Century Aluminum Company
Century Aluminum Company
Sales: $654.9 million (2001)
Stock Exchanges: NASDAQ
Ticker Symbol: CENX
NAIC: 331312 Primary Aluminum Production
Century Aluminum Company is a holding company based in Monterey, California, but its primary operation is a facility located in Ravenswood, West Virginia. Since the formation of Century in 1995, Ravenswood has moved away from the beverage can aluminum sheet business, as well as the value-added aluminum plate business, to concentrate on the production of primary aluminum. Able to produce 475,000 metric tons of primary aluminum a year, Century is the second largest primary aluminum manufacturer in the United States. In addition to the Ravenswood facility, Century owns an 80 percent stake in a Hawesville, Kentucky, reduction plant and a 49.67 percent share in a Mt. Holly, South Carolina, reduction plant.
Ravenswood, A Postwar Startup
The Ravenswood plant was the main asset of Century when the holding company was formed in 1995 to assume certain aluminum assets of Glencore International AG, a move which helped to distance Ravenswood from the stigma of one of the nation’s most notorious whitecollar criminals, Marc Rich. Rich was long believed by many to have exerted control over the business and to have been responsible for a prolonged labor fight that crippled Ravenswood business. The origin of the Ravenswood plant also was connected to an admired legendary industrialist, Henry Kaiser. He first gained prominence in the 1930s when his construction firm participated in the building of the Hoover Dam and the Grand Coulee Dam. During World War II Kaiser became involved in shipbuilding and later, frustrated with the dominance of U.S. Steel, opened his own steel mill in California. After the war Kaiser turned his attention to the aluminum industry, aided to a large degree by the U.S. government. The Aluminum Company of America, Alcoa, was required to supply the Kaiser Aluminum Company with raw materials as part of an antitrust action. At first Kaiser leased government-owned plants on the West Coast, and then in order to compete against Alcoa in the East he built a plant in Ravenswood, which opened in 1957. The town was advantageously located near major rivers, permitting inexpensive shipping of refined bauxite, Alumina. Nearby coal fields also fueled the power-hungry plant. Moreover, most of the U.S. market for aluminum was located within 500 miles of Ravenswood. The plant itself was an integrated operation, capable of smelting alumina into molten aluminum and turning that product into sheets for soda and beer cans. Ravenswood was a world-class facility when it opened and over the years was well maintained, unlike other aluminum operations that became neglected as the economics of the industry deteriorated.
For many years after World War II aluminum was extremely popular, leading to strong growth in the industry. Demand grew around 10 percent a year, fueled in large part by the aluminum can industry. By 1981, however, there was little room for further growth in cans, the demand of which had increased at an annual 12 percent clip throughout the 1960s and 1970s. With 80 percent of the can market already converted to aluminum, the demand for the metal now fell to just a 3 percent increase per year. Ravenswood, which had been organized by the United Steelworkers of America in 1958, enjoyed good labor relations during prosperous times. But as was the case in many industries, changing economics had an adverse impact. In their book, Ravenswood, authors Tom Juravich and Kate Bronfenbrenner comment, “In the face of a growing economic crisis made largely by its own hand, business turned on workers and unions. While workers had been junior partners in postwar success, they were now asked to become senior partners in failure.” Shortly after reaching a contract with workers at Ravens wood in 1982, Kaiser asked for concessions, to which the union finally agreed in 1984. According to Juravich and Bronfenbrenner, “Labor relations had been soured in some fundamental way and Ravens wood would never be quite the same.”
1988 Sale of Kaiser Aluminum Leading to Divestiture of Ravenswood
The empire of Henry Kaiser, who died in 1967, became susceptible to hostile takeovers in the 1980s. First, the steel division was acquired by Joseph Frates III and a group of investors, who quickly flipped the business, earning some $14 million in fees and expenses. Frates then turned his sights on Kaiser Aluminum, which managed to fend him off, but in 1988 the business was targeted by two much larger players, corporate raider Charles Hurwitz and financier Marc Rich, who was already a major influence in the international metals market. When Rich dropped out of the bidding at the 11th hour, Hurwitz and his holding company, Maxxam, Inc., acquired Kaiser Aluminum in a $925 million leveraged buyout. To raise money to pay off the resulting note, Hurwitz sold off a number of assets, including the questionable sale of Ravenswood. Because it produced half of Kaiser’s aluminum and had been well maintained, divesting Ravenswood made little business sense. In effect Kaiser Aluminum was being dismantled to raise cash with no regard for the health of the enterprise. In February 1989 Ravenswood was sold to Stan wich Partners, Inc. and began operating under a new corporate entity, Ravenswood Aluminum Company (RAC). A major stake of the business was then sold to Willy Strothotte through Rinoman Investments and another company named Ridgeway, both of which were affiliates of the Clarendon corporation. According to Juravich and Bronfenbrenner, “Everyone in the industry understood that Marc Rich controlled Clarendon.”
Marc Rich was born Mark Reich but as a child left his native Germany to escape the tide of anti-Semitism. After relocating to Belgium the family eventually made its way to Queens, New York, where the last name was changed to Rich. The son of a trader, Rich dropped out of New York University in 1952 and at the age of 20 went to work for Phillip Brothers, one of the world’s top commodity trading companies, where he quickly displayed a genius for trading—and, according to several sources, little concern for scruples. After dealing in metals and other commodities for 20 years, he essentially invented the spot market for oil in the early 1970s. Phillips was uncomfortable dealing in oil, which led to a falling out. Rich and his partner Pinky Green lured away six of Phillips’s top traders and established Marc Rich & Co, A.G., in Zug, Switzerland, to take advantage of a local tax loophole. During the 1979 hostage crisis Rich and Green ignored a U.S. embargo on trade with Iran and began buying Iranian oil, paying for it in large part with weapons. According to Juravich and Bronfenbrenner, “Rich and Green then got involved in the U.S. domestic oil market. They began selling discounted foreign oil to the major U.S. producers, peddling it as their own.” When their Texas partners were indicted and convicted for illegal “daisy-chaining,” they implicated Rich. In 1983 the U.S. Attorney’s office in Manhattan, headed by future mayor Rudolph Guiliani, investigated Rich, who refused to turn over crucial documents from his U.S. operation, Marc Rich, International. Unexpectedly, he announced that the business had been sold to a new company, Clarendon Limited, headed by the indicted Willy Strothotte, a move that a federal judge would later describe as a “ploy to frustrate the implementation of the court’s order.” Ultimately arrest warrants were issued for Rich and Green, who were charged with 65 counts of racketeering, mail and wire fraud, tax evasion, and trading with the enemy. Rich by now, however, was out of reach of U.S. authorities, operating from Switzerland, where he was confident that he would not face extradition.
In spite of his legal difficulties during the early 1980s, Rich remained very much an active businessman. It was during this time that he decided to become the dominant force in the world aluminum market, from raw materials to finished metal. As he had done with other commodities, Rich owned few assets outright. Rather, according to a 1992 Institutional Investor profile, he was at the center of “a complex network of joint ventures with local partners. Such a strategy allows Rich to exert considerable control over selected commodities at a minimum outlay of capital. It also affords him anonymity.” In the words of Juravich and Bronfenbrenner, “It was an arrangement that made proving the connections between a company such as Ravenswood Aluminum and Marc Rich extremely difficult.”
The Rich connection to Ravenswood would become a key factor in the bitter labor negotiations that took place between RAC and the United Steelworkers of America after the two sides were unable to come to terms on a new contract in the fall of 1990. When the old agreement expired at midnight on October 31, 1990, steelworkers were ordered out of the plant, despite their willingness to continue working under the old terms until a settlement was reached. Instead, replacements were brought in and the plant was barricaded with tractor trailers, railcars, and a tall barbed-wire fence. During the many months of the ensuing lockout, the local community became a war zone of sorts, disturbed by numerous acts of violence.
Century Aluminum is a primary aluminum producer with 465,000 metric-tons-per-year (mtpy) of capacity at three locations.
Slipped a copy of an internal audit of RAC by Price Water-house, the union learned of the Clarendon connection, and by extension Marc Rich’s involvement. Because of Rich’s fugitive status and unsavory reputation, the union decided to pressure RAC by portraying him as their true adversary. With help from sympathetic European unions, the Steelworkers picketed Rich in Switzerland and elsewhere. The union also used political influence at home to initiate a congressional investigation of RAC s ownership. It also crippled RAC s business by shaming its customers, such as Anheuser-Busch, Miller Brewing, and Stroh Brewery, who agreed not to buy aluminum sheet for cans from RAC. As a result, after 18 months the company was on what management described in court papers as the “brink of financial ruin.” Rich also had other business ventures disrupted by the Steelworkers’ public relations campaign. About to sell the Slovakian National Aluminum Company to Rich, the Czechoslovakian government was persuaded to cancel the deal. Moreover, having a spotlight focused on his affairs prevented Rich from lying low as he attempted to smooth over his legal difficulties and regain the right to return to the United States, where he still had family, while avoiding jail time.
Rich denied having an ownership role in RAC, but his influence over the company was apparent. RAC s contentious CEO and chairman, Emmett Boyle, was forced out by Rich-controlled entities and a new labor contract was subsequently negotiated. According to Boyle in his public proclamations the labor issue was settled because it interfered with Rich’s other business ventures and his attempt to return to the United States. (Rich, in fact, would eventually be free of his legal troubles, when he received a controversial presidential pardon in the final hours of the Clinton administration in 2001.) Replacing Boyle was Craig Davis, who had 16 years of experience as an executive with Alumax, a major aluminum producer, as well as a number of years working for the Rich organization in Switzerland. In 1994 Marc Rich and Co. acquired all of RAC. According to Juravich and Bronfenbrenner, Rich “changed his company’s name to Glencore International. … [M]ost believed the change was part of an effort to insulate the trading company from the negative press generated by Rich’s fugitive status and fomented by the Steelworkers’ campaign.”
After Rich sold his Glencore stock and resigned from the board of directors, RAC management proclaimed the connection to the notorious Rich should finally be put to rest. Juravich and Bronfenbrenner, however, disputed that contention: “Within a year Glencore sold the Ravenswood plant to the Century Aluminum Company, which then went public, apparently releasing the plant from the long reach of Rich and Strothotte. But like its predecessor, Clarendon, Ltd., Glencore continues to own 39.6 percent of Century Aluminum’s common stock. It operates under a ‘services’ agreement whereby Century purchases primary aluminum and alumina from Glencore and Glencore buys back more than one hundred million pounds of Century primary aluminum products each year.”
Century Aluminum Going Public in 1996
In addition to the Ravenswood plant, Glencore also included other assets in Century: a 26.7 percent stake in an aluminum reduction plant in Mt. Holly, South Carolina, and an alumina refinery in St. Croix, which was quickly sold off. Glencore postponed Century’s initial public offering (IPO) for a number of months, waiting for market conditions to improve. Not only were aluminum prices experiencing volatility, Ravenswood had posted more than $100 million in losses from 1992 to 1994. The company waited until the price of aluminum was trading around 75 cents a pound, a range at which the business could expect to break even. Nonetheless, the 1996 IPO was a disappointment. The company had hoped to place 20 million shares at a price between $15 and $18, with a target of grossing $330 million. In the end, Century was able to sell only 10.5 million shares at $13, a gross of $136.5 million.
Davis stayed on as the CEO and chair of Century, and as a California native he was responsible for the eventual move of corporate headquarters to Monterey. When he first took over, RAC attempted to compete with Alcoa and Alcan in the commodity business, producing aluminum sheets for cans and use in airplanes and automobiles, but was losing money, due in large part to the deterioration of its aluminum can business during Ravenswood’s protracted labor problems. Determining that the company was simply too small to compete in the commodity aluminum business, Davis initiated a major shift in strategy even before Century went public. Taking advantage of Ravenswood’s underutilized capabilities, he planned to move Century into value-added products, in particular heat-treated plate. The aerospace industry appeared to be a promising market for future growth. In 1995 Ravenswood became the first North American aluminum plate producer to be certified by Boeing Commercial Airplane Group for plate up to 8.5 inches thick. Previously Boeing had to rely on forged aluminum parts that were greater than six inches. In addition to the aerospace industry, other applications included the manufacture of machine tools and moulds for making plastic parts. Century spent $130 million in upgrading Ravenswood. The company then bolstered its business externally in 1998 by acquiring Alcoa’s Vernon, California, cast plate operations.
Despite making inroads in the value-added aluminum market, Century was not doing well enough to justify the investment of another $200 million, which is the amount that Davis believed would be necessary to keep Century competitive. Instead he elected to change strategies once more and return to the commodity side, this time intentionally downsizing to concentrate on the production of primary aluminum, the molten metal itself, as well as premium cast products such as high-purity foundry ingot and billet. As a result, in September 1999 Century sold the rolled products side of the Ravenswood facility and the complementary cast plate business to Pechiney SA, a major French aluminum producer, for $248 million.
Having shed its fabricating businesses, Century began looking to add to its primary aluminum capacity. In April 2000 it increased its stake in the Mt. Holly plant, adding a 23 percent interest. A year later Century acquired an 80 percent interest in a Hawesville, Kentucky, plant capable of smelting 238,000 tons a year. As a result of these transactions, Century became the second largest primary aluminum producer in the country. After guiding Century through a number of changes during his time in charge, Davis, citing personal reasons, announced in February 2002 that he would step down as CEO at the end of the year, although he would remain as chairman of the board through 2004. Replacing him as chief executive was longtime lieutenant Gerald Meyers, the company’s president and chief operating officer.
- The Ravens wood plant opens.
- Ravenswood is sold.
- Ravenswood becomes part of Century Aluminum spinoff.
- Century goes public.
- Ravenswood fabricating plants are sold.
Alcan Aluminum Limited; Aluminum Company of America; Kaiser Aluminum & Chemical Corporation.
Juravich, Tom, and Kate Bronfenbrenner, Ravenswood, Ithaca, N.Y.: ILR Press, 1999.
Koenig, Peter, “Smoking Out Marc Rich,” Institutional Investor, August 1, 1992, p. 40.
McKay, Jim, “Ravenswood Says Labor Dispute Brought It Near Ruin,” Pittsburgh Post-Gazette, May 2, 1992, p. 27.
Pinkham, Myra, “Century Invests for Move to Plate,” Aluminum Today, January/February 1998, p. 36.
Regan, Rob, “Ravenswood Stock Offer May Shed Light on Old Debate,” American Metal Market, August 10, 1995, p. 1.
Schroeder, Michael, Maria Mallory, and John Templeton, “Making Marc Rich Squirm,” Business Week, November 11, 1991, p. 120.
Tebbs, Tom, “Monterey, Calif.-Based Aluminum Company Has Global Interests,” Monterey County Herald, June 7, 2000.