Chesebrough-Pond’s USA, Inc.

views updated

Chesebrough-Ponds USA, Inc.

33 Benedict Place
P.O. Box 6000
Greenwich, Connecticut 06836
(203) 661-2000
Fax: (203) 625-1968

Public Company
Incorporated: 1955 as Chesebrough-Ponds Inc.
Employees: 3,200
Sales: $880 million
SICs: 2844 Toilet Preparations

Chesebrough-Ponds USA, Inc. represents such cornerstone household items as Vaseline Petroleum Jelly, Ponds beauty creams, Q-Tips swabs, and Ragú spaghetti sauce. With roots dating back to the turn of the century, the company had experienced constant growth and profitability, until it was destabilized by its acquisition of the Stauffer Chemical Company, which in turn led to its takeover by Unilever N.V. in 1986.

Chesebrough-Ponds officially came into existence in 1955 when Ponds Extract Company merged with Chesebrough Manufacturing Company, Consolidated. Both of these companies had remarkably long and rich histories. Chesebrough Manufacturing dated back to 1880 and Ponds had been in operation since the 1870s. The companies had remarkably similar origins: both were launched by chemists who hoped to create household remedies for various ailments.

Theron Pond had begun working with witch hazel in the 1840s in his laboratory in Utica, New York. Ponds Extract was the witch hazel formula he developed and began marketing in 1846. International operations began as early as the 1870s, when Ponds opened an office in London. The company had manufacturing plants in Canada and Great Britain by 1933, producing its internationally known skin creams as well as other toiletries and cosmetics that had been added to the companys product line. By 1955, Ponds products were selling in more than one hundred countries.

At the same time that Ponds was growing, a chemist named Robert Chesebrough was experimenting with a residue of petroleum that formed on the rods of oil pumps during the petroleum boom of the mid-1900s. Stories had been circulating among oil field workers about the healing powers of this residue. Chesebrough worked for years to duplicate this substance. In 1870, satisfied with his research, Chesebrough began selling Vaseline Petroleum Jelly. Sales were good enough for the fledgling company to open an office in London in the 1870s, with subsidiaries in France and Spain. Demand was strong enough for Chesebrough to make distribution arrangements with Colgate & Company in 1873. Chesebrough Manufacturing Company began operating under Standard Oil in 1881, and moved from Brooklyn to Perth Amboy, New Jersey. Chesebrough resumed independent operations in 1911. It had plants in Canada and Great Britain by 1923, and by the mid-1950s, Chesebrough had 25 products for sale in nearly 120 countries. Most of the products were petroleum jelly-based toiletries.

During this time, Chesebrough and Pond were not unacquainted. Ponds chairperson, Clifford Baker, was also a member of Chesebroughs board of directors. The two companies merged in June of 1955, becoming Chesebrough-Ponds Inc. After absorbing the costs of its expansion and merger, Chesebrough-Ponds jumped ahead in profits and sales, going from about $47 million in sales in 1954 to about $117 million in 1963. The company maintained its popular product lines, while developing and introducing new products and acquiring other companies. In 1956, Chesebrough-Ponds acquired Seeck & Kade, the makers of Pertussin Cough Syrup, which had been a widely known product since its introduction in Germany in 1896. Chesebrough-Ponds soon introduced variations of the popular Pertussin brand, such as Pertussin Medicated Vaporizerthe first medicated spray of its kindintroduced in 1959.

Chesebrough-Ponds acquired Prince Matchabelli, Inc. in 1958, moving into a new product field. Matchabelli was the fragrances and toiletries division of the Vick Chemical Company. By 1960, two other companies had been added to the Chesebrough-Ponds fold: Aziza Eye Cosmetics, a division of Mauvel, Ltd., and Northam Warren, maker of Cutex nail care products. Aziza was blended into the Matchabelli operations. Cutex soon became the worldwide sales leader in its field. Two years later the company acquired Q-Tips, a popular cotton swab and baby product since its appearance in the United States in the 1920s. Under Chesebrough-Ponds, Q-Tips became even more successful. Within two years of the Q-tip acquisition, its profits more than doubled.

Chesebrough-Ponds was careful to keep its growth streamlined and controlled. Plant facilities were combined and purchasing was done centrally at the company headquarters. Product lines were constantly revised, unprofitable products discontinued, and new ones improved.

Among the companys innovations of this period were the first flavored lipsticksintroduced in 1964 through Cutex and instant hitsand a line of cosmetics for sale in food chains. Marketing modestly priced cosmetics in a new display format and in blister packaging in busy food store chains was a huge success. In the meantime, Chesebrough-Ponds international operations were also thriving. Despite the currency fluctuations of the early 1960s, Chesebrough-Ponds boasted its eighth consecutive year of sales increases in 1963. The company also had subsidiaries in Argentina, Australia, Brazil, India, and elsewhere.

During this time, a young man who had come to Chesebrough as a trainee in 1946 was working hard to build a Chesebrough presence in Australia. Ralph E. Ward had gone to Lafayette College on a GI Bill after flying as a fighter pilot in World War II. Ward worked from 1946 to 1957 as head of Chesebroughs Australian divisionbuilding a business from scratch. His success there led Ward to become the vice president of the companys Far Eastern business in 1957. By 1960, Ward was piloting all international activities for Chesebrough. His unbroken timeline of successes lead to Wards being tapped for the top job in 1968. Chesebrough then had a reputation for steady growth based on its mature, high-margin brand name productsjust the sort of profile that attracts takeovers.

One of Wards first acts as president and CEO of Chesebrough was to purchase Ragú Packing Company. Ragú was then a small spaghetti sauce company based in Rochester, New York, and Chesebrough paid $44 million for it in 1969. Wall Street reportedly guffawed at the act: a nearly 90-year-old personal products company suddenly entering the food business was considered absurd. However, while Ragú enjoyed hearty regional sales, Chesebrough launched an aggressive marketing campaign to make Ragú a national brand. Three years after the move, Ragú was the top-selling spaghetti sauce in the country, in a market that was expanding. Two out of every three purchases of spaghetti sauce was Ragú by 1972. By 1982, Ragú held 58 percent of that $350 million-a-year market.

Another sharp diversification came in 1973 when Chesebrough acquired Health-tex for $194 million. Health-tex was then a manufacturer of childrens apparel that enjoyed success in the New York City area where the company was based. Distribution was expanded from regional to national, and another age-range of apparel was added to the line. However, the industry proved complex. High labor costs, competition from imports, delivery problems, and the delicacy of manufacturing seasonal clothes lines before understanding the current line sales trends, were all factors that combined to keep Chesebrough from immediately profiting from its Health-tex acquisition.

The next large-scale success was the $27 million acquisition of the Maine-based G.H. Bass & Company in 1978. Here again, Chesebrough found a company with strong regional recognition. Bass was a New England shoe company with strong sales, particularly of its Weejuns loafers and Sunjuns sandals. Just as the company readied its nationwide marketing push, the preppie look flooded fashion, and Bass sales rocketed. The traditional, conservative shoes Bass produced were perfect for the conservative fashion boom. By 1981, two plants had been added to meet demand. For a time, the yearly sales gain in this division was 71 percent. Even after the squarely traditional fashion trend tapered off, Bass shoes had a significant position in the market.

In addition to its acquisitions, Chesebrough also focused on internal growth. The company had a knack for new products and promotions. In 1978, a home permanent product, called Rave, featuring no ammonia and no odor was released. Rave soon became the top-selling product in a revitalized market. Chesebrough also helped to rejuvenate the hand lotion business in the 1970s. Jergens was the top performer in that niche at the time, and hand lotion was generally considered a product for senior citizens. However, Chesebrough launched Vaseline Intensive Care lotion as a therapeutic skin care product for all ages, and the lotion overtook Jergens within a year. Sales surged, inspiring competition from Procter & Gamble. Chesebrough countered with another new product, Ponds Cream & Cocoa Butter lotion. This was followed by an update of Vaseline Intensive Care lotion, and by 1980, Chesebrough was rewarded with more than a quarter of the lotion market. By 1981, hand lotion was a $200 million a year industry.

In 1979, Chesebrough sales were more than $1 billion. This was on the eve of the companys centennial and marked 21 consecutive years of increased dividends. Even during the recession of 1974 and 1975the countrys worst downturn since the 1930sChesebrough posted around ten percent profit increases. By 1980, the company still enjoyed about 15 percent annual earnings growth, with some divisions performing better than others. At that time, health and beauty aids were tied with packaged foods as the companys best performers domestically.

In 1982, Chesebrough acquired Prince Manufacturing, Inc., maker of more than 40 percent of the tennis racquets then sold in the United States, paying $62 million in stock for the company. The following year, Chesebroughs record began to falter. Prince Manufacturings earnings were unusually stagnant for 1983. Bass hadnt been performing well because of high wage costs, so the company moved parts of its production to Brazil and Taiwan. Still, demand for casual shoes had fallen sharply, adverse foreign currency translations hurt the international division, and the overall economic environment dug into Chesebroughs nondurable sales. By 1984, with profits still flat, the company again sought to defend itself against possible takeover by buying back $70 million worth of shares from investor-corporate raider Carl Icahn, and spending $95 million for the industrial plastics division of Icahns privately held companywhich was valued at half the price tag.

Chesebrough made a surprising $1.25 billion bid for Stauffer Chemical Company in 1985. Makers of weed killers, pesticides, and flame retardants, Stauffer had been suffering from a lackluster performance at the time. And while Stauffer did have a food ingredients business with fair sales, speculation was that it was a self-protective, antitakeover move on Chesebroughs part. The company was already having difficulties with its Ragú, Bass shoes, Prince tennis racquets, and Health-tex clothing sales. Even the flagship product, Vaseline, had dropped in sales. In 1984, for the first time in 29 years, Chesebroughs earnings declined. Its heavy debt load and depressed earnings made the company again ripe for takeover.

Showing an interest in Chesebrough was Unilever N.V., the worlds largest consumer products company in 1986, with sales of more than $24 billion. In December of 1986, Chesebrough agreed to a $3.1 billion takeover bid by Unilever. An Anglo-Dutch conglomerate, Unilever stood to gain from Chesebroughs overseas sales, then accounting for almost a quarter of its overall annual sales. It also broadened Unilevers U.S. earnings basetripling its personal care products thereand brought solid brand names into the giants portfolio. Immediate speculation was that Unilever would unload Chesebroughs faltering units. Meanwhile, Chesebrough had introduced new products into its successful cornerstone Ragú line, already benefitting that segments profits. Ward was replaced by Richard G. Finn as president and CEO.

Unloading the losing portions of the Stauffer Chemical unit, the Prince tennis racket business, and the ailing Bass shoe operation helped reduce the purchase price. The Faberge Salon division of Chesebrough was sold to Conair Corporation in 1990. That same year, the company signed an agreement with Elizabeth Taylor to launch her own fragrance. The resultant Passion line met with immediate success.

Chesebrough returned to concentrating on the strength of its marketing innovations and internal product development. In 1991, Vaseline Intensive Care products developed a innovative ad campaign, featuring a simulated television newscast called Skin Science Updates. Also that year, however, Chesebrough was hit with a bill for $21.5 million in damages, awarded to a five-year-old child regarding an eardrum damaged by a Q-Tip. The following year, the company unveiled a major renovation of its Ponds product lines. Ponds was then the number one facial cleanser in a $500 million segment.

During this time, Unilever, while a top seller of personal products worldwide, was second in the United States to the Procter & Gamble Company. By 1993, the company was aggressively positioned to build its presence in the American skincare, haircare, cosmetics, and fragrance businesses, largely with the help of Chesebrough-Ponds.

Further Reading

Behar, Richard, The Too-Scorched Earth?, Forbes, December 16, 1985, p. 54.

The Case for Betting on Chesebrough-Ponds, Fortune, December

1983, pp. 178179.

The Case for Chesebrough, Forbes, August 27, 1984, p. 150.

CEO: The Silver Medal Winners, Financial World, March 15, 1982, p. 22.

Chesebrough-Ponds Inc., Forbes, April 28, 1980, p. 136.

Chesebrough-Ponds the Experts in Skin Care, Discount Store News, May 18, 1992, p. 61.

Chesebroughs Finn Feels an Upturn, Womens Wear Daily, October 30, 1992, p. 6.

A Company for All Seasons, Financial World, June 15, 1980, pp. 5152.

Conair Buys Faberge, New York Times, July 26, 1990, p. D4(L).

Entrepreneurship Is the Only Way, Financial World, March 15, 1982, pp. 2425.

Failla, Kathleen, Piloting Stauffer Back to Profitability, Chemical Week, March 26, 1986, p. 19.

Foster, Geoffrey, Core Concerns at Unilever, Management Today, May 1988, p. 62.

Govoni, Stephen, Two Cheers for a Rather Odd Match, Financial World, March 20, 1985, pp. 3537.

Head Scores an Ace of a Sale, Newsweek, July 5, 1982, p. 55.

Kagan, Cara, Ponds Dips Into Moisturizers, Womens Wear Daily, November 6, 1992, p. 6.

King, Resa, Unilever-Chesebrough: Why $3 Billion Looked Like a Song, Business Week, December 15, 1986, pp. 3233.

Knock, Knock, Forbes, December 29, 1986, p. 126.

McCarthy, Michael, In Counterattack, Unilever Looks to Leverage P&Gs Lowballing, ADWEEK Eastern Edition, March 23, 1992, p. 3.

McGraw, Carol, Liz Taylor Stars in Battle Over Passion Fragrance, Los Angeles Times, December 3, 1990, pp. Al, A21.

Miller, William, Chesebrough-Ponds, Industry Week, October 19, 1992, p. 43.

Millstein, Marc, A Simple Skin Care Solution, Supermarket News, September 28, 1992, p. 32.

Orr, Andrea, Unilever Deal Called Good for Chesebrough, WomensWear Daily, December 3, 1986, p. 4.

Rudnitsky, Howard, Vanity, Thy Name Is Profit, Forbes, May 25, 1981, pp. 4748.

, Chesebrough-Ponds: The Unsung Miracle, Forbes, September 28, 1981, pp. 105109.

Serendipity, Forbes, January 17, 1983, p. 16.

Sloan, Pat, Chesebrough Shakeup, Advertising Age, February 16, 1987, p. 1.

, Chesebrough Puts New Face on Its Brands, Advertising Age, January 27, 1992, p. 3.

Stevens, Amy, Chesebrough-Ponds hit with 421.5 million in damages over Q-Tips, Wall Street Journal, May 14, 1991, p. B5(E).

Stovall, Robert, Less Glamour, More Value, Financial World, December 15, 1983.

, The Power of the Consumer, Financial World, October 16, 1985, p. 62.

Unilevers U.S. Invasion, Fortune, January 5, 1987, p. 12.

The Urge to Go Home, Economist, December 6, 1986, p. 87.

A Vaseline Commercial That Looks Like News, New York Times, November 29, 1991, p. D5(L).

Warner, Liz, Night of Long Knives at Chesebrough, Marketing, October 22, 1987, p. 1.

Carol I. Keeley