very good at it.” Amfac did, however, retain its 55 highly profitable Liberty House stores, 23 of which were located in Hawaii.
Amfac’s earnings declined every year until 1978. Losses until that time were due primarily to non-operating factors, such as the continued write-off of the Joseph Magnin chain and the company’s switch to a uniform “last in, first out” (LIFO) accounting method, which tends to show lower profits, but also provides the company with taxation benefits.
During the period that its profits were depressed Amfac became a takeover target for a number of hostile acquisitions. The takeover attempts failed because Amfac was protected by Gulf & Western, a New York conglomerate which owned 20% of the company’s stock. Henry Walker, who incidentally was a Gulf & Western board member, told Financial World,”A number of people have tried to acquire Amfac, but they couldn’t without first getting control of G&W’s block.” Gulf & Western was committed to Amfac’s independence, maintaining that its substantial interest in Amfac was strictly for “investment purposes.” Any hostile bid for the company would almost certainly have encountered strong opposition from Gulf & Western.
Amfac was not, however, protected from a different kind of corporate raid. Sid, Ed, Robert and Lee Bass, four Stanford and Yale-educated brothers from Fort Worth, Texas, announced in 1982 that they had acquired 11% of Amfac’s stock, and had filed a “13-D” financial disclosure form with the Securities and Exchange Commission. The Bass brothers did not intend to take over Amfac, but their sudden interest in the company concerned stockholders, particularly Gulf & Western, which at the time owned just under 25% of Amfac’s stock. Amfac’s management arranged a complex joint venture with the brothers called Fort Associates. The joint venture gave the Bass brothers interests in several hotels and real estate in Texas and Hawaii, in addition to $52 million in cash, while it retrieved half of the Basses’ ownership of Amfac’s stock. Fort Associates was set up to give the Bass brothers an early return on their investment and Amfac a later return with tax advantages. While the venture remains profitable, Amfac stated that it would rather have resolved the situation differently.
In the meantime, sugar prices began to recover after Congress included sugar in its 1981 Farm Act. Although Amfac was making money on sugar again, Walker continued to reduce the company’s exposure to the volatile commodity through a process of continued diversification. Amfac had acquired over 50 companies since 1967, most of which were located on the mainland.
Myron Du Bain, a former chairman and president of Fireman’s Fund Insurance, was named president of Amfac on January 1, 1983. Du Bain, who had no previous experience with sugar, directed Amfac’s operations from the San Francisco office. Du Bain was hired to “tighten the screws” at Amfac, deciding which businesses should be emphasized and which should be scaled down or sold. Henry Walker remained in Hawaii, where he continued to serve as chairman of the board, managing Amfac’s sugar operations.
During Du Bain’s first year Amfac sold 12% of its assets for $177 million, but still posted a $68 million loss. In addition, Gulf & Western sold all its stock in Amfac, although with little consequence. The company recovered during 1984, yet lost almost $29 million in the final quarter when its Hotels and Resorts Group was restructured. As a result, Amfac was forced to withhold its quarterly dividend for the first time in 66 years. Amfac sold its commercial nurseries, seafood fisheries, Hawaiian tour business, and its Liberty House outlets in California. By 1985 Du Bain had reduced Amfac’s debt by $120 million to $400 million. Du Bain left Amfac in September of that year, taking an early retirement to pursue community and civic activities. He was replaced by Ralph Van Orsdel for an interim period lasting until the following May when Ronald Sloan, who had been with Amfac for 25 years, was named president and cheif executive officer.
Sloan announced that Amfac would continue to phase out its interest in sugar, and that its retailing and resort operations would be scaled down. Perhaps most significant on Sloan’s agenda was the revelation that Amfac would reverse its geographical diversification onto the mainland and expand its presence in Hawaii, where it owns over 50,000 acres of land. While reducing the scale of its sugar production, Amfac is shifting its emphasis in agricultural products to commodities such as cocoa and coffee. Investors expressed confidence that, at least in the short term, Amfac would return to its traditional path of stable growth and steady dividends and remain the largest private sector employee in Hawaii.
Amfac Distribution Corp.: Amfac Electric Supply Company, Amfac Health Care, Amfac Supply Company; Amfac Foods, Inc.: Fisher Cheese Company, Inc., Lamb-Weston, Inc., Monterey Mushrooms, Inc.; Amfac Hawaii, Inc.: Amfac Properties, Amfac Sugar and Agribusiness, Amfac Stores, Inc.: Liberty House, Village Fashions; Amfac Resorts, Inc.
Dynasty in the Pacific by Frederick Simpich, Jr., New York, McGraw-Hill, 1974.