Incorporated: 1958 as Publishers Company Inc.
Sales: $47.6 million
Stock Exchanges: NASDAQ
SICs: 3955 Carbon Paper & Inked Ribbons; 2621 Paper Mills; 5311 Department Stores; 3531 Construction Machinery
Pubco Corporation is a diversified company with an unusual mix of interests. As its name implies, the firm operated as a printing and publishing group from its inception until the early 1980s. But after a 13-month bankruptcy reorganization, the business was reincarnated as a holding company that specialized in acquiring troubled firms and returning them to profitability. Under the direction of Robert Kanner, who acquired a majority stake in Pubco in 1983, the company began to resemble an investment house. It bought controlling stakes in retailers and an apparel manufacturer, then shed its once-core printing businesses in the early 1990s. By 1996, Pubco’s diverse interests included business supplies, computer and data processing products, and construction implements. Although Kanner’s investment strategies returned the company to profitability in the mid-1980s, Pubco suffered four successive annual shortfalls from 1991 to 1994, culminating in a $10.2 million loss in the latter year. It was hoped that a 1996 corporate reorganization would effect efficiencies and maintain the profitability achieved in 1995.
Postwar Creation and Early Development
Pubco was founded in 1958 as Publishers Company Inc., a Washington, D.C., firm that published and sold encyclopedias, Bibles, and devotional books door-to-door. After just two years in business, the company made the first of a string of acquisitions, adding Massachusetts’ Books, Inc., in 1960. The 1962 additions of Kaufman Printing, Inc., and Merkle Press Inc. gave the budding conglomerate expertise in virtually every facet of the publishing business, from editing to printing to distribution. Publishers’ top executives, President Charles W. Lockyer and Chairman E. A. Merkle, brought more than a dozen companies, most of which were involved in printing and publishing, into the fold over the course of the decade. Most significant of these were Buxton & Skinner Printing Company, a label printer in St. Louis whose customers included brewing giant Anheuser-Busch Company, Inc.; Redson Rice Corp., a Chicago-based printer of direct mailers and catalogs; and Tabard Press Corp., a New York City company that specialized in time-sensitive projects like periodicals and annual reports. These acquisitions propelled Publishers’ sales from $15.5 million in 1963 to nearly $45 million by 1969, while profits burgeoned from $82,000 to more than $1 million during the period.
The company also dabbled in some extraneous businesses in the late 1960s and early 1970s. In 1968, for example, it formed Publishers Broadcasting Corp. (later renamed Camptown Industries, Inc.). This affiliate owned and operated a Florida campground, four radio stations, a sports facility, and an ice plant. Publishers Company’s 1973 name change to Pubco Corp. may have reflected the firm’s unusual diversification.
Notwithstanding its foray into broadcasting and entertainment, the holding company retained its primary focus on printing and publishing. Merkle remained Pubco’s largest subsidiary, contributing over half the company’s revenues in the mid-1970s. In addition to its contracts to print publications for several national labor unions, Merkle printed regional editions of Time and Sports Illustrated magazines. But when this core business’s physical plant began to decline mid-decade, the resulting reduction in printing quality drove away customers. Pubco’s bookselling operations went into a tailspin during the same period, incurring three successive losses in the mid-1970s. Profitability vacillated throughout the latter years of the decade; even an injection of capital via a 1979 initial public offering couldn’t lift the company out of its doldrums. Back-to-back dips into the red ink in 1981 and 1982 forced Pubco to seek bankruptcy protection under Chapter 11.
Early 1980s Turnaround
In 1983 Cleveland turnaround specialist Robert H. Kanner accumulated two-thirds of Pubco’s equity and set out to transform it into a vehicle for the acquisition and revitalization of other troubled companies. Kanner had already established a reputation for wringing optimal performance from distressed firms by the time he rescued Pubco. A Wharton School of Finance dropout, his credo was “Appreciate what nobody else sees, buy what nobody else wants.” A twentysomething Kanner embarked on this career in 1976, when he bought an east Cleveland doughnut shop. He acquired five struggling, often bankrupt, companies at “bargain basement” prices over the course of the next five years, culminating with the late 1970s purchase of Buckeye Business Products Inc.
Kanner applied the same strategy to virtually every business he encountered, regardless of the target company’s industry segment or compatibility with existing holdings. As he told Ohio Business magazine’s Michael Moore, three standards guided his business conduct: “Purchase for cash, generate cash, and accumulate cash. ” Kanner achieved these goals by reducing employment levels, liquidating assets, and often consolidating headquarters operations at his home base in Cleveland, Ohio. He also amassed a cadre of trusted managers, including George Hahn and Stephen Kalette, along the way. Within 17 months of the Buckeye Business Products transaction, Kanner had squeezed $3.5 million in cash from this manufacturer of printer ribbons and other office supplies. That was enough to buy him a controlling stake in Pubco, which emerged from bankruptcy in February 1983.
Kanner installed himself as president and moved Pubco’s headquarters from Washington, D.C., to Cleveland. Charles W. Lockyer stayed on as Pubco’s chairman and chief executive officer for a transitional period after the takeover. Kanner shed the money-losing Merkle Press divisions, but retained Buxton & Skinner in St. Louis, Redson Rice in Chicago, and Tabard Press in New York. By the end of Kanner’s first year at the helm, Pubco had realized a $3.6 million profit. Within just two years, Pubco had regained its ranking among the leading publicly held printing companies in the United States.
Having achieved profitability, Kanner wasted no time returning to his acquisition strategy using Pubco as a holding company. Over the course of the next decade, he created a web of interrelated businesses under Pubco. Late in 1984 Pubco acquired regional mass merchant Hornsby’s Stores Inc. and its supplier, Century Wholesale Co. Kanner liquidated some of the Chicago-area chain’s stores and leased the remainder to another retailer, effectively transforming the subsidiary into a profitable real estate management company. Pubco went on to purchase a controlling interest in women’s apparel manufacturer Bobbie Brooks Inc. early the following year. Once a well-known name in ladies’ fashion, Bobbie Brooks had recently emerged from Chapter 11 only to record a $1.4 million loss on $65 million in 1984 sales. The new management pared nearly 200 employees as well as the label’s sportswear and swimwear lines, retaining only the Main Line Fashions outerwear business. The Bobbie Brooks trademark was licensed to clothing manufacturer Garan, Inc. By 1986, the remade Bobbie Brooks was enjoying rising sales and a return to profitability.
In the meantime, Pubco had also acquired the Kline Bros, chain of 18 women’s clothing stores in the Midwest. Completed in 1985, the $8.5 million purchase added $75 million in annual revenues to Pubco’s coffers. In 1988 Kanner doubled Pubco’s stake in Bobbie Brooks to 65 percent by swapping Kline Bros, for equity in Bobbie Brooks. Pubco also transferred its printing operations to Bobbie Brooks at this time. Although shares of both Pubco and Bobbie Brooks were publicly traded on the NASDAQ exchange, Kanner maintained effective control over the parent company and its subsidiaries by virtue of his 75 percent stake in Pubco.
Fueled by these acquisitions, Pubco’s sales and profits grew rapidly during its first few years under Kanner. Annual revenues increased from about $36 million to over $100 million, and net profit rebounded from a negative position to $4.5 million.
Evolution Continues in Early 1990s
Although Kanner has been lauded as a brilliant “company doctor” able to revive businesses on the brink of demise, he was unable to find a cure for the pandemic that struck his patient in the early 1990s. That era’s economic recession hit the retail segment particularly hard and brought a fresh gush of red ink at Pubco. The company recorded four consecutive losses from 1991 to 1994 for a total shortfall of over $18 million. In response, Pubco beat a rather disorganized retreat from both the printing and retail sectors via liquidations in 1993 and 1994. After dipping to $25 million in 1992, annual revenues stabilized mid-decade at about $47 million, by which time Bobbie Brooks had become Pubco’s core affiliate and chief acquisition vehicle.
Kanner made efforts to simplify Pubco’s ownership structure and consolidate some of his personal holdings during this same period. He sold Buckeye Business Products to Bobbie Brooks and added computer and data processing supply manufacturer Aspen Imaging International, Inc., to Brooks’s roster. Formerly headquartered in Colorado, Aspen’s offices were moved to Kanner’s Cleveland headquarters. In 1993 Brooks acquired a controlling interest in Allied Construction Products, Inc., a suburban Cleveland manufacturer of construction goods.
In 1996 Kanner proposed a plan to merge Pubco and its heretofore partially owned affiliates. The reorganization would effectively eliminate Bobbie Brooks as a corporate entity, leaving Buckeye Business Products and Aspen Imaging International as wholly owned subsidiaries of Pubco and Allied Construction Products as an 85 percent-owned affiliate. Brooks stockholders would be compensated with an increased stake in the parent company, as Kanner’s share would be reduced from 71 percent to 65 percent. Given the fact that Kanner held a majority of the voting shares, it appeared likely that the transaction would be ratified. The CEO and his fellow shareholders hoped to achieve economies by eliminating the superfluous layer of management represented by Bobbie Brooks and thereby carry on the profitability achieved in 1995.
Century Wholesale Co.; PC Real Estate Corp.; Pubco Management Co.; Bobbie Brooks, Inc. (90%); Brooks Management Co. (90%); Allied Construction Products, Inc. (85%); Aspen Imaging International, Inc. (62%).
“Bobbie Brooks, Pubco Swap Stock, Shops,” Plain Dealer, February 2, 1988, p. 7D.
Bullard, Stan, “Kanner ‘Family’ Filling up Space,” Crain’s Cleveland Business, October 18, 1993, pp. 3-4.
Gerdel, Thomas W., “Pubco Buys Discount Chain in Chicago,” Plain Dealer, December 18, 1984, p. 9C.
Karle, Delinda, “$25 Million Is Bid for Control of Cook United Inc.,” Plain Dealer, January 9, 1985, pp. 5B, 7B.
—, “Pubco Puts Emphasis on Returns from Ashes,” Plain Dealer, March 8, 1985, pp. 17B, 18B.
—, “Winning with the Losers,” Plain Dealer, March 8, 1985, pp. 17B, 18B.
—, “Bobbie Brooks, Pubco Improve Earnings in ’86,” Plain Dealer, April 1, 1987, p. 2C.
—, “Hahn Named President of Pubco, Bobbie Brooks,” Plain Dealer, March 10, 1988, p. 2C.
McReynolds, Rebecca, “Pubco-Bobbie Brooks: Apparel’s Odd Couple,” Crain’s Cleveland Business, October 14, 1985, p. 27.
Moore, Michael E., “‘Doctor’ Kanner Cures Sick Firms,” Ohio Business, January 1985, pp. 54-55.
—April Dougal Gasbarre