Oglebay Norton Company
Oglebay Norton Company
Sales: $193.6 million (1995)
Stock Exchanges: NASDAQ
SICs: 4432 Freight Transportation on the Great Lakes;
1011 Iron Ores; 1221 Bituminous Coal & Lignite—
Surface; 3297 Nonclay Refractories
With a cargo capacity of about 400,000 tons and a dozen ships, Oglebay Norton Company owns the largest U.S.-flagged fleet of bulk carriers on the Great Lakes. Great Lakes transportation and iron ore mining have been the primary foci of the business throughout its more than 140-year history, but the company expanded into coal, industrial sands, and other minerals during the 20th century. Oglebay Norton and its predecessor companies played a vital role in the development of Cleveland’s steel industry, and the business’s rich heritage is peppered with highlights that affected the Great Lakes shipping industry overall.
19th Century Antecedents
Oglebay Norton’s history can be traced to the 1851 creation of Hewitt & Tuttle, an iron ore brokerage. The principals, Henry Blakeslee Tuttle and Isaac Hewitt, were also investors in the 1853 launch of Cleveland Iron Mining Company (later Cleveland-Cliffs Inc.), one of the first businesses organized to develop the iron ore reserves discovered in the Marquette Range of Michigan’s upper peninsula in the 1840s. They launched their independent business to buy the high-quality iron ore mined by Cleveland Iron Mining, transport it via the Great Lakes to Cleveland and Pittsburgh, and then sell it to processors. In fact, Tuttle and Hewitt managed the very first shipment of iron ore from Lake Superior to Cleveland, Ohio, in 1852.
In the early days, this was no small feat. Labor and transportation costs were prohibitive because, until the Sault Ste. Marie shipping canal linking Lake Superior and Lake Huron was completed in 1855, the ore had to be portaged around the 19-foot Saint Marys Falls—not to mention the river’s many rapids—by hand and mule team and then brought to Ohio via rail. Tuttle and Hewitt made Great Lakes shipping history again in July 1855, when their ship Columbia became the first to carry iron ore through the Saint Marys Canal’s Soo Locks and proceed on to Lake Huron. By the late 1860s, Tuttle had resigned from Cleveland Iron Mining, acquired full control of the Lake Superior Iron Co., renamed it after himself, and brought his two sons, Horace and Frederick, into the business.
Rapid technological change and ever-increasing demand fueled dramatic expansion of the iron ore industry and H.B. Tuttle and Company. By the time the founder died in 1878, he owned a growing fleet of vessels dedicated to iron ore shipping, as well as a 3,000-acre iron ore mine in the Menominee range. Shipbuilders progressed from wooden sailing vessels in the mid-1800s to steel steamships by the 1880s, and cargo capacities increased from a few barrels to several tons. Consequently, shipping costs declined from $3 per ton in 1855 to 60 cents per ton by the turn of the century.
But with such rapid growth came intense competition. In addition, the burgeoning capital requirements of mining and shipping made them increasingly risky businesses. In the waning decades of the 19th century, many of the industry’s leaders began to forge strategic alliances to survive and compete effectively. The Tuttles formed transient partnerships with several companies and independent operators during the 1870s. Then, in 1884, they merged with the Benwood Iron Works. Benwood was also in its second generation of management. Banker and industrialist Crispin Oglebay had invested in this West Virginia company in the early 1860s. Having inherited this “coal country” iron processor, son Early W. Oglebay sought to integrate vertically via the purchase of iron ore mines in the Gogebic Range on the southwestern shores of Lake Superior. The union of the two families’ businesses as Tuttle, Oglebay and Company created a vertically integrated system that spanned from extraction of ore to processing at several iron works. The business’s network of mines included America’s largest underground mine, the Montreal in Wisconsin. This single source generated 30 million tons of ore from 1886 to 1962.
Formation and Development of Oglebay, Norton & Co.
Tuttle, Oglebay and Company was a short-lived entity. When Horace Tuttle died in a railroad accident in 1889, Earl Oglebay bought out the surviving Tuttles and dropped their name from the corporate moniker. One year later, Earl Oglebay joined forces with well-connected Cleveland banker David Z. Norton to form Oglebay, Norton & Co. Norton, who by this time was president of the $4 million (capital) Citizens Saving and Trust Company, brought with him a lucrative contract to organize, transport, and broker rich iron ore mined by John D. Rockefeller’s Lake Superior Consolidated Mines Company in the recently discovered Mesabi Range. (Incidentally, Rockefeller had worked for Hewitt & Tuttle as a teenager in the 1850s.) Oglebay, Norton received its first two-ton shipment of Minnesota’s “red gold” in November 1892. They would continue to manage sales and shipping for Rockefeller’s mining interests until 1901, when the oil magnate sold Lake Superior Consolidated Mines to the U.S. Steel Corporation.
For almost a decade, cash flow from this business enabled Oglebay, Norton to adopt the technological improvements made in the shipping industry at the turn of the 20th century, including mechanical unloaders, self-unloading ships, and vessels equipped with cranes. The iron and steel trade grew in tandem during the early 20th century, fueled by industrial demand for steel in all its forms that was used to fill consumer demand for everything from autos and appliances to homes and high-rise buildings.
Although Oglebay, Norton and its predecessors had operated their own shipping vessels since the mid-19th century, the company did not create a true fleet until 1920. At that time, it acquired the late Captain W.C. Richardson’s 11 Great Lakes freighters and organized them as The Columbia Steamship Company, named for Henry Tuttle’s very first “brig.”
When Earl Oglebay and David Norton both died in the mid-1920s, a second generation of corporate management led by Crispin Oglebay and Robert C. Norton advanced to the fore. Earl’s nephew Crispin Oglebay, who held the presidency until 1949, has been credited with leading the company into a period of expansion. Following its 1924 incorporation, Oglebay, Norton diversified into the sale of steelmaking fluxes for the manufacture of alloys, ceramics, and chemicals. Over the course of the decade, the firm expanded into mining and selling coal, marketing fluorspar and ferro-alloys, and manufacturing ceramic insulators known as “hot tops” in the steel industry. During the 1930s, it began to manage docks at Toledo, Lorain, and Fairport along the south shore of Lake Erie and acquired coal mines in Ohio and West Virginia. In 1949, the company installed Ohio’s first continuous coal mining machine.
The Postwar Era Brings Industrywide Change
Four forces converged on the iron ore industry and Oglebay, Norton to bring about fundamental changes in the business in the late 1940s and early 1950s. World War II’s military requirements had driven ravenous demand for high-quality iron ore. Given the high costs (and unpredictable payoff) of domestic underground exploration, iron and steel producers began to seek alternative sources of high-grade ore through overseas exploration and research into converting low-grade ores like taconite and jasper into more useful materials. Oglebay, Norton had started to investigate the development of America’s abundant sources of low-grade minerals with the 1939 creation of the Reserve Mining Co. This effort reached its summit with the creation of a large taconite mine in Eveleth, Minnesota, in the early 1960s.
Operations at this mine, which was cooperatively owned yet managed by Oglebay, Norton, focused on iron ore pelletization. This two-step process originated in Europe during the early 20th century. In the first phase, machines pulverized the taconite and sifted the ore from the other elements. The second step formed the ore into pellets that could be used in blast furnaces. By the 1970s, this processed taconite would be the most important product of Minnesota and Michigan mines.
Oglebay Norton is a company whose future growth will flow from marine transportation services and a more diversified approach to basic metals and mineral-related industries. Our approach to business will be customer driven as we respond aggressively to the constantly changing needs of our customers. We are committed to narrowing the focus of Oglebay Norton business operations, while at the same time intensifying the diversification of our customer base. Recognizing the employees of Oglebay Norton to be our greatest strength, we are committed to an aggressive policy of investing in the ability of our employees to plan and implement our future growth strategies. We are equally committed to a style of management which empowers our employees to participate in the management of the company, holds them accountable for their actions and rewards them for their continued contributions to the company’s growth and profitability. We will continue to a take a more aggressive approach to corporate financial growth, thus increasing the market value of our common stock to the benefit of our investors and employees.
By the mid-1950s, Oglebay, Norton & Co. had developed an unusual and complicated corporate structure. Over the course of the early 20th century, the firm had taken substantial, but not full, positions in a variety of companies, and then managed those businesses for a fee. The arrangement made for intricate intercompany accounting and sometimes internecine competition. Harrie S. Taylor, who succeeded Crispin Oglebay as president in 1949, and Executive Vice-President E.W. Sloan, Jr. began to press for a reorganization in the 1950s. After commissioning a highly critical assessment of the corporate structure, Oglebay, Norton & Co.’s relatively small group of shareholders voted overwhelmingly to merge its ten affiliates into a single corporate entity in 1957. The move united Columbia Transportation Co., Montreal Mining Co., Ferro Engineering Co., Saginaw Dock & Terminal Co., Richwood Sewell Coal Co., North Shore Land Co., Standard Box Co., Fairport Machine Shop, Inc., Pringle Barge Line Co., and Oglebay, Norton & Co. as Oglebay Norton Company.
During this challenging period of corporate restructuring, Oglebay Norton and the U.S. steel market were inundated with high-grade, yet inexpensive, foreign ore. Imports increased from eight percent of domestic consumption in 1953 to 36 percent by 1963. The combination of high costs, competition, war-driven overcapacity, and exhaustion of higher-grade domestic ore sources forced hundreds of American mines out of business in the postwar era.
Diversification in the 1960s and 1970s
Like many of its colleagues in the iron and steel industries, Oglebay Norton undertook a diversification program in the hopes of reducing its dependence on the cyclical, competitive steel industry. Oglebay Norton acquired three companies and created six others from 1961 through 1976, thereby expanding into industrial sands, foundry, and metal stamping. By the early 1980s, revenues from nonsteel goods and services surpassed steel-related sales. The diversification program helped compensate for downtrends in steel: overall sales increased from $52.5 million in 1960 to $83.6 million in 1975, and profits surged apace, from $2.4 million to $8.7 million.
But this modest diversification was not the most newsworthy of the company’s activities in the 1970s. In November 1975 Oglebay Norton’s fleet lost its flagship in what has been called “the most famous shipwreck in Great Lakes history.” During a terrible storm that year, the freighter Edmund Fitzgerald split in two and sunk in Lake Superior. The catastrophe, in which all 29 hands were lost, was later immortalized in a popular song by Gordon Lightfoot.
Difficulties Persist in the 1980s
The U.S. iron mining and shipping industries continued to be battered throughout the 1980s, as increasing imports and two severe recessions shuttered one-third of America’s iron ore mines. After operating at 75 percent of capacity in 1982 and just over half capacity in 1983, Oglebay Norton and its partners closed the Eveleth Mines for two months that fall to reduce ore inventories. It was the first shutdown in the mines’ history.
Oglebay Norton’s revenues and net income climaxed in 1981, and the company suffered back-to-back operating losses in 1986 and 1987. The deficits forced the firm to cut its dividend for the first time since becoming a unified company in 1957. Other issues cropped up as the 1980s wore into the recessionary early 1990s. In 1986, LTV Steel Co.’s Chapter 11 bankruptcy erased $50 million in iron ore contracts from Oglebay Norton’s books. A 1990 strike at the Eveleth Mines only complicated the situation.
Not surprisingly, these financial woes prompted a rash of shareholder uprisings. In 1987, Hong Kong’s Industrial Equity (Pacific) Ltd. acquired a 24 percent stake in the company. There was never any real takeover threat: four board members held a cumulative 50 percent share, and U.S. maritime law limits foreign ownership of U.S.-flagged shipping companies to 25 percent. Oglebay Norton adopted anti-takeover measures nevertheless, including staggered director’s terms and a requirement for a 75 percent supermajority to approve a merger. By the end of the year, Oglebay Norton had repurchased the Asian investment company’s shares for about $20 million.
Having diffused the previous year’s investors, Oglebay Norton executives faced a new challenge in 1988, this time from Brent D. Baird’s First Carolina Investors Inc. Having increased its stake in the company to more than eight percent by that fall, this large, Buffalo-based family trust began clamoring for representation on the board. Baird had a reputation for investing in depressed stock that were likely to gain in the long term, and he had earned directorships of other companies in which his fund had a substantial stake. He won a place on Oglebay Norton’s board in January 1990 after agreeing not to make a takeover attempt or increase his stake to more than 11 percent. Analysts pointed out that many members of the board of directors had held their seats since the 1950s and 1960s, and that Baird brought a fresh perspective to this administrative body.
Investor John D. Weil was not quite as welcome at Oglebay Norton. Having increased his stake in the company from about five percent in 1990 to more than nine percent in 1992, the Missourian requested a seat on the board of directors. Unable to negotiate a directorship, Weil threatened to launch a proxy fight in 1992. By this time, board members owned just over one-fourth of the stock, so although they had a great deal of influence, they did not have a voting majority. Weil was nominated and elected to the board shortly thereafter.
A New Generation of Leadership for the 1990s
R. Thomas Green Jr., a 54-year-old, 25-year veteran of Oglebay Norton, advanced to chairman, president, and chief executive officer in 1992, replacing septuagenarian Chairman Courtney Burton, who had served in that capacity since 1957, and 65-year-old Renold D. Thompson, who had worked at the company since 1952. A steady rate of turnover reduced the average age of the top six corporate officers from the mid-70s to the low-50s.
Upon advancing to the presidency, CEO Green surveyed management in preparation of a five-year strategic plan designed to shed noncore interests, increase efficiency, and boost profitability. From 1992 to 1994, the company reduced expenses by cutting its work force by about 29 percent, from 1,995 to 1,417. Beginning in 1992, the company shed its coal mining and foundry interests and halved its dividend to generate funds for four key businesses: marine transportation, iron ore, refractories and minerals, and industrial sands.
After suffering an extraordinary loss of more than $56.6 million to establish a reserve for employee health and retirement benefits in 1992, the company appeared to have returned to a pattern of growing profitability by the mid-1990s. Revenues increased from $148.8 million in 1991 to $193.6 million in 1995, and net income tripled from $5.1 million to $15.4 million during the same period.
Canadian Ferro Hot Metal Specialties Ltd. (Canada); Laxare, Inc.; Oglebay Norton Industrial Sands, Inc.; Oglebay Norton Refractories & Minerals, Inc.; Oglebay Norton Taconite Co.; On Coast Petroleum Co.; ONCO Eveleth Co.; ONCO WVA, Inc.; Saginaw Mining Co.
Marine Transportation; Iron Ore; Refractories & Minerals; Industrial Sands.
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—April Dougal Gasbarre