Engelhard Corporation

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Engelhard Corporation

101 Wood Avenue
Iselin, New Jersey 08830
U.S.A.
(908) 205-5000
Fax: (908) 321-1161

Public Company
Incorporated: 1981
Employees: 7,000
Sales: $2.94 billion
Stock Exchanges: New York London Zürich Basel Geneva

Engelhard Corporation is a leading supplier of catalysts used in the petroleum, chemical, and food industries. An unusually diversified company, Engelhard also produces a variety of industrial products such as paper coating agents, color pigments, temperature sensing devices, and precious-metal-coated anodes, and offers a precious-metals management service for its customers. From the company’s present configuration it is not apparent that the unifying thread of its many activities has been the refining and fabricating of precious metals for industrial as well as decorative uses. Engelhard Corporation took on its present corporate form only in 1981, but for most of the 20th century the name Engelhard had been associated with the glamorous, and sometimes notorious, world of precious metals: gold, silver, and those metals in the platinum group.

The company’s roots in the precious-metals industry extend back to 1891, the year in which Charles Engelhard immigrated to the United states from his native Germany to work as a foreign sales agent for his employer, a marketer of platinum. Engelhard decided to remain in the United States and soon was able to secure equity positions in a number of precious metals companies, chief among them Baker & Co., platinum; Irvington Smelting, which dealt with gold and silver; Hanovia Company; and American Platinum Works. Engelhard, who in Forbes, August 1, 1965, was described by his son as a “tough businessman” and “very Germanic,” united the companies into a comprehensive precious-metals fabricator under the name of Engelhard Industries. The Engelhard interests bought, refined, and sold the full range of precious metals, but, with Baker & Co. taking the lead, soon developed a special expertise in platinum.

Platinum is valuable not only for its beauty but because it exhibits a number of unusual and useful physical properties, among them the virtually complete resistance to corrosion by chemicals or heat, and a molecular formation well suited to various types of catalysis. By the early 1900s Engelhard had begun to exploit the metal’s industrial value as well as its importance to the jewelry and dental trades, helping develop its use as a heat resistant liner for chemical vessels and as filaments in electric light bulbs. As platinum was scarce, however, the metals industry did not much pursue its industrial applications. Engelhard Industries remained a supplier of precious metals primarily for ornamentation and dentistry. It was not until the 1920s that a secure supply of platinum encouraged further study of the metal’s engineering value. A Canadian mining concern, Inco, formerly called International Nickel Company, demonstrated that platinum could be produced as a by-product of nickel, thus temporarily stabilizing the supply of platinum and prompting intensive research into its properties. Charles Engelhard became Inco’s exclusive dealer of platinum in the United States, and in the early 1930s created a research-and-development department of his own to pioneer new uses for the metal. In conjunction with Du Pont, Engelhard’s Baker & Co. came up with a revolutionary process for the manufacture of nitric acid, that employed a platinum and rhodium catalyst. The process was soon adopted throughout the chemicals industry. Engelhard Industries began a long evolution that would first transform the company into the world leader in precious-metals fabricating and later encourage its present focus on catalysis in many of its forms.

The 1930s saw the development of the platinum spinnerette, a platinum nozzle perforated by thousands of microscopic holes designed to spin out synthetic fibers for the manufacture of textiles. World War II fostered other uses of platinum, such as the platinum-tipped sparkplug for aircraft engines, able to withstand high temperatures for long periods without corroding. In the early 1950s platinum began to be used in the petroleum industry for the catalysis of high-octane gasoline and to refine heavy crude oils. Engelhard Industries continued to derive the large majority of its sales from nonindustrial markets such as jewelry, but in the 1940s Charles Engelhard added to his growing assortment of companies with the purchase of D.E. Makepeace Company of Massachusetts, makers of gold and silver sheet, tube, and wire; Amersil Company, industrial appliers of fused quartz; and National Electric Instruments Company, a manufacturer of medical instruments. With these and other industrial acquisitions, Engelhard laid the groundwork for the later expansion of his business carried out by his son, Charles Engelhard Jr. Engelhard Jr., born in 1917, served as a pilot in World War II and afterward joined his father in the metals business. Anxious to make his own mark, young Engelhard soon moved to South Africa and began exploring opportunities in that mineral-rich country, source of much of the world’s gold, platinum, and diamonds.

Until 1971 the history of Engelhard Corporation was largely the story of Charles Engelhard Jr. The founder’s son had the unusual good fortune to succeed in both of the roles available to a wealthy scion. He became an international socialite and built his father’s company into a far greater success. Upon settling in South Africa, Engelhard started a gold-exporting business to supply his father’s companies with raw material, as well as to turn a profit. At the time, gold could not be traded except in the form of art objects, so Engelhard shipped his gold in the shape of dishes, jewelery, and even solid gold pulpit tops, much of which was later melted down by the customer. Engelhard incorporated his firm, Precious Metals Development, in London in 1949, using the services of Robert Fleming & Co. At Fleming & Co. Engelhard met Ian Fleming, the creator of James Bond, who is believed to have used the portly, gold-toting Engelhard as the model for his famous villain, Auric Goldfinger. When his father died in 1950, the younger Engelhard assumed control of a complex, heteroge-nous mix of companies headquartered in Newark, New Jersey. He once again made the United States his home, bringing with him connections with many of the leading figures in South African mining.

Engelhard found that his autocratic father had run his various metals businesses virtually without administrative help, and set about centralizing authority while also delegating its daily implementation. In 1953 he brought in Gordon Richdale as president of Engelhard Industries, the main operating company for the family interests. Richdale had experience in mining in the Transvaal region of South Africa, and was a good friend of Sir Ernest Oppenheimer, the chairman of that country’s dominant mining company, Anglo American Corporation of South Africa. Engelhard had become friends with Oppenheimer’s son Harry as well, so when the Oppenheimers needed a partner for a 1957 bailout of Central Mining and Investment Corporation they turned to Engelhard. Central Mining was a large, London-based oil and mining company with extensive South African holdings, in danger of a hostile takeover, which it hoped to prevent with Engelhard’s help. For a relatively small amount of cash, $3.5 million, Engelhard was able to gain a 30% share of Rand American Investments Limited, an Oppenheimer creation that then won the proxy fight at Central Mining and took control of its 12 gold mines, timber holdings, lime quarries, and 13 newspapers, with a total estimated value of $500 million. Charles Engelhard Jr. was named chairman of Rand American, having parlayed a youthful lark in South Africa into an intimate partnership with one of the most powerful families in international business.

The South African venture was kept separate from Engelhard’s stable of U.S. companies, which in 1957 had sales of $173 million, more than one-third of them derived from platinum fabricating. Engelhard Industries also did about $32 million in gold fabricating, and $55 million in silver, making it a world leader in all three of the major precious-metals markets. Industrial applications of precious metals were on the rise, and Engelhard Industries was well positioned to profit from their growing importance. Charles Engelhard Jr. also continued to pursue his valuable South African connections. As part of the 1957 takeover of Central Mining, Engelhard and Harry Oppenheimer had agreed to a stock swap, each of them taking 10% of the other’s family holding company. Engelhard thus gained a very valuable piece of Ernest Oppenheimer and Sons, the force behind Anglo American Corporation and the De Beers diamond mines; while Harry Oppenheimer took a similar chunk of Engelhard Hanovia, the family-owned corporation that, in turn, controlled 72% of Engelhard Industries. The trade would appear to have been one-sided, as Anglo American was a much larger concern than the Engelhard interests. Over the next two decades, however, Harry Oppenheimer continued to buy stock in Engelhard Hanovia and by 1970 came to own 70%, at which time his investment proved to have been very wise indeed.

In the meantime, Engelhard upped his investments in South Africa. In 1958 he set up the American-South African Investment Company Limited, with $34 million in assets. American-South African was an investment trust trading in South African gold stocks and was the first South African company listed on the New York Stock Exchange. As chairman of Rand Mines, one of the former Central Mining companies, Engelhard greatly expanded the firm’s holding into uranium, coal, and copper refining; and in 1961 he paid $17 million for two gold mines owned by Kennecott Copper, rolling all of his South African holdings into a new joint investment company with the Oppenheimers called Rand Selection Corporation Limited. Engelhard had by that time become a figure of recognized importance in South African affairs, an honor that brings with it involvement in all of the moral and political difficulties besetting that country. After the Sharpeville massacre of 1960, Engelhard became more open in his criticisms of apartheid and somewhat curtailed his active investment in the country. Engelhard did not seem to bother himself with apologies or explanations of the relation between his fortune and apartheid. As a businessman and as a strong supporter and confidante of Democratic politicians, he appears to have viewed apartheid as inefficent and doomed but did not further concern himself with its injustices.

In 1963 Engelhard put together the deal that would determine the future of his company. At the urging of Andre Meyer of Lazard Freres, the investment-banking house, Engelhard took a 20% interest in Minerals & Chemicals Philipp (MCP), a recently formed partnership between a rather small producer of nonmetallic minerals like kaolin and fuller’s earth, and Philipp Brothers, a powerful trading firm specializing in the buying and selling of ores on the international market. Again Engelhard made a stock swap an important part of the deal, giving up 8% of Engelhard Hanovia as partial payment for his 20% interest in MCP, which in 1964 had sales of $447 million, the bulk of it generated by Philipp Brothers’s fast-growing ore trading. In fact, Engelhard’s purchase of MCP stock soon proved prescient, as worldwide demand for precious and industrial metals began to take off, and Philipp’s sales skyrocketed, gaining as much as 45% in a single year.

By 1966 MCP sales had reached $709 million, while Engelhard Industries did only about 40% of that figure. Engelhard nevertheless worked out a merger of the two companies, in September of 1967, creating Engelhard Minerals & Chemicals Corporation (EMCC), with the Engelhard family controlling about 40% of the new giant’s stock. Given the relative size of the partners in this transaction, and Harry Oppenheimer’s increasing role in the Engelhard family interests, it is probable that the merger was made possible by the financial power of Oppenheimer’s Anglo American Corporation. EMCC was already a large corporation, but its potential was not yet apparent to many observers. Nearly one-half of the company’s 1967 net income of $28 million was generated by the Philipp trading division, with the Engelhard metal processing contributing 34%, and minerals and chemicals about 19%. Philipp’s trading worked on a small profit margin but was soon to enjoy phenomenal growth, as the world turned increasingly to spot traders to move scarce natural resources around the globe quickly and efficiently. By 1972 EMCC’s sales hit $2 billion, about 80% of it supplied by Philipp, and in 1974 revenue reached the astonishing figure of $5 billion and continued to climb.

Charles Engelhard Jr. did not live to see the success of his combination, however. When the “platinum king,” as he was called, died in early 1971, his family’s Engelhard Hanovia owned 43% of the increasingly profitable EMCC; but by that time 70% of Hanovia was controlled by Anglo American, which promptly exchanged its Hanovia shares for 30% of EMCC, leaving the Engelhard family with 10% of EMCC and all of its other interests. The friendship of Engelhard and Op-penheimer thus ended with a rough parity of gain—with the help of Oppenheimer, Engelhard had built an enormous metals combination, but when the dust settled it was Oppenheimer who would reap the long-term benefits.

In the absence of an Engelhard heir interested in business, Milton Rosenthal was appointed chairman of EMCC. Rosenthal had been president of EMCC since the 1967 merger, and after Engelhard’s death inaugurated a tightening of controls and general overhaul of the company. In part, this was an inevitable concomitant of the executive change, which saw Engelhard’s largely blue-blood management give way to a team dominated by Philipp Brothers’s trading veterans, chief among them Ludwig Jesselson. Neither side of the merger particularly enjoyed working with the other, and when the MCP men gained control of the company many of the Engelhard people left or were fired, and an air of hardworking sobriety settled over the firm. Rosenthal and his advisors cut back on luxuries but expanded mightily their trading business, which, soon after the 1973 oil crisis, began handling oil on the spot market. Commodities traded on the spot market, as opposed to the futures market, are for immediate delivery. From modest beginnings, the oil spot market quickly reached critical importance during the 1970s, a decade in which all natural resources seemed in short supply, and by 1978 Philipp was trading $4.5 billion in oil alone. Its $9 billion in total sales dwarfed the minerals-and-chemicals and precious-metals business of its partners, even as the latter became increasingly successful in the development of fluid catalytic cracking materials and exhaust emission control converters.

Philipp Brothers owed its success primarily to the scarcity of its commodities and the skill of its traders. By keeping tabs on the needs of both producers and consumers of over 100 kinds of raw materials, Philipp was able to buy and sell large quantities of goods for small but almost instant profits, and even offered its clients the use of a company bank in Switzerland to help finance the construction of new plants or to make unusually large purchases. As the markets for raw materials became increasingly widespread, Philipp’s business continued to grow at a fantastic rate, and from 1978 to 1980 EMCC’s sales jumped from $10 billion to $26.5 billion, about 90% of which was due to Philipp. So great a disparity between former partners naturally strained corporate relations, as minerals-and-chemicals people along with those in precious metals felt overshadowed by their trading counterparts and had trouble justifying time spent managing assets that grew at so comparatively slow a rate. In the spring of 1981, therefore, metals-and-minerals and precious-metals division of EMCC were spun off as a new, publicly traded entity to be called Engelhard Corporation, while Philipp Brothers went its way as Phibro toward an eventual merger with Salomon Inc. Harry Oppenheimer’s Anglo American Corporation maintained a 30% stake in both companies, a double wild card waiting to be played at any time.

The new Engelhard Corporation set about revising its mix of sales. In 1983, for example, when the company did about $2 billion in sales, 85% of the sales were generated by the precious-metals business, but the much smaller minerals-and chemicals-division produced 60% of Engelhard’s net income. As a result, in that year the company began referring to itself as a specialty chemicals firm, and two years later regrouped its businesses according to function rather than the raw material involved. Thus, all catalytic businesses became part of the specialty-chemicals division, regardless of whether they made use of kaolin or platinum for their catalysis; while the specialty-metals division worked strictly with metals technology and metals management services. This gradual redefinition and housecleaning continued up to the 1990s, with Engelhard announcing that it would sell off some of its remaining gold and silver businesses and begin deep cuts in its salaried staff, in anticipation of which the company took a special charge of $160 million in 1989.

At the end of the 1980s Engelhard Corporation derived the lion’s share of its sales from the remaining portion of its precious-metals fabrication business, $1.6 billion, but far more profitable was the catalysts-and-chemicals division, which earned $43 million on sales of $450 million in 1989. Much of that was generated by fluid catalytic cracking materials made for the petroleum industry. Even more promising was the performance of the company’s third product grouping, now known as pigments and additives. This group, a descendent of the EMCC merger partner that produces paper coatings and pigments for the plastic and paint industries, along with several businesses purchased in 1988 from the Harshaw/Filtrol Partnership, netted $53 million on only $360 million in sales. It was no surprise, therefore, that despite its heritage as one of the world’s premier users of precious metals, Engelhard is steadily moving toward the more lucrative fields of catalysis and specialty chemicals.