Sales: $1.5 billion
The Dillingham company was established in the Hawaiian islands when they were still an independent kingdom known as the Sandwich Islands. As the Hawaiian economy grew, Dillingham expanded from sugar refining and railroad transportation into construction. By the time the company reverted to private ownership in 1983, it had become one of the largest construction companies in the United States, with numerous projects completed worldwide.
Among the first Americans to settle in the Sandwich Islands were a group of New England missionaries, who arrived in 1820. They established themselves in positions of economic and political power, and began a crusade to convert the Polynesian natives to Christianity. From this group of haole (Caucasian) settlers emerged five dominant family-run mercantile companies known as “The Big Five.” These five companies established commercial interests in every aspect of the Hawaiian economy.
It was in this environment that Benjamin Franklin Dillingham unexpectedly found himself in 1865. Dillingham, a Cape Cod schooner captain, was stranded in the Sandwich Islands after losing his life’s savings in a failed commercial venture to ship bananas to California. Temporarily disabled with a broken leg, Dillingham took a job as a clerk in a local hardware store, and within two years the enterprising seaman had become co-owner of the business.
Dillingham married into the haole establishment by taking a missionary’s daughter for his wife. Still, he was unable to purchase arable land for an agricultural venture; the Big Five maintained a strict monopoly on land. He did, however, manage to buy a tract of wasteland on the island of Oahu. He organized a group of investors to develop the land for sugar cane cultivation, and built a railroad to connect the inland plantation with a wharf. The Oahu Railway & Land Company, as it became known, was highly successful. The company added more real estate and expanded its trackage—Dillingham even started to transport his competitors’ sugar.
The native Queen Liliuokalani was deposed in 1893, and a year later the Republic of Hawaii was established with Sanford B. Dole as its president (Dole’s cousin Jim founded the Dole pineapple label in 1898). Dillingham gained greater acceptance in the commercial establishment, and attempted to build a second railway on the island of Hawaii. But construction costs mounted quickly, and soon the company was severely in debt. Benjamin Dillingham summoned his son Walter to interrupt his studies at Harvard and return to Hawaii to manage the crisis.
Hawaii was annexed by the United States in 1898, and made a territory two years later. The islands’ increased exposure to American shipping traffic led Walter Dillingham to establish a new family venture; with a $5000 loan, he founded the Hawaiian Dredging & Construction Company in 1902. The company’s first contract called for the dredging of Honolulu Harbor and Pearl Harbor and, by 1910, had generated enough profit to bring the company out of debt. The coral and sediment drawn from the harbors was used to fill a 5000-acre swamp on the island of Oahu, which made possible a Dole pineapple plantation, a tourist development (later known as Waikiki Beach), and, some years later, an airport.
Dillingham’s company diversified into pier services, warehousing, barge transportation, and land development. After the Japanese bombing of Pearl Harbor in 1941, the company joined a 14-member consortium of construction companies whose job it was to build air bases on islands captured from the Japanese.
After the war, Dillingham’s companies performed construction work in foreign countries. It was involved in widening the Suez Canal, constructing a harbor in Kuwait, and building a variety of structures in Australia. In the United States, Hawaiian Dredging maintained harbors in the Pacific, and established a strong presence in the mainland construction industry. The company’s principal owner, Walter Dillingham, became one of the richest men in Hawaii by the late 1950’s. Dillingham’s success, however, did not go unchallenged.
For many years the mainland Permanente Cement Company enjoyed a monopoly in Hawaii. Its proprietor, an outspoken 72-year old entrepreneur named Henry J. Kaiser, had done a great deal of business with Dillingham. But, when Dillingham decided to participate in establishing a local competitor, Kaiser returned the challenge. He announced plans to build a cement plant in the islands and, furthermore, to establish a dredging business in Hawaii. The conflict between Kaiser and Dillingham degenerated into personal attacks; Kaiser accused Dillingham of disrupting his business with underhanded tactics. Dillingham called Kaiser an “outsider,” and maintained that he had no business being in Hawaii.
Dillingham found itself at the fore of a disturbing trend: Hawaiian markets were no longer isolated from mainland interests. The local establishment was forced to adopt more aggressive business strategies in order to maintain its historical competitive advantages. On many levels Hawaiian businesses banded together in self interest. Walter Dillingham served on the boards of five major companies, including a newspaper and the Bank of Hawaii. Later, he was appointed to the board of American Factors (a Big Five sugar and real estate conglomerate now called Amfac). Dillingham opposed statehood for Hawaii because he felt the islands would be dominated by the International Longshoremen’s and Warehousemen’s Union, which he believed was controlled by communists. [In 1949 the union led a strike which paralyzed the Hawaiian economy for 179 days.] In 1959, as Dillingham began to emerge as the victor in its battles with Kaiser, Hawaii was inducted as the 50th state.
Walter Dillingham gradually relinquished managerial responsibilities to his son Lowell. Only one philosophy course short of a degree from Harvard, Lowell returned to Hawaii in 1934 to learn every aspect of the family business. He was named president of Hawaiian Dredging in 1955, and of the Oahu Railway in 1960. In 1961 he oversaw the merger of his two companies to form the Dillingham Corporation, and the transformation of the family business into a public company.
The company began construction of buildings in 1959. One of its largest projects was the $30 million Ala Moana Center, a large shopping complex which nearly doubled the amount of store space in downtown Honolulu. Having decided that the company should pursue a more global perspective, Lowell Dillingham initiated the “Dilco” plan, under which Dillingham would aggressively seek new projects outside of Hawaii. As a result of the program, Dillingham won contracts to build the 43-story Wells Fargo Building in San Francisco, water works in Vietnam, a large hotel in the Philippines, airfields in Thailand, and numerous other structures in Australia. Dillingham also performed harbor improvments in Iran and established a group of seven subsidiaries in Australia, New Zealand, and Papua New Guinea.
The Dilco plan proved enormously successful—profits had risen from $48 million in 1962 to $325 million in 1968. While the Dillingham family was undoubtedly the greatest beneficiary of this growth (they retained 41% ownership of the company), private investors also found Dillingham an excellent investment. After Dillingham gained a listing on the Pacific Exchange, management strived to expand even further in anticipation of a second listing on the larger New York Exchange.
In order to spur growth through diversification, Dillingham acquired two large California-based construction companies, a supplier of liquefied petroleum gas, and a Canadian tug boat company. Dillingham also entered into joint ventures in mining in Canada and Australia but failed in its attempt to gain control of the United Fruit Company. Nevertheless, Herbert C. Cornuelle, a former president of both United Fruit and the Dole Corporation, joined Dillingham as an executive vice president. Cornuelle later became the first non-family executive to serve as company president.
The diversification program encountered problems when it was realized that the company had grown too fast for effective consolidation or efficient management. By 1970 Dillingham had acquired over 30 companies and, while revenues increased 1000%, return on equity fell by 3.9%. As president, Cornuelle had the dual task of raising short term profits while maintaining the company’s expansion. He elected to dispense with all marginally-performing assets, and to invest the proceeds in more profitable maritime and natural resource ventures—areas more closely related to Dillingham’s established operations.
Dillingham was made more competitive as a result of Cornuelle’s strategy. But, because its new profits had not been used to reduce its debt, Dillingham unknowingly became vulnerable to a hostile takeover.
A controversial financier named Harry Weinberg announced that he had acquired a 10% interest in Dillingham. Weinberg demanded representation on the board of directors, complaining that Dillingham’s stock was undervalued and that the company’s real estate holdings had been under-exploited. Cornuelle responded by reducing the number of board seats from 15 to three. With the situation deadlocked, Weinberg later agreed to purchase some of Dillingham’s most promising real estate. Ownership of these properties, which included the Ala Moana Center, was transferred to a limited partnership owned by Weinberg and a group of other shareholders. The partnership later split up the portfolio and sold the properties at a substantial premium over its original investment in Dillingham.
Cornuelle’s takeover defense was successful, but Dillingham had lost its most profitable division. In order to support the company’s share price, Dillingham’s other three divisions —construction, maritime operations, and energy—would have to become more profitable. Management was particularly optimistic about expansion of the energy division, which conducted oil and gas exploration, produced liquefied petroleum gas, and transported oilfield equipment.
Share prices, however, remained weak and, as Dillingham was failing to gain the attention of investors on Wall Street, the company became the apparent target of another takeover. Kuo International, a Singapore-based company run by petroleum interests, announced in 1983 that it had increased its holdings in Dillingham to 7%. Unable to mount a second defense without seriously dismembering the company, Dillingham turned to the investment banking of firm Kohlberg Kravis Roberts & Company for advice. Kohlberg Kravis recommended that Dillingham return to private ownership; as a private company, it would no longer be subject to hostile takeovers or share performance evaluations. A group of institutional investors was created to purchase all of Dillingham’s outstanding shares of $350 million (including $30 million for Harry Weinberg’s interest). Dillingham management retained a 12% interest in this group, and appointed J. Joseph Casey president and chief executive officer.
Casey has emphasized Dillingham’s expertise in construction, and has encouraged greater involvement in higher-risk projects. While this shift in emphasis is expected to incur larger debts in the short term, it will provide the company with greater operational mobility. With plans to acquire a small engineering firm, Dillingham hopes to gain greater involvement in industrial projects. At that time, Dillingham will have regained its position as a fully integrated construction company.
Dillingham Corp.; Dillingham Land Co.; Dillingham Construction Corp.