International Controls Corporation
International Controls Corporation
2016 N. Pitcher St.
Kalamazoo, Michigan 49007
Fax: (616) 343-1660
Sales: $909 million
SICs: 3715 Truck Trailers; 3465 Automotive Stampings; 6719 Holding Companies Nec
International Controls Corporation (ICC), is the holding company of Checker Motors Corp. and Great Dane Trailers Inc. Reporting sales of $909 million in 1993, from which it earned a ranking among Fortune magazine’s top 500 American companies, ICC had net losses of $43 million, due primarily to circumstances surrounding its large debt load. ICC had at various times during its history controlled over 50 companies— including an electronics firm, a defense contractor, a trucking company, and an auto parts manufacturer—under an expansion plan initiated by the notorious financier, Robert Vesco. However, the company was forced to liquidate many of its holdings in the aftermath of a debacle involving charges of securities fraud against Vesco. Thereafter, the company spent years trying to rebuild its reputation and financial condition.
ICC was founded in 1959 as a small producer of electronic devices for aircraft and computers. Although the electronics industry was beginning to flourish during this time, ICC remained a small company, grossing about $300,000 per year and netting virtually nothing. By 1965, ICC was struggling to survive, when a buyer, Robert Vesco, promised to provide a much-needed infusion of capital.
Vesco, the son of a Detroit autoworker, dropped out of engineering school in his early twenties to go to work for an investment firm. After a brief foray in a minor position at the firm, Vesco decided to go it alone. With an $800 stake, he began matching buyers and sellers in the aluminum market, until he eventually acquired a portion of the profits of a floundering aluminum plant. By 1965, he was in a position to borrow enough money to acquire ICC, and Vesco’s notorious rise to wealth began.
At ICC, Vesco established a business strategy of borrowing heavily to make acquisitions. The revenues generated from these investments were, in turn, used to gain increasingly larger loans to further expand the company’s holdings. Vesco, extremely adept at cultivating investors, including bank presidents and experienced entrepreneurs, reportedly emphasized ICC’s impressive sales figures and downplayed its substantial debts. While ICC’s sales rocketed to $6.8 million in only two years as a result of Vesco’s acquisitions, rising interest rates began to take a heavy toll on ICC’s large debts.
In 1969, Vesco launched an unfriendly takeover bid against Electronic Specialty, a West Coast manufacturer of aircraft parts and electromechanical components, which had annual sales of over $100 million. After a succession of lawsuits initiated by ELS shareholders, Vesco managed to gain control of 55 percent of ELS stock, incurring another $20 million in debt in the process. Nevertheless, banks continued to lend ICC money based primarily on its annual sales figures, which included sales from the recently acquired Intercontinental Industries, a Dallas weapons manufacturer. The original owner of Intercontinental sued Vesco for control of the company, noting in a 1969 article in Forbes: “I never saw the likes of this guy. . . I haven’t been paid for it, even though Vesco has consolidated it in his figures.” The two companies eventually reached a settlement, which again further raised ICC’s debt load.
Still, Vesco remained committed to his acquisition policy, noting in an article in Forbes: “The main thing is the future.... Now that we are a $100 million-plus company, we can look at a $300 million one. I plan to do a billion by 1971.” Toward that end, in 1970, Vesco began a successful takeover bid for Investors Overseas Services (IOS), a mutual fund investment firm with holdings of $ 1.5 billion run by financier Bernard Cornfield. The investment service provided the funds Vesco needed to further expand ICC’s network of holdings but eventually proved integral to his undoing.
According to later allegations, Vesco began to move money from lOS’s mutual funds out of blue-chip stocks and into various offshore enterprises controlled through ICC. By 1972, the Securities and Exchange Commission (SEC) and some IOS investors had become suspicious of Vesco’s activities, and an inquiry was launched. In an attempt to squelch the investigation, Vesco reportedly delivered $200,000 in cash to President Richard Nixon’s re-election campaign—a move that, once uncovered, brought the investigation onto the front pages of the nation’s newspapers.
In February 1973, with criminal charges against him imminent, Vesco took the corporate jet and fled to Costa Rica along with about $200 million worth of lOS’s investments, according to SEC allegations. Vesco would continue to wage a legal battle from Costa Rica and the Bahamas to try to maintain control over his 26 percent of ICC stock, but, with five outstanding indictments for securities fraud against him, he could not return to the United States.
When Vesco fled the country, he left behind him a corporation that was not only at the center of the biggest financial scandal of the decade but that also had posted a loss of $38 million in the previous year and was in debt for more than $48 million.
Moreover, ICC was named in several lawsuits related to the Vesco debacle. The company was immediately placed under court supervision, and all stock was suspended from trading. The court appointed a board of five directors, who, in turn, appointed Allen Shinn, a retired U.S. Navy Admiral, as chairperson of ICC.
Elmer Sticco was named chief operating officer and company president. Sticco had been a senior manager at Electronic Specialties when ICC acquired that company in 1969. After the acquisition, Electronic Specialties became an ICC division, with Sticco as its leader. Although he was aware that Vesco’s dealings were not always above board, Sticco deliberately avoided any direct involvement with his boss’s decisions and was cleared of any wrongdoing during the SEC investigations. With his thorough understanding of the company’s strengths and failings, Sticco was in a perfect position to assume management of ICC.
The first step in bringing ICC back to viability was to reduce its huge debt. The company sold 11 of its divisions, including Portland Heavy Industries, which was acquired by Boeing for $16 million. When the major pruning was done, ICC was left with only two major subsidiaries, Datron Systems and American Industries. Long term debt was reduced from $48 million to a more manageable $22 million, and stockholders’ equity rose from $7 million to $18 million. Next, Allen Shinn toured the country trying to reassure suppliers and customers who were reluctant to deal with the tainted company. By 1976, ICC was recording net profits of almost $2 million, and, by 1980, sales had climbed to $ 117.9 million with earnings of over $7 million.
Despite this dramatic turnaround, ICC struggled to shake off Vesco’s legacy. In 1977, at the first stockholders meeting following the court takeover, a three-way fight for election to the board of directors ensued. Two groups of shareholders staged competing attempts to topple the court-appointed board of directors, claiming that Sticco had received an unduly large salary and bonuses, and that ICC lawyers were deliberately slow to reinstate stockholder control of the company in order to continue collecting their large retainer fees. The third party in the struggle was Robert Vesco, who filed a suit, through his daughter, to regain control of the 25 percent of shares that had been confiscated from him and placed in the hands of a court-appointed trustee. Both Vesco’s lawsuit and the stockholders’ revolt were ultimately unsuccessful, but the controversy and publicity surrounding the event did little to bolster ICC’s reputation.
By 1981, ICC appeared close to severing its ties with Vesco. A final payment of $11 million to IOS settled the company’s liability for Vesco’s dealings. In addition, ICC regained control of the outstanding 25 percent share in the company by paying $640,000 to Vesco’s family. In an article in Forbes that year, Sticco remarked, “There is a real possibility that after next year we can put out an annual report without the name Vesco in it.”
During this time, ICC’s defense related industries blossomed under the Reagan administration’s increased defense budget. With the U.S. government as its largest customer, ICC looked forward to several years of multi-million dollar contracts for its military hardware. Total sales in 1980 topped $117 million, and earnings rose to $7.2 million, almost doubling the previous year’s performance. Moreover, for the first time in the company’s 20-year history, ICC directors began discussing the possibility of declaring a cash dividend for stockholders. Based on the company’s improved financial condition, three banks established a $10 million credit line for ICC, which hoped to make some large acquisitions over the next few years. “If we’re sitting here with quality management, there’s nothing I could get involved with that I couldn’t handle,” Sticco commented in Forbes during this time.
However, in the mid-1980s, an unexpected and unwelcome takeover bid was initiated by financier Arthur Goldberg. Referred to by Forbes magazine writer Phyllis Berman as “an accomplished greenmailer,” Goldberg had a history of investing heavily in companies and then selling out at a profit either to corporate raiders or to company management, who sought to avoid a takeover. Goldberg began to buy up ICC stock in 1984, and, the following year, he teamed up with Bear, Stearns, an investment firm, to acquire 22 percent of ICC stock. His takeover bid was at first flatly rejected by Sticco. However, after suffering a series of crippling heart attacks, Sticco agreed to resign his post in favor of the newcomer. The ICC board was apparently unaware of Goldberg’s investment history; one ICC director was reported to have asserted, “He’s not a raider type. He’s not in it for a quick kill, at least it doesn’t seem so to me.”
Goldberg’s first move, taken within days of assuming control at ICC, was to convince the board to designate $100 million in bonds for acquisitions. Within a matter of months, ICC made an offer to acquire Transway International Corp., a huge trucking firm with annual sales of nearly $900 million. With the acquisition, which one Journal of Commerce analyst compared to “a minnow swallowing a whale,” ICC’s revenues swelled from about $166 million to almost $1 billion, and its stock rose from $16 to $28 per share. While stock and revenues were up, the company was $427 million in debt from the Trans-way deal.
Next, Goldberg decided to take ICC private. In early 1987, he directed the company to offer $32 per share for the 71 percent of the publicly held stock. Stockholders balked at the low figure, and five separate class action suits were filed. Goldberg and the stockholders finally agreed on $44 a share, and ICC borrowed more money to pay for the privatization of its stock. In 1988, Goldberg’s ICC, again heavily in debt, began to sell off its divisions, and, by the end of the year, Great Dane Trailers Inc., a company bought in the Transway deal, was the only remaining ICC subsidiary. While ICC remained in debt for $360 million, the divestitures had brought in some $157 million in cash with which Goldberg and his partners could arrange further financing.
Next, Goldberg arranged one of the intricate financial deals for which he had become known. His associate in the deal was Martin Solomon, a former IOS financial advisor to Robert Vesco and a government witness in the Vesco case. Along with some partners, Solomon had recently undertaken a $60 million buyout of the Michigan-based Checker Motors, at one time the top manufacturer of taxicabs. The once powerful company had given up its cab manufacturing business in the early 1980s to focus on automotive stampings and the operations of its two subsidiaries, the Yellow Cab Co. of Chicago and an insurance firm. Solomon and Goldberg arranged for ICC to acquire Checker Motors for $135 million in cash, available from ICC’s divestitures. Solomon and his three partners then formed a new company, Checker Holding, which in turn acquired all of the equity in ICC for $45 million. Finally, Checker Holding was merged into ICC, leaving ICC in control of two subsidiaries, Checker Motors and Great Dane Trailers Inc., all of which were overseen by Solomon and his partners. After only four years, Goldberg ended his involvement with ICC, which was then nearly $400 million in debt.
In the early 1990s, ICC focused on alleviating its huge debt burden. In 1992, Standard & Poor’s dropped its rating of the company’s stock from CC to CCC-, in response to ICC’s large debt ratio and the depressed truck and auto industries, which were now ICC’s chief business sectors. Despite large revenues from Great Dane Trailers, which placed ICC in the Fortune 500 list of top grossing companies, ICC still recorded a net loss of $43 million in 1993. With new corporate headquarters in Kala-mazoo, Michigan, the volatile company strove to overcome its financial burdens and a reputation that prompted mistrust among investors.
Checker Motors Corp.; Great Dane Trailers Inc.
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