3050 Spruce Street
St. Louis, Missouri 63103
Sales: $215 million
Market Value: $791 million
Stock Index: NASDAQ
Sigma-Aldrich Corporation is the result of a merger between two specialty chemical companies, one which manufactured biochemicals and another which manufactured organic chemicals. While offering divergent products, both companies regarded high-quality products and customer service a priority. The merger, therefore, represented a convergence of business strategy as well as the creation of a diversified product line that ranks Sigma-Aldrich at the top of the specialty chemical industry. In particular, because of the scientific community’s involvement in the growing field of biomedical research, Sigma-Aldrich’s product catalogue has become a standard issue in pharmaceutical laboratories around the world.
The Sigma Chemical Company was started in 1945 in St. Louis. At a time when sugar was scarce Dan Broida, a biochemist, began a storefront business to manufacture saccharin. The company later went on to produce biochemicals and diagnostic products. And Sigma’s customers ranged from hospitals to university laboratories. Scientific fields concerned with the study of life sciences as well as disease diagnostics use biochemicals as the basic substances to develop pharmaceuticals and diagnostic tests.
Aldrich Chemical Company, founded by the Harvard educated chemist Dr. Alfred R. Bader, began manufacturing organic chemicals in a Milwaukee garage six years after Broida established Sigma. Aldrich’s first products were those chemicals not offered by Eastman Kodak, a leader in the chemical industry. Bader soon decided that his company could engage in direct competition with larger companies, and he began offering a broad line of organics sold to research laboratories of pharmaceutical companies. The company did exceedingly well and its customer list soon included the likes of Abbott Laboratories and Ciba-Geigy.
The 1975 merger between the two companies matched skill for skill and talent for talent. Broida assumed the role of chairman and Bader took the position of company president. While the combined company interests still remained small compared to those of the larger industry firms, the business acumen of Sigma-Aldrich’s management went a long way in securing an impressive percentage of the specialty chemical research market. By 1979 the company laid claim to between 30 and 40% of the $100 million research market. Sales climbed to $68 million representing an annual increase of 15%. Earnings jumped 24% to $9.2 million causing Wall Street analysts to predict a continued growth of 20% a year.
Sigma-Aldrich’s marketing success, achieved by neither a large sales force nor expensive advertising outlays, relied on the distribution of catalogues. In addition to advertising products available on a phone-order basis, the catalogue offered (and continues to offer) detailed information about the physical properties of the marketed chemicals. The value of the catalogue as a reference source as well as an advertising tool was evident, and it soon became a company trademark. Initially compiled by Bader in the early 1950’s as a one-page, one-chemical listing, the catalogue grew to include 40,000 chemicals. Sigma-Aldrich’s small sales force distributed 300,000 free copies of the catalogue in 1979.
The company’s reputation among chemists as a manufacturer of quality products matches a distribution network that ensures most orders can be filled in 24 hours. Interestingly enough, in the early years of Sigma-Aldrich’s business an average order amounted to less than $100. This indicated a customer profile of academicians or laboratory researchers experimenting with relatively small quantities of chemicals. Although this profile has been altered somewhat due to the increasing pressure to supply bulk commerical chemicals, Sigma-Aldrich fiercely defends its business as first and foremost a service to the research community.
Overseas expansion in the late 1970’s found 125 countries purchasing Sigma-Aldrich’s products with company subsidiaries operating in Canada, the U.K., Japan, Germany and Israel. Nearly 40% of sales in 1979 resulted from overseas business.
As the company entered the 1980’s its growth matched the explosion in the U.S. biomedical research market. Despite such gains Sigma-Aldrich’s management, much to the chagrin of some industry analysts, refused to alter the strategy that laid the framework for previous company growth. Rather than set long-term goals or exploit the bulk chemical market as some observers suggested, Broida defended his company’s straightforward “opportunistic” policy of keeping pace with state-of-the-art developments in the scientific fields of immunology, microbiology and endocrinology. By supplying chemicals in small quantities to research centers, Sigma-Aldrich’s growth and profits corresponded to breakthrough research in the development of pharmaceuticals from recombinant DNA.
Wall Street analysts also criticised the company’s B-Line Systems Inc. subsidiary. Manufacturing metal frameworks for industrial plants, the subsidiary was criticised for competing in the business of specialty chemicals on the one hand, and for contributing small profit margins on the other. Despite such criticism, however, the company’s lack of long term debt, its sparkling earnings record, and its annual profit increase of 20 to 25% mitigates the seriousness of such complaints.
Upon Dan Broida’s death several changes in policy and management affected the company structure. Tom Cori, a nine year Sigma veteran, became company president. Common stock, formerly controlled by a 50% insiders interest, now became more widely held. In 1985, 2.2 million of the 8.68 million outstanding shares were sold for $129.5 million. Most of this stock had been held by relatives of Broida and the sale reduced their holdings to 1.3 million shares. This new figure represented approximately the same interest held by the Bader family.
Of the 2.2 million shares sold the company purchased 500,000. Apparently Bader had been opposed to the company purchase partially on the grounds that $13 million were borrowed to finance the transaction. Company indebtedness now totaled $32.4 million in short-term loans due in part to a $16 million expansion program started in 1980. Some five million shares, on the other hand, were now estimated to be available for trade in the over-the-counter market. Price per share between July and September of 1985 ranged from $60.50 to $71, well over the company’s $14 per share book value. A three-for-one stock split was soon in order.
By 1986 some 1.5 million company catalogues circulated yearly. Sigma-Aldrich’s orders continued to average less than $150 each; on the other hand company profits totaled $29 million on volume of $215 million. Although president of a company with such impressive achievements, Cori will not be able to rest on his laurels. Limited governmental funds for scientific research as well as the effect of the strong dollar on overseas sales offer some cause for concern. To facilitate expansion by broadening Sigma-Aldrich’s product line, the company purchased Pathfinder Laboratories. The new subsidiary, costing $1.5 million in stock during 1984, manufactures radioactive chemicals.
For all the changes brought about by its rapid growth, Sigma-Aldrich remains a chemist’s company. Every year 3,000 products are replaced by new ones through customer recommendations. While Broida’s home phone number no longer appears in the catalogue, customers are still able to call collect and place orders or simply ask questions about the company’s products. In an age of corporate anonymity, an orientation towards servicing customers needs is no mean accomplishment.
Aldrich-Boranes, Inc.; Aldrich Chemical Co. (Canada) Ltd.; EGA Chemie K.G.; R.N. Emanuel, Ltd.