Diamond Shamrock, Inc.
Diamond Shamrock, Inc.
Diamond Shamrock, Inc. is a regional refiner and marketer of petroleum products whose activities also include the processing and marketing of natural gas. Based in the southwestern United States, the company also operates the world’s largest underground commercial hydrocarbon storage facility and telephone services company, and markets lubricating oils, automotive accessories, and environmental services.
Diamond Shamrock is a successor to a number of companies, the earliest being Diamond Alkali Company formed in 1910 as a chemical company. A group of Pittsburgh, Pennsylvania, businessmen associated with the glass industry formed the Diamond Alkali Company to produce soda ash, a basic raw material of glass manufacturing. Diamond Alkali was incorporated in West Virginia in March of that year, with company headquarters established in Pittsburgh.
The new corporation was capitalized at $1.2 million, with most of those funds put towards construction of a soda ash plant. A site in Painesville, Ohio, on the Lake Erie shore just 30 miles east of Cleveland was chosen for the new plant, which went onstream in 1912.
After World War I began in 1914, the demand for canning glass increased, and Diamond Alkali found a niche in the market. About the same time, Diamond Alkali began marketing increasing quantities of its soda ash for laundry preparations, baking soda, water softeners, paper and pulp production solutions, and textile processing.
By 1915 Diamond’s ability to produce soda ash exceeded customer demand, and the company began using soda ash and limestone to produce caustic soda. This development opened new markets in lye, soap, detergents, and eventually rayon and cellophane. In 1918 Diamond began making bicarbonate of soda. A short time later the company’s product line was expanded beyond the basic alkalis of soda ash, caustic soda, and bichromates. In 1920 Diamond’s second plant opened in Cincinnati, Ohio, producing silicate of soda made by combining soda ash with sand.
In 1925 the company expanded its product line again. Diamond took a step towards greater integration when the Painesville plant began manufacturing calcium carbonates, cement and coke. A sludge by-product of soda ash was treated to make the calcium carbonate, marketed as an agent to give paint smoothness, speed dry printers’ inks, and add physical properties to rubber and plastic products.
In 1929 the company began making caustic soda through the new process of electrolysis of salt, a method of running brine through electricity. Two by-products were formed from this process, chlorine and pure hydrogen, which were also marketed. The chlorine was sold to the water purification industry and also used in the manufacture of dry cleaning solvents. The hydrogen was used for hydrochloric acid production, welding fuel, food oil hardening, electric lamp production, and ammonia production.
About the same time Diamond’s product line expanded, the stock market plummeted. In 1930, the first full year of the ensuing Depression, Diamond posted $4.9 million in earnings on $16.3 million in sales. In 1931 sales fell by $2 million. Profits plunged to nearly a quarter of what earnings were a year earlier, and the company’s stock value dropped from $3.77 to 53C. By 1932, sales, earnings, and stock prices began to inch upward, and five years later all were hovering near 1930 levels.
In 1936 Diamond began a modest research program that resulted in the production of magnesium oxide. J.T. Richards, who had been with the company in various capacities since 1917, was named president in 1937. Once World War II began, magnesium became an important component for incendiary bombs, and Diamond was selected by the United States to operate one of 12 government-owned magnesium plants.
In 1942 Diamond’s Raymond F. Evans established the company’s first research laboratory. Evans, son of T.R. Evans who was one of the founders of the company and later served as president until his death in 1931, became general manager of the company the following year.
By 1944 Diamond was operating three plants constructed through Defense Plant Corporation funds, including the magnesium plant, a calcium hypochlorite plant, and a synthetic catalyst plant under joint lease with the M.W. Kellogg Company. Before the war concluded Diamond acquired Emeryville Chemical Company, a west coast manufacturer of silicate of soda. After 1945 Diamond’s postwar focus turned to a program of selling unprofitable assets, simplifying corporate structure, and modernizing, expanding, and adding plants.
During the late 1940s several new plants opened, including a Houston, Texas, chlorine and caustic soda plant, a Painesville magnesium oxide plant, a Chicago silicate plant, and a Houston electrochemical plant. Diamond signed five-year lease agreements with the U.S. government for chlorine and caustic soda plants at the U.S. Army chemical corps arsenal at Edgewood, Maryland, and at Pine Bluff, Arkansas. Detergent plants were established in Dallas, Painesville, and at Emeryville, California.
In 1947 Raymond Evans was named president and Richards became chairman of the board. About the same time the government lifted price controls imposed during the war, and Evans directed Diamond’s first price hike in nine years in seeking to reverse a wartime downward trend in earnings.
In 1948 Diamond moved its headquarters from Pittsburgh to Cleveland, Ohio, closer to its central operations in Painesville. Sales passed the $50 million mark for the first time that year, but slumped in 1949 due in part to a two-month strike which cost the company about $750,000 in net earnings. During the late 1940s Diamond boosted its bichromate production with the acquisition of the Martin Dennis Company, operator of two New Jersey plants. With export sales on the rise, in 1949 Diamond formed an exports sales division that included Martin Dennis.
By 1950 Diamond’s first phase of postwar expansion and diversification was nearly complete, with the company assets having grown to include 12 different plants producing over 100 different chemicals. In mid-1950, the demand for Diamond’s products increased after the United States entered the Korean War. The war also spurred the U.S. government to reactivate the Painesville magnesium plant which Diamond had operated during World War II, and the company was again charged with operating the facility, forfeiting any profit.
During the first half of the 1950s, Diamond embarked on its second phase of postwar growth, and implemented a diversification, geographical expansion, and modernization program which brought entrance into the organic and agricultural chemicals, plastics, and chromic acid fields. In the fall of 1950, Diamond acquired the chromic acid business from E.I. du Pont de Nemours and Company. One year later Diamond purchased Kolker Chemical Works, Inc., a manufacturer and distributor of organic insecticides and agricultural chemicals, including DDT.
In 1953 Diamond Alkali began producing polyvinyl chloride, a product used in the manufacture of plastic articles, and perchlorethylene, a product used in metal cleaning and dry cleaning. That same year Diamond acquired Belle Alkali Company, a producer of chemicals used in the manufacture of silicone resins, solvents, and drugs.
Richards retired as chairman in 1954, and Evans was named as successor. John A. Sargent, executive vice president, became president. That same year Diamond created an exploratory research department to assist in strategic planning. Diamond continued its geographical diversification in early 1955 with the acquisition of a 51% interest in Diamond Black Leaf Company, an agricultural chemicals firm with plants in Virginia, Alabama, Kentucky, and Texas. Two years later Diamond Black Leaf became a wholly owned subsidiary.
In 1955 Diamond acquired a government-owned chlorine and caustic soda plant at Muscle Shoals, Alabama, for $15 million. That same year the company passed the $100 million sales mark for the first time, logging $110 million in revenue. While sales were increasing, Diamond’s name recognition outside the chemical industry lagged, and in 1956 Diamond joined a number of chemical companies adopting new trademarks. The former “alkali” enclosed in a horizontal diamond was replaced by a vertical diamond surrounded by a curved letter “d.” In 1957, Sargent resigned, and Evans assumed the additional duties of president.
Diamond’s growth continued in the 1960s. In 1960, Bessemer Limestone & Cement Company, an operator of a cement plant and limestone quarries, was merged into Diamond. Diamond also acquired Harte & Company, a producer of vinyl film and sheeting serving the plastics industry, and Chemical Process Company, a producer of chemicals used for water purification, pharmaceuticals and polyester resins.
In 1961 Diamond joined three foreign firms in building a $15 million electrolytic caustic-chlorine plant in Brazil, the largest in South America, to produce fertilizer chemicals. The following year Diamond and a French firm, Prosim, S.A., formed the joint venture company Dia Prosim, S.A., to manufacture water treatment chemicals at a new Mobile, Alabama, plant.
Arthur B. Tillman, who had worked his way through the ranks from division manager to company vice president, was named president in 1966. In 1967, Diamond merged with Nopco Chemical Company, a New Jersey producer of a wide range of inorganic and organic chemicals. Also that year, Diamond acquired the polypropylene resin and film plants of Alamo Industries, boosting Diamond’s foothold on the plastics market.
In the summer of 1967 Diamond laid the foundation for expansion into the petrochemicals field by merging with Shamrock Oil and Gas Company to form Diamond Shamrock Corporation (Diamond). The merger combined Diamond Alkali’s chemical assets with Shamrock Oil’s production interests in oil, gas, and petrochemical fertilizers and its marketing assets, which included a chain of service stations.
Evans was named chairman of the new corporation and James A. Hughes, a former Diamond Alkali vice chairman, became president. C.A. Cash, former Shamrock president, became executive vice president and president of the new subsidiary Diamond Shamrock Oil and Gas Company, while Tillman was also named as executive vice president of the corporation and president of the new subsidiary Diamond Shamrock Chemical Company. J.H. Dunn, former Shamrock chairman, was named chairman of the executive committee of the board.
In 1968 Diamond Shamrock sold its Bessemer Cement division to Louisville Cement Co. for $20 million in order to comply with a Federal Trade Commission ruling to divest itself of the unit. One-quarter of Diamond Shamrock’s sales that year came from oil and gas, with the remainder of revenues coming from a mix of commodity chemicals, plastics, speciality chemicals, and agricultural chemicals. That mix changed in 1969, after Diamond acquired Taylor-Evans Seed Company, a producer of farming seed, with international marketing operations, and Pickland Mather & Company, a leading supplier of steel industry raw materials with interests in iron ore mining, mineral management, and ocean shipping vessels.
Diamond’s oil exploration activities during the early 1970s focused largely on the Gulf of Mexico, Gulf of Alaska, North Sea, and Texas Panhandle, while production centered on domestic drilling in the West and Southwest. In 1971 Diamond Shamrock’s growing interest in the animal-health and veterinary-medicine fields led to the purchase of Bio-Toxicological Research Laboratories, engaged in chemical research related to agriculture and animal health. The following year Diamond acquired American Chocolate & Citrus Company of St. Louis, Missouri, a commercial dairy provider of flavorings, fruit drink bases, and food processes.
Three years later Hughes retired, and Cash was named chairman. William H. Bricker, who joined the company in 1969 as a vice president overseeing agricultural chemicals, was named president. In 1976 he was named chief executive officer.
Diamond’s specialty chemical operations continued to grow during the late-1970s. The company expanded its foothold on the commercial baking supply market and bought three Philadelphia, Pennsylvania-based providers of commercial baking supplies: Federal Yeast Corporation, Gold Star Foods Company, and Bakery Products Inc. Diamond also acquired the animal-health business of Shell Chemical Company and expanded existing vinyl chloride and potassium carbonate plants.
Diamond continued to build on a growing oil and gas foundation, which saw exploration acreage more than double between 1972 and 1977 to over 2.5 million acres, while oil production increased over 60%. In 1977 Diamond announced plans to construct a $25 million catalytic cracking unit at its McKee refinery near Dumas, Texas, in order to meet federal regulations calling for increased production of unleaded gasoline. The following year Diamond acquired a 21% stake in Sigmor Corporation of San Antonio, Texas, for $28 million, and then sold Sigmor $19 million in service station properties, a majority of which carried the Shamrock brand.
After Cash retired in 1979 Bricker assumed the additional duties of chairman and moved to make Diamond a major energy company. That same year Diamond acquired Falcon Seaboard Inc., a Houston-based producer of steam coal for $250 million. In a move that prompted Evans to resign as a director, Bricker relocated the company’s headquarters from Cleveland to Dallas to follow its growing energy interests in the Southwest. Reflective of the change in Diamond Shamrock’s focus, its 1979 annual report noted that the “energy, technology and chemicals” company had more than quadrupled during the decade.
Diamond Shamrock entered the 1980s with a new president, Allan J. Tomlinson, a former executive vice president in charge of Diamond’s international and technology unit. In 1980 Diamond announced a slate of divisions targeted for divestiture, including plastics, metal coatings, domestic polymers, food-related products, animal nutrition, and medical products.
While courting buyers for its chemical assets, in 1980 Diamond turned its acquisition goals toward coal. The company paid $30 million for undeveloped coal reserves, and then formed a coal-marketing subsidiary. In 1981, in a second major expansion move into coal, Diamond purchased Amherst Coal Company for $220 million, then arranged an agreement with the French government to provide steam coal for power generation. Diamond posted record earnings in 1981 of $230 million on $3.4 billion in sales.
In 1982, after having spent $161 million for drilling rights in Alaska’s Beaufort Sea, earnings dropped by roughly $150 million due to recessionary conditions and falling energy prices. J.L. Jackson, former president of Diamond’s coal unit, was named corporation president in 1983. Diamond continued seeking buyers for its weak chemical assets, and in 1983 expanded its divestiture slate to include its water conditioning and process chemical divisions. Diamond permanently laid off 500 workers in 1983, but still reported a $60 million loss due to tax write-offs on a dry hole in the Beaufort Sea.
Diamond’s most expensive move of 1983 was its $1.2 billion stock swap in the merger with Natomas Company. The merger gave Diamond Indonesian oil and gas operations, a geothermal energy business, and wells producing oil in the North Sea, Canada, and the United States.
Diamond’s involvement with the defoliant Agent Orange in the mid-1960s affected the company in 1984. In March 1984 Diamond agreed to spend $412 million to clean up contaminants at a New Jersey plant, where it had produced the defoliant used during the Vietnam War. Two months later Diamond was one of seven chemical companies that agreed to a settlement to compensate Vietnam War veterans for injuries claimed to be associated with exposure to dioxin, a toxic substance used in Agent Orange. While Diamond Shamrock produced only 5% of the Agent Orange used in the Vietnam War, the company’s chemical compound contained the highest concentration of dioxin. In the settlement Diamond agreed to contribute $21.6 million to a compensation fund.
In 1985 Bricker tentatively agreed to sell Diamond for $28 a share to Occidental Petroleum Corporation, then withdrew the offer. The scrapped deal drew takeover speculation and Diamond announced a restructuring to fend off possible hostile maneuvers. Included in the restructuring was the formation of a master limited partnership, Diamond Shamrock Offshore Partners Ltd., to hold the company’s oil and gas assets in the Gulf of Mexico. Diamond also announced $810 million in write-offs, largely due to Indonesian properties, and said it would repurchase about 6% of its stock.
In 1986 the company announced it would eliminate 600 more jobs, sell its chemical and coal operations, and increase its oil and natural gas reserves. Jackson resigned a few months after the announcement. Later that year, Diamond’s chemical business was sold to Occidental Petroleum for $850 million. With Diamond retrenching, in December 1986 Texas oilman T. Boone Pickens, who controlled the oil firm Mesa Limited Partnership, offered $2 billion for Diamond in a securities exchange. The offer was dropped a few weeks later, after Diamond rejected the bid and filed suit against Pickens.
A second bid from Pickens in early 1987 prompted Diamond to announce its third restructuring in two years. Bricker, in his last move as chairman, had the company split in two to form a production and exploration company, and a refining and marketing company. The restructuring also called for a buy-back of common stock and issuance of $300 million in preferred stock to Prudential Insurance Company of America, which could then block any merger or recapitalization.
In April, 1987 Bricker resigned and a new company, Diamond Shamrock R&M, Inc., was spun off as an independent oil refining and marketing company to be based in San Antonio, Texas. Roger R. Hemminghaus, who had been running Diamond’s refining business for two years, was named president. Assets for the new company included $1.6 billion in sales; two Texas refineries in McKee and Three Rivers; a natural gas processing plant; 4,000 miles of pipeline; 2,000 branded stations in 12 states; 550 company-operated retail stores in Texas, Colorado, and Louisiana; a lube-oil blending and automotive-accessories-distribution company; and 30 million barrels of liquid propane gas underground storage capacity in Mont Belvieu, Texas. What was left of the former Diamond Shamrock Corporation became Maxus Energy Corporation.
Hemminghaus announced, that Diamond Shamrock R&M would sell its more remote assets and concentrate on marketing operations in the Southwest. In 1988 the company began expanding its refinery and pipeline capacity and bolstering its retail presence. That year construction began on a $25 million hydrocracker unit for its McKee refinery, and Diamond purchased 80 Texas gasoline stations. In 1989 the company also established a development and new ventures department to identify related businesses in fields where it has expertise. Profits soared from $1.6 million in 1987 to $53.5 million in 1988, while stock prices nearly doubled to $28. Diamond formed the subsidiary, Diamond Shamrock Natural Gas Marketing Company, and then purchased two companies, Merit Tank Testing, Inc., providing environmental testing for underground petroleum storage, and Petro/Chem Environmental Services, Inc., marketing petroleum-related environmental services, the two were merged under the Petro/Chem name in 1989.
In 1989 Diamond entered the petrochemicals business and became a 33% partner in a propane-propylene operation in Mont Belvieu, Texas. Diamond’s Mont Belvieu underground storage facility became the world’s largest that year with the acquisition of XRAL Storage and Terminaling Company, which brought the company’s underground storage capacity to 50 million barrels.
Diamond also acquired a telephone services company and formed the subsidiary, North American InTeleCom, Inc., a San Antonio, Texas-based firm providing operator-assisted services for correctional facilities and managing private pay telephones, including those at many of Diamond’s retail outlets.
In 1990 the company’s name was changed to Diamond Shamrock, Inc. That same year Diamond completed projects expected to pave the way for growth in the new decade, including major refinery additions, pipeline expansions, construction of a propane-propolyene facility, and about 40 new retail outlets. Diamond’s goals for the 1990s call for increased diversification and expansion into businesses such as environmental services and telephone services, which could add cash flow, complement its core businesses, and expand Diamond’s scope of activities in areas where it has expertise.
Autotronic Systems, Inc.; D-S Pipe Line Corporation; Diamond Shamrock Refining and Marketing Company; Emerald Corporation; Emerald Pipe Line Corporation; Industrial Lubricants Company; Sigmor Corporation; Sigmore Pipeline Company; The Shamrock Pipe Line Corporation; West Emerald Pipe Line Corporation.
Bricker, William H., Partners by Choice and Fortune: The Story of Diamond Shamrock, Princeton, Princeton University Press, 1977; Mason, Todd, and G. David Wallace, “The Downfall of a CEO: The Inside Story of Bill Bricker’s Reign at Diamond Shamrock,” Business Week, February 16, 1987.
—Roger W. Rouland