National Gypsum Company
National Gypsum Company
2001 Rexford Road
Charlotte, North Carolina 28211
Fax: (704) 365-7218
Sales: $511.1 million
Stock Exchanges: NASDAQ
SICs: 3275 Gypsum Products
The National Gypsum Company, the second largest producer and supplier of gypsum wallboard and related products in the United States, emerged from bankruptcy and legal difficulties in 1993 as a leaner and financially stronger company. With eight mines and quarries, 24 manufacturing and processing plants, and a network of chartered rail, sea, barge, and truck transportation, National Gypsum controls the production of wallboard and related products virtually from the mine to the walls of homes around the country.
Melvin Baker, Joseph Haggerty, and Clarence Williams incorporated National Gypsum Company in Delaware on August 29, 1925, to develop Haggerty’s new brand of wallboard, a mixture of newsprint, a mineral called gypsum, and starch. During this time, composite wallboard was replacing the plaster and lath method of making interior walls and ceilings, and Haggerty’s concoction was lighter and stronger than the gypsum products then on the market. Baker contributed a plan to market and sell Haggerty’s wallboard, while Williams had an option on a gypsum deposit near Buffalo. The three set about raising the $2.5 million they needed to mine gypsum products, build a plant, and organize a sales and marketing force.
At the heart of the new company’s marketing campaign was its “gold bond,” a certificate included with every shipment of wallboard that offered $5,000 to anyone who could prove that the product was not lighter and stronger than any other gypsum wallboard on the market. Soon the wallboard became known as Gold Bond Wallboard, and the product name was better known than the manufacturer’s name.
In 1927, the young company established a new plant in losco County, Michigan. It also barely survived the loss of two patent-infringement suits. Baker, who became president of National Gypsum upon Haggerty’s death in 1928, ensured the company’s survival by agreeing to pay U.S. Gypsum and Universal Gypsum, the competitors who filed the suits, a percentage of National Gypsum’s profits until U.S. Gypsum’s patent on covering the edges of wallboard with paper and Universal’s claim to Haggerty’s formula expired.
National Gypsum also managed to survive the Great Depression, largely because Baker struck a deal to become the sole supplier of wallboard to the Century of Progress Exposition in Chicago, the only significant building project in the country in 1932. In 1934, the company acquired a subsidiary of Bethlehem Steel that made metal lath, used to support wallboard, establishing a policy of developing new products and acquiring companies that were in the gypsum business or made products that could be used in the business.
In 1935, National Gypsum acquired its adversary Universal Gypsum in a stock swap. The acquisition of a company twice its size gave National Gypsum new plants in Texas, Iowa, Pennsylvania, and New York, in to addition several valuable mines, while also establishing the company in the Midwest. The following year, as National Gypsum’s sales reached $8 million and profits were a record $1 million, the company also acquired Atlantic Gypsum and its New York, New Hampshire, and Nova Scotia plants.
In 1937, National raised $1.5 million to build a factory in Alabama, where it could take advantage of a new process to convert waste pine into insulation board. A stock split and listing on the New York Stock Exchange raised new investment capital, with which the company acquired Keene’s Cement, a manufacturer of hard white plaster used as a background for setting tile and in making moldings. As a part of the deal, National Gypsum gained access to a 30 million-ton mine of pure white gypsum near Medicine Lodge, Kansas. That year, the company also moved into the rock wool insulation line.
National Gypsum’s sales reached $24 million in 1940. In fact, between 1930 and 1940, the company’s sales and earnings had increased more than 500 and 2,800 percent, respectively. When Universal Gypsum bought Windsor Paper Mills Inc., of Newburgh, New York, for $200,000 in the early 1940s, the company realized its goal of manufacturing all the major items it needed to make its own products. During World War II, National Gypsum produced ordnance, designed, and manufactured acoustical units to dampen the noise of testing aircraft engines, as well as interlocking metal landing strips and insulation for refrigerated cargo ships, products that later proved useful during the Korean and Vietnam wars. By the end of the 1940s, National Gypsum owned 16 plants.
Anticipating a postwar building boom, National Gypsum borrowed $18 million to help finance a $50 million expansion intended to double prewar capacity. A round of aggressive fundraising allowed the company to exceed Baker’s goal of doubling production, and still the company could not keep up with demand. Once primarily a southern and southwestern product, wallboard was now needed nationally. To increase its capacity, the company modernized its three paper production plants, purchased three new cargo ships to carry gypsum from Nova Scotia, and enlarged plants in New York and Portsmouth, New Hampshire.
By 1950, National Gypsum controlled 27 percent of the gypsum market—producing more than 150 building products and reporting $75 million in sales—while competitor U.S. Gypsum’s market share, 85 percent in 1925, shrunk to 33 percent. In 1951, National Gypsum acquired National Mortar and Supply Company and built a paper mill as well as a wallboard and plaster plant. The following year, the company made a brief and ultimately unsuccessful attempt to break into the water-based latex paint market with the acquisition of Wesco.
In 1954, National Gypsum purchased Abestone Corporation and an asbestos cement plant in Millington, New Jersey. While the company’s asbestos business never accounted for more than ten percent of total sales, it would later involve the company in long and expensive legal battles over the dangers of asbestos. Also that year, the company began a covert project to mine for gypsum 500 feet below the surface in Shoals, Indiana, the first effort to mine the inexpensive ore below the earth’s surface. The following year, the company’s engineers and geologists discovered one of the largest gypsum deposits on the continent near Halifax in Nova Scotia. At the end of the decade, National Gypsum established its presence in the tile business, continuing its working relationship with Olean Tile in New York and acquiring American Encaustic Tile and Murray Tile.
Following a year of negotiations, National Gypsum acquired Huron Portland Cement Company in 1960 in exchange for more than one million shares of stock. The move gave National Gypsum the largest cement plant in North America, a 200-year supply of limestone, and a 125-year supply of shale. Moreover, Huron also provided distribution plants at 12 ports throughout the Great Lakes. To provide cement for its eastern market, National Gypsum acquired Allentown Portland Cement Company in Allentown, Pennsylvania.
In 1964, National Gypsum entered into a joint venture with the French company Lafarge Cement and Victor Hosp of England’s Clark and Fenn to establish a wallboard plant in Carpentras, France. Like the company’s asbestos acquisitions, this relatively small deal would play an important part in the company’s later history. At the end of the year, Baker retired after nearly 40 years at the helm of National Gypsum. Colon Brown, who started his career with National Gypsum in 1936, became chairperson and chief executive on January 1, 1965. Brown’s first task was to reorganize National Gypsum’s divisions so that each functioned almost as a separate company. The primary result of this five-year effort was the creation of Gold Bond Building Products Division as a separate entity. Brown -also strengthened National Gypsum’s ties with Lafarge Coppee.
In the late 1960s, National Gypsum was named in a civil suit alleging impropriety in the pricing practices of several gypsum manufacturers. Although the company paid $19 million to settle in 1973, the civil suit led to a U.S. Department of Justice investigation into pricing practices in the gypsum industry. Criminal indictments filed in federal court in Pennsylvania later that year alleged that the company and two employees partici-pated in a conspiracy to fix prices in the gypsum industry. The case eventually reached the Supreme Court, which upheld an appeals court reversal of a guilty finding against National Gypsum and the two employees.
In 1975, National Gypsum celebrated its fiftieth anniversary. Colon Brown retired, and John P. Hayes replaced him as president while William A. North took over as company chairperson. During his brief tenure as chairperson, North moved National Gypsum’s corporate headquarters from Buffalo to Dallas, and a year later stepped aside for another long-time employee, Robert Scifres. Scifres took over a company with seven divisions, 13,000 employees, and about 50,000 shareholders. National Gypsum had just taken on new debt to fund expansion, and building was down.
In 1978, Scifres announced that the Gold Bond division would also leave Buffalo for Charlotte, North Carolina, and he oversaw the closing of the company’s first plant, near Buffalo at Clarence Center. As recession loomed, Scifres announced the formation of an international division to push the company’s products overseas. He also decided to go ahead with a $279 expansion, gambling that National Gypsum could gauge the end of the recession and be ready to exploit it. The move paid off with record profits during the early years of the Reagan administration.
National Gypsum’s president, John Hayes, a 36-year veteran of the company, succeeded Scifres as chairperson in January 1983, taking over as the building business was e’ntering its worst slowdown since the depression. During this time, corporate raiders were in search of strong but undervalued companies, such as National Gypsum. In January 1984, attempting to make itself less attractive to raiders, National Gypsum purchased The Austin Company—a family-owned design, engineering, and construction firm, whose business cycles differed from the residential building business—for 789,000 of its common shares.
After acquiring Austin, National Gypsum set out to divest itself of any division that didn’t meet at least one of three criteria: serving as the low-cost producer in its field, having a proprietary product or service, or occupying a special niche in the marketplace. Between 1986 and 1991, the company sold its glass window business and glass distribution division; the decorative products division, which made and sold wall coverings; the National Gypsum Energy Company, an oil and gas producer the company had formed in the 1970s as a hedge against fuel shortages; American Olean Tile; its vinyl siding operations; much of its cement holdings; and a 40 percent share in the French gypsum producer Compagnie du Platre.
Housing starts, one of the principal indicators of the demand for wallboard, picked up in 1984, and National Gypsum’s earnings increased to $95.1 million. The following year, earnings increased 22 percent to $116.1 million. National bought back 531,000 shares of its common stock and declared a 3-for-2 stock split in the form of a 50 percent stock dividend. Despite these maneuvers, however, rumors flew in November 1985 that the Belzburg family of Canada was planning a hostile takeover.
The company’s executives decided that a leveraged buyout on their part was the best way to maintain control. In November 1985, Aancor Holdings, Inc., a management-led investors group, offered to purchase all National Gypsum shares for a combination of cash and debentures. A decline in interest rates, an increase in new home construction, and a hostile takeover bid by Wickes Companies, one of National’s largest customers, complicated the buyout process. Lafarge Coppee’s last minute decision to join the investors allowed Hayes to complete the $1.55 billion deal. At the time of the buyout, in April 1986, the book value of National Gypsum’s debt was $1.5 billion, the face value $2.1 billion. In 1988, Lafarge Coppee increased its stake in the company to 50.1 percent, but while retaining its position on the board, the French company but did not become involved in operating National Gypsum.
Already critically in debt, National Gypsum suffered through a five-year decline in housing starts; in 1986, total housing starts reached 1.81 million, and, by 1991, they had fallen to 1.01 million, the lowest level since World War II. The slowdown in housing starts was accompanied by a seven-year annual decline in average wallboard prices, from $122 per thousand square feet in 1985 to $72 per thousand square feet in 1992. Ironically, the volume of sales remained high, with National Gypsum holding on to about 25 percent of average annual sales of 20 billion square feet. Prices declined, however, because the company had to ship wallboard from the overstocked southwest into the understocked north and northwest areas.
The threat of large legal losses also hung over the company, prompted by its asbestos holdings. By the early 1990s, approximately 200,000 individuals had filed suits against companies that made or used asbestos, alleging that they exposed their workers to the mineral despite knowing that it could cause cancer and lung diseases. National Gypsum, which used asbestos in the production of insulation until the 1970s, faced approximately 45,000 unresolved asbestos cases in 1992.
In October 1990, 69-year-old John Hayes retired as CEO of National Gypsum and Aancor Holdings, Inc. Peter C. Browning, an executive at Continental Can, was selected as the company’s new president and chief executive. Soon thereafter, Browning became chairperson as well. During this time, Browning caught many investors by surprise when he announced that the company was filing for Chapter 11 bankruptcy because it could not find a lender to replace an expiring $75 million credit line with Citibank. Although the company had $75 million on hand at the end of the third quarter and had paid off about half of the debt it owed after the buyout, it still carried $1.02 billion in debt. New lenders were scared off, Browning said, by declining prices in the wallboard market and concerns about the company’s asbestos lawsuit liability.
Bankruptcy and deterioration in the industry brought tough times for National Gypsum. The company posted net losses of $40.7 million in 1989, $522.9 million in 1990, and $95.7 million in 1991. While it lost $71.4 million in 1992, its wall-board volume had increased to five billion square feet, and prices began to creep up again.
Following a series of battles over its value, National Gypsum emerged from Chapter 11 bankruptcy proceedings in July 1993. • Under the plan, the old National Gypsum was replaced by a new company with the same name, and Aancor ceased to exist. The former company’s creditors received common stock in the new National Gypsum, in addition to cash, senior notes, or warrants. Moreover, the new company announced that it would issue 20 million common shares worth $12.50 each, warrants for another 2.2 million shares, and $100 million of ten-year, ten percent senior notes. The bankruptcy court, agreeing with National Gypsum and its senior creditors, valued the company’s total debt and equity at $350 million.
That year, National Gypsum also completed a $75 million revolving credit line with General Electric Capital Corporation, which the company initially used for letters of credit. In August, the common stock and warrants of the new company began trading on the NASDAQ national market. Under the reorganization, the former operating company, the stock of Austin Company, $5 million in cash, and more than $600 million in insurance policies covering asbestos claimants were transferred to the NGC Settlement Trust. All of these assets were slated for settling asbestos-related claims, leaving the new company free from outstanding asbestos property damage claims and current asbestos bodily injury claims.
Six months after National Gypsum emerged from bankruptcy, housing starts, which had begun to rebound in 1992, continued their rise, and the price of wallboard exceeded $80. The company’s shares were suddenly trading for $34, giving National Gypsum a market value of $680 million and fueling discussion among critics who had accused the company of undervaluing its assets. National Gypsum had enough cash on hand to retire half of the $100 million in senior debts, and the new company posted net revenues of $511.1 million for 1993, a 9.3 percent increase over the old company’s $467.7 million the previous year. Net income was $672.9 million, compared to a $71.4 million loss in 1992. Moreover, National Gypsum produced and sold 5.1 billion square feet of wallboard in 1993, including a record 1.35 billion square feet during the fourth quarter.
In October 1993, chairperson and CEO Peter Browning resigned. Soon thereafter, the company announced that it would lay off 360 of its 3,000 employees by the end of the year, continuing a consolidation that had eliminated 900 jobs since 1990. Later in October, Lafarge Coppee, which had owned more than half of the old company, announced plans to purchase four million shares of National Gypsum from Water Street Corporate Recovery Fund, an entity controlled by Goldman, Sachs. The acquisition gave Lafarge Coppee about 20 percent of the shares outstanding and a seat on National Gypsum’s board.
In 1994, Stephen Humphrey, formerly of Rockwell International Corporation, became the president and chief executive officer of National Gypsum. Most of the top management was also new, as was the company’s headquarters: in July 1993, it moved from Dallas to Charlotte to join the former Gold Bond Products division. Gold Bond, no longer a separate operating unit, became the brand name for the National Gypsum’s products.
National Gypsum entered the mid-1990s confident that it could continue the profitable trend it began in 1993. With interest rates low and wallboard prices rising, the company believed that its position as a fully integrated, low-cost producer with its own supply of gypsum rock and paper and a nationwide network of plants would allow it to thrive despite the highly cyclical nature of the business.
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Bockmon, Marc, Turning Points: The National Gypsum Company Story, Dallas: Taylor Publishing Company, 1990, 145 p.
“Commercial Union to Cover Some Claims at National Gypsum,” Wall Street Journal, October 29, 1992, p. C13.
Dorfman, John R., “Heard on the Street: Pickup in Housing Starts Spells Good News for USG and National Gypsum, Manager Says,” Wall Street Journal, November 29, 1993, p. C2.
“Four More Concerns Settle in Major Asbestos Trial,” Wall Street Journal, July 6, 1992, p. 14.
“National Gypsum Co.: Bankruptcy Court Judge Confirms Reorganization,” Wall Street Journal, March 10, 1993, p. A4.
“National Gypsum Co. CEO Resigns to Take Sonoco Products Post,” Wall Street Journal, October 1, 1993, p. B8.
“National Gypsum Co.; Wallboard Maker to Lay Off About 360 by Year’s End,” Wall Street Journal, October 6, 1993, p. B4.
“National Gypsum Co.,” Wall Street Journal, August 7, 1990, p. C10. “National Gypsum Leaves Chapter 11, Arranges Credit Line,” Wall Street Journal, July 12, 1993, p. B4.
“National Gypsum Picks CEO,” Wall Street Journal, March 4, 1994, p. B6.
“National Gypsum Says It Won Ruling in Case of Claims Coverage,” Wall Street Journal, December 24, 1992, p. 3.
Norman, James R., “A Matter of Opinion,” Forbes, January 31, 1994, p. 98.
Norman, James R., “Mountain Climbing Is Easy,” Forbes, November 23, 1992, p. 48.
—David B. Rice