Incorporated: 1930 as Realty Operators, Inc.
Sales: $561.9 million
Stock Exchanges: New York
SICs: 3273 Ready-Mixed Concrete; 3241 Cement Hydraulic;
6719 Holding Companies, Not Elsewhere Classified
One of the largest producers of cement and ready-mix concrete in the United States, Southdown, Inc. is also regarded as one of the industry’s most efficient and modern producers. With eight manufacturing plants in California, Colorado, Florida, Kentucky, Ohio, Pennsylvania, Tennessee, and Texas, Southdown has distinguished itself as a leading competitor in an industry of vital importance to the construction industry, particularly large-scale public works projects. During the mid-1990s, more than half of the company’s annual revenues and a substantially larger proportion of its operating earnings were generated from the production of cement, the primary binding agent in concrete. Southdown is also involved in the production of ready-mixed concrete, a building material used in myriad construction activities and the end-product of roughly 70 percent of the cement used in the United States. By gradually narrowing its focus on the production and marketing of these two products from the mid-1970s forward, Southdown established a solid position for itself in crucial cement and concrete markets across the country, particularly in Florida and southern California.
Although Texas-based Southdown was regarded as a major producer of cement and concrete during the 1990s, the company’s historical roots stretch back to another state, to an entirely different line of business, and to a time when the company was known by a different name. Southdown’s history charts an incongruous course; the company began its corporate life as a competitor in the sugar cane business, later diversified its interests by branching into a host of different business lines, then dismantled its conglomerate structure through a series of divestitures that left Southdown as narrowly focused as it was during its early years, but focused on an entirely different type of business. In fact, the company that rose from plantation fields in Louisiana during the 1930s built the foundation for the prodigious cement and concrete producer of the 1990s, each distinct era woven together to create the multifarious history of Southdown, Inc.
Southdown was founded as Realty Operators, Inc. in the spring of 1930, beginning its corporate life in Louisiana as a sugar cane grower during the incipient stages of the United States’ greatest economic calamity. The company survived the decade-long ravages of the Great Depression, spending its formative years in the crucible of economic turmoil, then rallied forward through the United States’ greatest military effort, withstanding the disruptive yet economically vibrant years of the Second World War. In 1948, three years after the conclusion of the war, Realty Operators changed its name to Southdown Sugars, Inc., borrowing the Southdown name from the Southdown sugar cane plantation in Houma, Louisiana. Over the course of the next 20 years, Southdown Sugars increased its stature as a sugar cane company, benefitting from the most advantageous economic conditions since its formation. The company changed its name again in 1959 to Southdown, Inc., prophetically dropping “Sugars” from its corporate title as it prepared to enter the 1960s, the last decade the company would rely exclusively on sugar cane cultivation and production to drive its growth.
By the mid-1960s, Southdown had operated as a sugar cane company for nearly 40 years, amassing holdings in sugar cane plantations, sugar cane mills, and sugar cane refineries. Within a decade, however, Southdown would become much more than a sugar cane company. Through a series of acquisitions completed during the late 1960s and early 1970s, Southdown transformed itself into a conglomerate, using the foundation it had established in nearly four decades as a Louisiana sugar cane company to propel it into variegated business interests. The late 1960s and early 1970s were frenetic years for the company, made busy by the rapid absorption of companies and facilities involved in manufacturing activities far removed from its former mainstay sugar cane business. Southdown delved into the beverage business, acquiring wine, beer, and soft drink manufacturing facilities. It entered into candy production, developed vineyard and pistachio farms in California and Louisiana, and, most significantly, began acquiring cement manufacturing operations, marking the beginning of the company’s involvement in what would become its primary business during the 1990s.
Southdown’s diversification began with its entry into the oil and gas exploration business, which would remain a component of the company’s business until the late 1980s. In 1966, Southdown formed a wholly-owned subsidiary, Southdown Exploration Inc., to superintend its oil and gas business, then in early 1967 acquired 40 percent interest in Burmah Oil Western Co. and Burmah Oil Western Exploration Co. With the addition of part interest in the two Burmah Oil companies, Southdown Exploration changed its name to Southdown Burmah Oil Co., which existed for roughly two years until all of the subsidiary’s assets were transferred to another wholly-owned Southdown subsidiary, Pelto Oil Company.
Once Southdown had carved a new niche for itself in the oil and gas business, it jumped into a number of other businesses, acquiring, in 1969, McCarthy & Hildebrand Farms, Inc., Pearl Brewing Company, and 59 percent interest in Leonard T. Improvement Company. By far the most significant acquisition during the year, however, was the purchase of Southwestern Portland Cement Co., completed in late 1969. All the other properties purchased during the year would be divested in the years ahead, but the addition of Southwestern Portland Cement and its five cement plants introduced Southdown to the cement business.
Less than two years after acquiring Southwestern Portland Cement, Southdown restructured the company, organizing it as a wholly-owned subsidiary, then continued to diversify in the wake of its pivotal foray into cement manufacture. To its interests in beverage, cement, oil and gas exploration, and sugar cane, Southdown added cattle and agricultural operations in 1972, when the company’s subsidiary, Southdown Land Company, acquired Chillagoe Land Company, which operated cattle-raising and farming operations on more than 500,000 acres in Australia. Next, the company organized Santa Clara Vintners, Inc. in cooperation with San Martin Vineyards Company to produce and market wines in California, rounding out Southdown’s business interests to compose a conglomerate corporation that was substantially more diverse than the Southdown of the early 1960s.
In 1975, the company’s Southdown Land Co. subsidiary, which had since been renamed Valhi, Inc., was organized as a separate company, spun-off to operate on its own as Southdown began to shed businesses and narrow its focus. When dissident shareholders gained control of the company the following year, Southdown’s divestiture of its sundry business interests began in earnest, as a dramatic switch in the company’s corporate strategy was implemented by new management. Effective on the last day of 1976, Southdown’s new management decided to dispose of the company’s soft drink and winery businesses, opting to concentrate on its cement and oil and gas operations. In early 1977, the net assets of the company’s soft drink business, which had been controlled by three subsidiaries, were sold, followed by the divestiture of the company’s winery business in May 1977. While these properties were being put on the block, Southdown’s management decided to discontinue the milling and refining of operations belonging to Southdown Sugars, Inc., which had supported the company for nearly 40 years. Following the decision to exit the business that had defined the company during its formative decades, Southdown sold its Pearl Brewing Co. subsidiary in 1978, ending its involvement in the malt beverage business.
As the company entered the 1980s, it continued to winnow its business interests, selling Southdown Sugars, Inc. to Supreme Sugar Co. in 1980, and its candy business, conducted by its Judson Candies, Inc. subsidiary, in 1981. After these two divestitures, Southdown had completed its return to competing as a more narrowly focused company, with its financial future dependent on the successful development of its oil and gas business and its cement business. Three years after shedding its candy business, the company began moving toward strengthening its involvement in its two primary business lines, acquiring a cement plant in Colorado in 1984 as well as 78 percent interest in the Twin Lakes oil field in Chaves County, New Mexico, through its Pelto Oil Company subsidiary. In 1986, another signal acquisition was completed when Southwestern Portland Cement Co., the cement subsidiary acquired in 1969, purchased the Los Angeles area ready-mix concrete operation belonging to Transmix Corp.
Next came Southdown’s most important acquisition during the 1980s, the purchase of Moore McCormack Resources Inc. in 1988 for $528 million. The acquisition of Moore McCormack doubled the size of Southdown’s cement manufacturing capacity, positioning the company within the cement industry as a substantially larger competitor and a burgeoning major player to be watched closely in the years ahead. Before the acquisition, Southdown principally had been a maker of cement and related products in the southwestern and western United States, but the addition of Moore McCormack Resources’ facilities gave the company major cement manufacturing plants in the Southeast and in two key industrial states, Ohio and Pennsylvania, extending its geographic presence into crucial cement markets.
Following the completion of the Moore McCormack Resources acquisition, Southdown exited the oil and gas business by selling its Pelto Oil Company subsidiary to Energy Development Corp. in 1989, thereby staking the company’s future on the successful development of its cement and concrete businesses. In 1990 the company sought to vertically integrate its cement operations by entering into the hazardous waste processing business, acquiring three processing companies in July and three additional processing companies in September. By collecting hazardous waste and processing it into hazardous waste derived fuel, Southdown could produce on its own a portion of the fuel required to feed its cement kilns, adding to the synergistic benefits already realized through its concrete manufacturing facilities. Although expectations were optimistic, the hazardous waste processing properties performed dismally during their first several years under Southdown ownership. Organized into Southdown’s environmental services segment, the hazardous waste processing facilities recorded a $16 million dollar loss during their first two-and-a-half years of operation, leading Southdown to restructure the business segment in 1992. As part of the reorganization, four hazardous waste processing facilities were sold, but difficulties persisted, exacerbating Southdown’s woes during the early 1990s.
In addition to losing money in its new environmental services business, Southdown was losing money elsewhere, incurring successive losses from its concrete products operations, as a national economic recession hobbled construction activity across the country and reduced the demand for concrete. Southdown’s concrete products business lost $12.7 million in 1991, $11.6 million in 1992, and $1.6 million in 1993, but there was little the company could do to effect a recovery except wait for the economy to rebound and spur construction activity.
In 1994 the waiting came to an end when a resuscitated economy delivered its ameliorative affects to the country’s construction industry and, as a consequence, to Southdown. Except for California, where construction activity continued to lag, all of the company’s markets were buoyed significantly by the return to more prosperous times, particularly in Florida, where the construction market thrived as the mid-1990s neared. After three years of losses, Southdown’s concrete products operations posted $9.3 million in operating earnings, while the company’s cement operations recorded growth as well, generating $91.2 million in operating earnings, which represented an 11 percent increase over 1993’s total.
In the wake of this encouraging news, Southdown exited its unprofitable environmental services business, announcing in November that it intended to divest its hazardous waste processing facilities and avoid competing in an industry reeling from excess capacity. As Southdown began to shed its waste processing properties and focus on developing plans for the remainder of the 1990s, future plans called for expansion in strategically important markets where the company already maintained a presence and for the modernization and expansion of particular cement and concrete manufacturing facilities. Toward this objective, the company purchased a cement import terminal in southern Florida in 1994 and announced its plans to revamp and expand its Ohio cement plant.
All worth Inc.; Florida Mining & Materials Concrete Corp.
“Bright Outlook Ahead for Southdown, Inc.,” Investment Dealers’ Digest, August 26, 1969, p. 30.
Byrne, Harlan S., “Southdown Inc.: Oil and Gas, Cement Adds Up to Profitable Mix,” Barron’s, May 15, 1989, p. 109.
Jaffe, Thomas, “Is Southdown Heading North?,” Forbes, July 13, 1987, p. 48.
Kovski, Alan, “Cement Company Paves a Route for Waste Disposal,” The Oil Daily, November 20, 1990, p. 4.
Mehkman, William, “‘Home-Run’ Potential Seen in Depressed Southdown,” The Insiders’ Chronicle, August 26, 1991, p. 1.
“The Next Job for a Managerial Wunderkind,” Business Week, March 18, 1985, p. 93.
—Jeffrey L. Covell