Incorporated: 1929 as American I.G. Chemical Corporation
Sales: $850 million (1996 est.)
SICs: 2952 Asphalt Felts & Coatings; 3229 Pressed & Blown Glass & Glassware, Not Elsewhere Classified; 5039 Construction Materials, Not Elsewhere Classified; 6719 Offices of Holding Companies, Not Elsewhere Classified
The GAF Corporation of the late 1990s essentially consists of its GAF Materials Corporation subsidiary, the largest manufacturer of residential and commercial roofing products in the United States. GAF Chemicals Corporation, a maker of specialty chemicals, was the company’s other major subsidiary, until it was taken public in 1991 as International Specialty Products, Inc. (ISP), with GAF retaining an 80 percent stake. ISP was subsequently distributed to GAF shareholders in 1997, leaving GAF with no interest in its former subsidiary. GAF’s rich history covers more than 150 years and includes separate ownership by German chemical giants Frederick Bayer & Company and I.G. Farben; seizures of the company by the U.S. government during World War I and World War II; a 23-year period of control by the U.S. government starting in 1942; sale to the public in 1965 in one of the largest competitive auctions in Wall Street history; a 1983 proxy takeover led by Samuel J. Heyman; being taken private in 1989; and the 1990s spinoff of the specialty chemicals operations. Heyman still owns most of GAF Corporation and remains the company chairman.
Bayer and I.G. Farben Roots
GAF had auspicious beginnings. The company was founded in April 1929, as an American arm of the enormous German chemicals trust, I.G. Farben-industrie. Known throughout the world as I.G. Dyes, the German corporation was involved in most areas of the worldwide chemicals industry, pressing forward with massive investments in research. In 1929 I.G. Dyes was classed as the largest industrial corporation in Europe. Six executives from I.G. Dyes joined with a handful of prominent American businessmen—among them Edsel Ford, president of the Ford Motor Company; Walter Teagle, president of the Standard Oil Company of New Jersey; Charles Mitchell, chairman of the National City Bank; and Paul Warburg, chairman of the Industrial Acceptance Bank—to form the board of directors of the American I.G. Chemical Corporation.
For its plant facilities, the new corporation acquired substantial interests in Agfa-Ansco Corporation of upstate New York and General Aniline Works, Inc., which operated in New York and New Jersey. Agfa-Ansco’s roots dated to a photographic supply business, the Edward Anthony Company, set up in New York City in 1842. During the Civil War, Matthew Brady used supplies from Edward Anthony to capture his famous photographs. In the early 20th century, Agfa-Ansco ranked second to Kodak in U.S. production of photographic materials and film.
General Aniline Works, formerly the Grasselli Chemical Company, had established itself as a major manufacturer of synthetic organic chemicals and dyestuffs since its founding in Rensselaer, New York, in 1882 as Hudson River Aniline Color Works Company. Hudson River was later acquired by the leading German chemical firm of the late 19th century, Frederick Bayer & Company, which renamed it the Bayer Company in 1913. This company made the first Bayer aspirin sold in the United States in 1905. The Bayer Company was seized by the U.S. government during World War I because of its German ownership and was sold at auction to Sterling Products in 1918. Sterling subsequently sold Bayer’s chemical business to the Grasselli Chemical Company. After I.G. Farben acquired Grasselli in 1928, Farben changed Grasselli’s name to General Aniline Works, Inc.
The plans for American I.G. were to provide competition to other American chemicals firms and to exploit the patents of I.G. Dyes in the new American market, which it did over the next decade. Initially, the company’s trump card was its process for the hydrogenation of coal, which produced gasoline as a by-product; this largely accounted for the initial interest that the presidents of Ford and Standard Oil had in the new corporation. Other products that were developed and distributed by American I.G. included dyestuffs; pharmaceuticals; solvents; lacquers; photographic products and films; synthetic silk and other fabrics; a range of nitrogen products, including chemical fertilizers; and an array of other organic and inorganic chemicals.
In 1939 the company changed its name to the General Aniline and Film Corporation, after having acquired all of General Aniline Works and merged with Agfa-Ansco, of whose stock it owned 81 percent. By that time it had received approximately 3,900 patents for its vast stock of chemical formulations.
From the beginning, General Aniline was designed to be largely controlled by and dependent upon German direction and research. Almost all of its research took place in Germany, and chemical intermediates were manufactured in that country and sent to U.S. plants only for final preparation. The company’s consistent success was earned through a steady performance in the fields of dyes, chemicals, and photographic products. In fact, General Aniline was the leading U.S. manufacturer of dyestuffs until du Pont caught up in the late 1930s. An acquisition that had an impact on the company’s future was that of the Ozalid Corporation, a producer of copying equipment, in 1940.
Seizure During World War II
General Aniline and Film survived some early criticisms of its very existence by Americans who questioned the prudence of such a large German concern operating in the United States. The company’s record was legitimate, but the direct participation in its management by German citizens had raised some cautious eyebrows on Wall Street and in Washington. Soon after it became apparent that the United States would be an active participant in World War II, General Aniline was seized by the U.S. government in February 1942, under the Trading with the Enemy Act. It was the largest asset taken over by the United States in World War II.
This move developed into a longstanding legal dispute between the U.S. government and I.G. Chemie, a Swiss holding company that was the majority stockholder of General Aniline. Prior to 1940 I.G. Chemie had been a branch of I.G. Dyes, but the company contended that it broke all relations with Germany during that year, becoming an independent corporation called Interhandel. The U.S. view was that I.G. Chemie remained a front for I.G. Dyes, despite its claims to the contrary. An out-of-court settlement between the Justice Department and Interhandel was finally reached over 20 years later—General Aniline would be sold to the public, and proceeds from the sale would be split 60 percent/40 percent, with the United States receiving the majority share.
Period of U.S. Government Control, 1942-65
Between 1942 and 1965, General Aniline was managed by government-appointed directors. It was a turbulent, minimally profitable time for the company. All told, during this period the company had seven different chief executives and over 80 directors. In several regards the government’s hands were tied, preventing it from acting as freely and spontaneously as most managers could during this period. The rapid turnover of directors in itself created a barrier to long-term planning. The directors were excessively cautious, in most cases focusing on immediate rather than long-term results, never knowing when the company would be sold to the public. The pending lawsuit with Interhandel created an atmosphere resistant to risk-taking, as each potential move by General Aniline was accompanied by threats of further legal action by Interhandel. For instance, one injunction, obtained by Interhandel in 1957 in order to prevent dilution of General Aniline’s equity, prohibited the company from issuing its shares for acquisitions or from entering the equity and capital markets for money with which to expand. As board president Jack Frye stated in 1953, “One of the problems of this company is that, due to its ownership situation, the management, the boards of directors, and all concerned are extremely cautious about making expenditures. In trying to avoid mistakes, they actually move more slowly than do their competitors.”
Because of these restrictions, General Aniline’s growth was stagnant compared to competitors in the same industries. In film and photographic equipment, the company competed chiefly with Kodak, in chemicals with du Pont, and in copying equipment with Xerox. All these firms, indeed each of the industries in question, experienced unprecedented growth and diversification through the postwar period and into the 1970s.
In spite of its cautious management and modest overall growth, General Aniline did achieve some significant successes in the 20 years after the government takeover. One bright spot was the work of the brilliant chemical engineer, Dr. Jesse Werner, who led the task of replicating the formulas of all the important compounds that were formerly produced at the parent company in Germany. A central research laboratory for the dyes and chemicals divisions was set up in Easton, Pennsylvania, in 1942, employing 400 chemists. Management was more venturesome in this area than in others and spent a good deal of money on product and market research and on the development of chemicals. These divisions produced an array of successful innovations including a chlorinecaustic plant set up in New Jersey in 1956, and the company’s pioneering efforts in the field of synthetic detergents. The most important technical triumph was General Aniline’s success with acetylene derivatives, a fledgling branch of chemistry in which the company’s progress far surpassed its competitors’.
In the 1920s an I.G. Dyes chemist, Julius Walter Reppe, found a way of handling acetylene under pressure without explosion, something that was previously thought by chemists to be impossible. Reppe’s patented processes were found in General Aniline’s American vaults in 1940 and were used as a basis for research by the chemists in Easton. Some of the earliest marketable uses of acetylene-based chemicals were the PVP (polyvinylpyrrolidone) family of products, which use a white powder that is the product of the pressurized combination of acetylene and formaldehyde; some of its uses are as a blood volume expander, suspending agent, tablet binder, and a fungicide, as well as a component in cosmetics, photographic chemicals, ink, paints, adhesives, detergents, and glass.
As of 1962, General Aniline remained the sole producer of the immensely profitable acetylene derivatives in the United States. The commercial success of acetylene products can be largely attributed to Dr. Jesse Werner, who had risen through the technical ranks of the company in the 1940s, and who was named director of commercial development in 1952, charged with the responsibility of exploiting the chemists’ discoveries. He implemented large-scale plans for the growing industrial uses of acetylene compounds and eventually became company president in 1962, the first chief executive of General Aniline to have worked his way up from the laboratory.
Although a large amount of money was poured into chemicals and dyestuffs research, the photography and copying equipment divisions were relatively neglected. Two discoveries by researchers in the Agfa-Ansco labs would have had a large impact on the industry, had they only received attention and funds for marketing. In the mid-1940s, a chemist named Vsevolod Tulagin invented a new dye system for color photography. His scientific peers believed it was better than what was on the market, but the business managers had little confidence that they could have a product that was of higher quality than Kodak’s offerings. Then in 1951-52, Ansco developed a color movie film that was far more realistic than the super-real colors being viewed on movie screens at the time. In addition, the Ansco film could be developed within ten hours, on location, which was unheard of in the industry. Again, the circumspect General Aniline board refused to allocate the funds for an Anscofilm plant that would make production feasible.
The Ozalid division, which produced copying equipment, suffered from a similar lack of support. Its development of small office copiers and all-purpose copiers was sluggish in a booming industry, and its marketing organization was under-equipped with money and personnel. In addition, Ozalid’s management was even more erratic than that of parent General Aniline; between 1957 and 1963 Ozalid had eight chief executives.
Despite all the shortcomings with Ansco and Ozalid, each maintained steady profit levels through the 1960s; the industries in which they competed were expanding rapidly, so even with decreased percentage market shares, Ozalid and Ansco could remain profitable. Ansco’s concentration during this period shifted from the amateur photographic market to the commercial market, and the subsidiary handled substantial government contracts as well. As a point of interest, the camera used by the astronaut John Glenn was a modified Ansco Autoset. Ozalid’s chief market share was in the engineering field; its process involving the use of diazo-sensitized paper to produce an image upon exposure to ammonia was one of the best and cheapest at the time and achieved great success in the reproduction of engineering drawings.
Sale to the Public in 1965
A benchmark in General Aniline’s history came on March 9, 1965, when the 23-year control by the U.S. government ended with the biggest sale of stock by competitive bidding in Wall Street history. Dr. Werner, who had been appointed president and chief executive officer of General Aniline in 1962 and was voted chairman of the board on October 5, 1964, stood at the helm of the company as it entered this period of rebirth. He consolidated the company into two divisions: dyestuffs and chemicals, and photography and reproduction. In the 23 years since the U.S. seizure of General Aniline, its research program had earned almost 2,000 patents, and optimism for the company’s future ran high.
Unfortunately, General Aniline was actually entering a new 20-year era of questionable management, during which Werner ran through a diverse roster of managers, products, and industries, which never quite panned out as his plans predicted. By the end of this period, in 1981, the firm’s shares were selling for less than one-third of their 1965 offering price, and the company placed 1,004th out of 1,023 in the profitability rankings in Forbes magazine. Back in 1966, Werner planned to focus on growth in the company’s four existing fields, because, as he said, “We have too many product lines, too much diversity for our size.”
Expansion into Roofing in 1967 with Ruberoid
General Aniline’s only significant acquisition during Werner’s tenure was the 1967 purchase of Ruberoid Corporation, which added roofing and related products to the company’s lines. This forerunner of the GAF Materials Corporation subsidiary was founded in 1886 in Bound Brook, New Jersey, as the Standard Paint Company. The year of its founding, Standard Paint introduced RUBEROID, the first ready-to-lay asphalt roofing material, which was developed by company chemist, William Griscom. This product, which achieved mass-market status over the next two decades, revolutionized the roofing industry because of its rubberlike quality and its distribution in convenient rolls. In 1898 the RUBEROID product was enhanced when Standard Paint began to embed artificially colored ceramic granules in it, improving the product’s durability, fire resistance, and attractiveness.
In 1921 Standard Paint recognized the importance of its flagship product by adopting a new name, The Ruberoid Company. Ruberoid subsequently enhanced its position as a leader in the roofing industry when it introduced Tite-On Shingles in 1933. These were the first interlocking roofing shingles in the country and were much better able to withstand severe weather conditions than previously available shingles. In 1967, the year of its acquisition by General Aniline, the company introduced its Timberline Series laminated shingles, which improved the appearance of roofs and quickly became the top-selling laminated product on the market.
Struggling Through the Early 1980s
Meanwhile, the general trend between 1962 and 1982 was that research, development, and marketing outlays consistently fell short of what would have been necessary to forge market leaders for the newly named GAF Corporation (the acronym-derived name was officially adopted in April 1968). The photographic and copying business serves as a case study. This division offered a product line that was much narrower than its competitors’, including no color film for its offset printers; its annual research and development expenditures averaged one percent of revenue from the division. A GAP customer observed in 1979 that “GAF’s salesmen are very good, but there are just not enough of them.”
Obviously, GAP must have experienced some positive feedback for its efforts or the company would not exist today. Werner’s record also showed enough merit to withstand the pressures of a 1971 proxy fight, which was led by a family of stockholders who claimed he had “grossly mismanaged” the company during his career. Much of the company’s profitability was the result of successes in the chemicals division, where there was consistent progress in production and sales of acetylene derivatives, surfactants (detergents), engineering thermoplastics, and mineral granules used for roofing shingles. Surfactants and acetylene products were sold worldwide to the Pharmaceuticals, cosmetics, plastics, automotive, agricultural, textiles, oil and gas, paints, and paper production industries. GAP was one of only two worldwide producers of butanediol, itself an acetylene derivative, which was in turn used in the formulation of thermoplastic polyester compounds which had an enormous range of uses in the automotive, electrical/electronics, appliances, and other industries. The company also produced iron powders for the aerospace and electronics industries, products which were developed during the Werner years.
Heyman Takes Over in 1983 Proxy Fight
In 1978 Dr. Werner sold the consumer photo and processing operations, as well as the dyes and pigments interests, because of continued poor showings. This was the beginning of a massive five-year divestment program which, by the end of 1982, left GAP with only its two strongest lines, chemicals and building materials, as well as the New York City classical radio station WNCN, which the company had purchased for $22 million in June 1976 and which operated as a subsidiary, GAP Broadcasting Co. All in all, over half of GAF’s assets were shed during this period. Werner had seemingly played all his cards, but just when the trimmed-down company’s future again began to look bright, another proxy fight hit GAP, this one much more bitter and hard-fought than that of 1971. After a two-year battle, Werner lost out to an aggressive stockholder named Samuel J. Heyman, a real estate brokerage owner who had no previous corporate management experience.
Heyman assumed the directorship of GAP on December 14, 1983, with promises to trim all but the most profitable operations, including initial plans to liquidate the chemicals division. After thoroughly examining all of the company’s records, however, he saw great potential for growth in building supplies and chemicals. He first eliminated some management positions, slashed operating expenses by 23 percent in his first nine months, and moved the company’s headquarters from Manhattan to quiet Wayne, New Jersey. To instill a better sense of teamwork at the company, he decentralized management. Werner had called virtually all the shots himself, but Heyman wanted to spread decision-making responsibilities among regional and divisional managers.
The first 20 months of Heyman’s leadership brought remarkable success to GAP, based primarily on cost-cutting and effective management rather than on the expansion of lines of business. Still, under Heyman capital expenditures and research and development outlays were far greater than they had been in the Werner years.
In September 1985 Heyman stated, “We have no plans to take over other companies, but we are looking at the possible acquisition of businesses that would complement our existing chemical lines.” Over the following 18 months, however, GAP attempted hostile takeovers of engineering plastics and specialty chemicals concerns, Union-Carbide Corporation and Borg-Warner, and of a construction and industrial gas firm, CBI Industries. All three takeovers were ultimately thwarted, but the first two netted huge amounts of cash for GAP through the company’s sale of its stock shares in the targeted firms. GAF’s shares in Union-Carbide brought in close to $250 million, and the stock in Borg-Warner, purchased by eventual Borg-Warner buyer Merrill Lynch, earned $206 million for GAP. GAF’s shares in CBI netted a smaller but still significant $7 million.
Typical of the new management’s approach to business, Heyman steered much of these cash surpluses back into research for the building supplies and chemicals divisions. GAP sold its engineering plastics business in 1986 but remained one of only two producers of butanediol, which achieved steady increases in demand during this period. In 1988 GAP acquired Sutton Laboratories, a leading manufacturer of cosmetic preservatives.
The building materials division had been the market leader in residential roofing since the 1970s, and in the 1980s the division made major strides in the commercial roofing market. Even during the home-building lag of the early 1980s, GAP Materials Corporation was earning steady profits; then, business boomed in new home roofing, and grew even faster in premium re-roofing products designed to upgrade the appearance and value of homes. GAP led the trend toward fiberglass as well as simulated woodshake roofing products.
The 1980s culminated for GAP with the company being taken private in 1989 through a $1.4 billion highly leveraged buyout led by Heyman and 75 other members of management; only $43 million in cash was put up as part of the deal. At the time of the buyout GAF’s operating subsidiaries were GAP Chemicals Corporation, GAP Materials Corporation (GAFMC), and GAP Broadcasting Co., Inc.
Transformation in the 1990s
GAF Corporation had been through innumerable changes in its long history, but the events of the 1990s altered the company like no others. By the late 1990s the company had spun off its specialty chemicals division, which had been the company’s mainstay through most of its history, and was exclusively manufacturing roofing products. This transformation began in 1991 when Heyman engineered an initial public offering of GAP Chemicals, newly named International Specialty Products, Inc. (ISP). Heyman used the $285 million generated from the offering to pay down company debt, which was still high as the result of the 1989 leveraged buyout. Over the next few years, however, ISP fell on hard times, as competitors moved in to challenge the company’s dominance of certain key sectors. For example, Arco Chemical built a new plant to manufacture butanediol, ISP’s mainstay raw material, and was able to offer prices lower than ISP’s for products made from the chemical. Likewise, in 1992 BASF began operation of a new plant in Louisiana to make hair-care specialty chemicals; its modern machinery was more efficient than ISP’s outmoded equipment, leading to competitive advantages in terms of time-to-market. ISP’s operating income fell almost 47 percent from 1991 to 1993, while revenues decreased four percent during the same period. By late 1994 ISP’s stock had fallen almost 50 percent since the IPO.
Meanwhile, the staid GAFMC was quietly and steadily growing through a series of strategic acquisitions that enabled the company to offer complete roofing systems in both the residential and commercial markets. GAFMC purchased Cobra Ventilation Products, a maker of premier attic ventilation products, in 1992; International Permalite, a manufacturer of low thermal roofing insulation products, in 1994; U.S. Intec, a producer of an extensive line of commercial roofing products, in 1995; and Leatherback Industries, a supplier of roofing felts and construction papers for the residential market, in 1997. Continuing to maintain its top position in the U.S. roofing materials industry, GAFMC’s sales grew to more than $850 million by 1996, a more than 50 percent increase over the $559 million of 1993.
In March 1996 GAP sold the sole radio station owned by GAF Broadcasting—by that time known as WAXQ—to the Entercorn radio group for $90 million. The more significant divestment, however, came in January of the following year when GAF Corporation’s remaining stake in ISP was distributed to GAF shareholders, severing the last direct connection between GAF and ISP, although Heyman remained ISP chairman. By this time, ISP had been turned around through a renewed commitment to research and development and through an aggressive program of overseas expansion, including the opening of new plants in Europe in 1993 and in the Far East in 1995. Revenues surpassed $700 million for the first time in 1996, while operating income increased 12 consecutive quarters on a year-to-year basis starting in 1994.
GAF Corporation neared the new millennium exclusively as a roofing supplies company but as the leader in its sole industry. Although representing only a fraction of the rich history of GAF Corporation, GAF Materials Corporation was the top company in its field, was growing rapidly, and continued to proudly carry the GAF name.
G-I Holdings Inc.; G Industries Corporation; GAF Building Materials Corporation; Building Materials Corporation of America.
Briggs, Jean A., “I Like It Here,” Forbes, March 15, 1982, p. 35.
Carey, David, “Sam’s Math,” Financial World, April 19, 1988, p. 26.
Drew, Christopher, “Ruling Could Jeopardize Class-Action Settlements,” New York Times, June 27, 1997, pp. D1, D15.
“Duel’s End: Heyman Finally Wins GAF,” Fortune, January 9, 1984, p. 7.
Frank, Allan Dodds, “Shark Bait?” Forbes, November 18, 1985, p. 114.
Gannes, Stuart, “The Proxy Fighter Who’s Turning Around GAF,” Fortune, February 4, 1985, p. 84.
Hager, Bruce, “Now Comes Sam Heyman, Global Industrialist,” Business Week, July 15, 1991, pp. 110-11.
Jaffe, Thomas, “Will Sam Play It Again?,” Forbes, May 4, 1987, p. 182.
Kiesche, Elizabeth S., “GAF’s Chemicals Go Public—As ISP,” Chemical Week, September 18, 1991, pp. 22-23.
_____, “ISP Redoubles Efforts and Rethinks Expectations,” Chemical Week, November 10, 1993, p. 78.
“The Man Who Came to Stay,” Forbes, February 14, 1983, p. 14.
Moukheiber, Zina, “The Rise and Fall of Sam Heyman,” Forbes, October 24, 1994, pp. 42-43.
Ramirez, Anthony, “Restless GAF Is on the Prowl,” Fortune, February 3, 1986, p. 32.
Teitelman, Robert, “Looks Who’s Getting Rich on GAF,” Financial World, January 12, 1988, p. 11.
—updated by David E. Salamie