Fort Howard Corporation
Fort Howard Corporation
Fort Howard Corporation
Sales: $1.185 billion
SICs: 2676 Sanitary Paper Products
One of the largest tissue manufacturers in the United States, Fort Howard Corporation accounts for about a quarter of the domestic bathroom and facial tissue market, and features a product line that also includes towels, napkins, and related products. Fort Howard has a reputation for privacy and self-sufficiency, having operated as a private company from its founding in 1919 until 1971, and then again after a management-led leveraged buyout in 1988. Today, Fort Howard is a billion-dollar company.
During World War I, Austin Edward Cofrin left New Hampshire to become a superintendent of the Northern Paper Company in Green Bay, Wisconsin, but he lost his job when a new management team took over that paper company. Just 35 years old at the time, Cofrin turned to other investors and workers to raise $350,000, with which he started his own paper company. In 1920 Cofrin oversaw 43 employees, while also covering the positions of secretary and treasurer in his new company. The 30,000-square-foot building that housed his plant was old and so was the machinery. Cofrin could not afford to buy a mill to turn timber into pulp; instead, he made paper from recycled items, such as rags.
Soon the young man from a modest New Hampshire farm family was running one of the top paper mills in Green Bay. Cofrin became president of the Association of Commerce in 1927 and was a well-known figure in Green Bay. Despite his public standing, however, by the late 1920s Fort Howard was already earning its nickname, The Fort, by carefully guarding its production techniques and balance sheets, and revealing its strong distaste for the press. Behind the walls surrounding the plant, Fort Howard was grooming a team of technicians and managers and perfecting its production and marketing methods.
In 1946, A. E. Cofrin’s son, John Cofrin, joined the firm. Though it would be some time before John Cofrin would take over the reins, he learned by his father’s example to keep the company as self-sufficient as possible. Fort Howard generates its own power, runs its own truck fleet, and makes many of its own chemicals. Its proprietary de-inking technology has been a primary factor in its high operating income margins. This technology allowed Fort Howard to buy low-grade waste paper, de-ink it, cook it to pulp, and make new paper that could then be converted into tissue and paper towel products.
John Cofrin became president of the company in 1960, after his father suffered a stroke. During this time, the company was forced by securities regulations to open its books to the public. In 1969, Fort Howard moved the bulk of its property, then located in Ashwaubenon, to Green Bay. Common stock for Fort Howard was offered for the first time in 1971. The following year, Fort Howard joined the New York Stock Exchange and saw its sales top the $100 million mark. It was a decade of dizzying growth and change for the company.
Four years after John Cofrin became president, Paul J. Schierl joined the company. Schierl, a magna cum laude Notre Dame law graduate, took over as president in 1974 as John Cofrin became chair of the board. Just a few months after that move, Cofrin had surgery for throat cancer and died of a brain hemorrhage afterward. John Cofrin’s death marked the end of an era in many ways. He had continued his father’s legacy of close-to-the-chest operations while honing internal efficiency, and had seen many men made rich by the stock of his father’s company. The Cofrin holdings were estimated to be about 40 percent of the corporation by the 1960s. Schierl was considered the company’s bridge into modernity in some ways, though he too honored the company’s traditions of tight-lipped self-sufficiency and a balance sheet that was in the black.
In 1975, Schierl’s first year as president of the company, sales topped $200 million. By 1978, Schierl had expanded beyond The Fort’s boundaries, opening a paper mill in Muskogee, Oklahoma. Two years later, the company’s founder, A. E. Cofrin, died at age 96. Had he lived another year, he would have seen Fort Howard hit the Fortune 500 List. In 1982, sales reached $537 million.
At this point, Fort Howard was selling its paper products, such as tissues, toilet paper, paper towels, and napkins, primarily to a variety of institutions that included airports, schools, hospitals, plants, and restaurants. Consumer brands accounted for only about 13 percent of Fort Howard’s sales in 1983. The company’s profit margin was aided by the fact that more than 90 percent of its pulp came from recycled paper—much cheaper than virgin pulp—and its entire U.S. work force was nonunion. While business was booming, David acquired Goliath: Fort Howard purchased Maryland Cup Company, a company with larger sales, though less profits, than Fort Howard. Maryland Cup’s strength was in the flourishing fast-food market, for which it made plastic products, such as disposable tableware, plates, and cups. Sales for Maryland were $656 million when Fort Howard gobbled it up. The price tag was about $536 million. With this acquisition Fort Howard became a billion-dollar company with a work force of more than 14,000.
In 1984, Schierl became chair of the board, with Donald H. DeMeuse taking the president’s desk. A new $500 million paper mill was begun on a Georgia site in 1985. That same year, sales rose to $1.36 billion. Also in 1985, Fort Howard acquired Lily-Tulip Inc., a buy that would prove costlier than expected. The cash price was $332 million, which exceeded the fair market value of Lily-Tulip’s assets by more than $260 million. That and the cost of closing and reconsolidating the Maryland Cup facilities—and merging the results with Lily-Tulip to form Fort Howard Cup—led to the company’s first flat earnings since going public in 1971. In addition to the new plant in Georgia, Fort Howard was investing a third of a billion dollars to upgrade its facilities in Green Bay and Oklahoma.
At this point, the company’s success was largely attributed to its credo of self-sufficiency. It reinvested its earnings in the business—a business that was, to some extent, cushioned from competition due to the high cost of machinery. Fort Howard’s de-inking technology allowed the company to use a broad range of wastepaper grades and to process wastepaper more efficiently, recovering the fibers that were the principle raw material in paper-making. But the company’s strength was also a weakness: the de-inking process and Fort Howard’s energy sources generated odors, effluents, and emissions that caused considerable friction between the company and environmentalists.
In the summer of 1985, there was a dramatic showdown between Fort Howard and a Greenpeace sailboat on the Fox River. The Fox River is one of the most heavily industrialized rivers in the United States, with 15 pulp and paper mills along its 40-mile lower stretch. Fort Howard is only one of these, but Marc Hudson, writing in Audubon magazine, called it one of the largest single contributors of PCB (polychlorinated biphenyls) pollution to the Great Lakes, via the Fox River. PCB is only one of many potential contaminants that began impacting the birds and fish along the Fox River. After aggressive attention to the problem in the late 1970s resulted in decreased PCB readings, the levels steadied again around 1982, but several community action groups were formed in an effort to rescue the river. Fort Howard was by no means the only company targeted for complaints. However, when a Greenpeace boat made a symbolic visit to the river, Fort Howard built a security fence, stationed guards, and greased the plant’s chimney, a move for privacy that seemed extreme to some observers. A diver for Greenpeace climbed the security fence and was arrested, but not before he had discovered three discharge pipes instead of the one pipe Fort Howard had reported to the Department of Natural Resources (DNR). Greenpeace tried to play this item up, while the company and the DNR played it down.
Schierl himself publicly voiced his regret at the escalated drama of the Greenpeace confrontation. No one would dispute that relations remained tenuous between the company and environmentalists, but Fort Howard’s reputation was not formed along those lines alone. As the largest employer in Brown County, Fort Howard had a certain rapport with government officials and citizens. Countering its image as a polluter of area waters, the company was cited for its recycling efforts, including the recycling of old telephone books and programs for collecting and recycling office wastepaper. And the Fort Howard Paper Foundation, which originated in 1953, has dispensed hundreds of thousands of dollars annually, shifting in focus over the years from gifts of medical equipment to support for youth-related activities and education issues.
In 1988, Fort Howard Corporation and Morgan Stanley Leveraged Equity Fund formed FH Acquisition Corporation and took the company private. The buyout group was headed by CEO and chair Schierl, as well as other top executives of the company. The leveraged buyout left the company struggling with its roughly $3.7 billion debt. It was originally reported that Fort Howard’s cash flow would service the debt. Morgan ended up with about 75 percent equity ownership.
In the meantime, the company was still struggling to right itself from the 1987 economic crash and the assimilation of its Maryland Cup and Lily-Tulip acquisitions. Cup sales had been suffering along with the stock market, and with these acquisitions, Fort Howard’s focus had shifted from manufacturing, which had been its expertise, to marketing. But the company still had not regained its equilibrium. Fort Howard Cup had cut back on its sales organizations, not realizing that price alone wouldn’t sell the cups. The unit began losing market share almost immediately. The company sold its cup unit in 1989 for $620 million, taking a loss on the $864 million it had spent building it. The unit was spun off through Morgan as Sweetheart Holdings Inc., with the acknowledgement that it could become profitable once its marketing errors were corrected. In 1989, the company also sold its Pacific Basin cup business and, the following year, its European disposable food service operation.
The overleveraged Fort Howard was still left groaning beneath cash interest payments. Basic business was solid, but cash flow slowed. In 1990, the company secured a $250 million cash infusion from shareholders, including Morgan Stanley. A portion of the proceeds were to be used to retire many high-yield junk bonds as part of major refinancing. In the meantime, although the company had been reporting strong operating profits, it experienced net losses because of its debt load. Schierl quit in 1990, and Donald DeMeuse became CEO and president.
Also in 1990, Fort Howard launched a 100 percent recycled toilet tissue and paper towels line under the Green Forest label. A similar line had already been introduced with success in the United Kingdom. Fort Howard considered it a niche opportunity, convinced that Americans were becoming more and more concerned about recycling. The company also kept its $180 million expansion program on schedule, including a new tissue machine, a new boiler, and a natural gas-fired steam and electric cogeneration facility.
In 1992, Fort Howard was prepaying a portion of its bank debt with a loan led by Bankers Trust Company. The company remained very highly leveraged at the close of 1992, and was suffering as well from a competitive market as more companies were being called upon to invest in recycling facilities. The company saw some margin deterioration after decades of steadiness. Still, in the early 1990s Fort Howard, with its management team primed and determined to steady the company’s course, had the advantage of being a low-cost producer with a leading market share in the commercial segment of the tissue market.
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—Carol I. Keeley