United Brands Company
United Brands Company
Incorporated: 1899 as United Fruit Company
Sales: $3.5 billion
Stock Index: New York Boston Pacific Midwest
In 1870, Captain Lorenzo Dow Baker joined a growing number of people intrigued by the risky banana business when he bought 160 bunches of bananas for a shilling a bunch in Jamaica and sold them 11 days later in Jersey City for $2 a bunch. He soon became a founding member of the Boston Fruit Company, the predecessor of United Fruit. From its founding in 1899 through the middle of the 20th century, United Fruit continued to grow rapidly, despite the environmental and political setbacks inherent in the banana business. The company not only continued to buy smaller banana producers, but branched out to acquire diverse holdings including control of three sugar companies. Today United Brands’ Chiquita brand bananas are the leader in the banana market. United Brands also produces meats under the John Morrell brand, as well as other food products.
United Fruit Company was formed when the Boston Fruit Company, an importer of bananas from the Caribbean islands, merged with Minor Keith, a railroad pioneer who imported bananas from Central America and Colombia. The strategy behind the merger was to create a broad base of operations in an effort to continue trade when droughts, floods, or political upheavals were disrupting one or another of the harvesting lands. Strategies for dealing with unstable conditions in Central America would be the test of the leaders of United Brands for years to come.
From the turn of the century until well into the 1930s, the governments of Honduras, Guatemala, Panama, and other Central American countries were eager to develop. They were unable to finance the construction of railroads and ports themselves, but land in these countries was cheap and readily available to ambitious North American companies who were willing to do the building themselves. United Fruit eventually owned more than 200,000 acres in Central America, of which only 60,000 were fruit producing.
In May, 1924 the company made a typical deal: Chiquita’s Guatemalan branch made a 25-year agreement with the Guatemalan government to extend plantations, railroads, and telephone lines and to build a port. Agreements like this resulted in unchecked growth until 1953, when problems concerning domestic growers and land rights prompted the Guatemalan government to seize a great deal of Pacific and Atlantic coastal property from United Fruit. The following spring the U.S. State Department served claim against this expropriation, but it was not until December that Guatemala agreed to return the land to United Fruit for six months, after which the company would give 100,000 west coast acres back to the government and pay a 30% income tax on the remaining west coast lands. Throughout 1954 similar agreements were reached with Panama, Costa Rica, and Honduras. Relations with the Guatemalan government continued to be rough until December 1972, when United Brands sold its Guatemalan banana operations to Del Monte for more than $20 million.
Although World War II had no remarkable effect on United, the company’s role in maintaining open relations with Central America was important because of the sugar, rubber plants, and other raw materials that these countries supplied.
United Fruit spent the years between the late 1950s and 1969 acquiring a diverse collection of companies, among them the A & W Root Beer Company and Foster Grant. In 1958, United acquired rights to explore for petroleum and natural gas in Panama, Ecuador, and Colombia. This relatively unfocused stream of acquisitions ended when United Fruit merged with AMK Corporation in June,1970.
In 1966 AMK, originally a producer of milk-bottle caps, had acquired a third of the common shares of John Morrell and Company, a meat packer, and in December of the following year acquired the rest. Eli Black, the president and chairman of AMK, gained a reputation for financial wizardry with this acquisition—Morrell, the fourth-largest meat packer in the country, was twenty times larger than AMK.
In 1969 AMK acquired a majority share of the United Fruit Company. By February, 1970 John Fox, the chairman of United Fruit, and Eli Black had agreed on a merger. After some negotiation with the Federal Trade Commission, which was concerned by the antitrust implications of the merger, the new United Brands was incorporated on June 30, 1970.
Unfortunately, Black’s triumph was short-lived. In the following few years United Brands experienced the worst losses in its history. In April, 1974 Central American governments began levying a large export tax on their bananas. Then in September, 1974 hurricane Fifi hit Central America, wiping out 70% of the company’s Honduran plantations and causing losses of more than $20 million. Eli Black sent relief teams to the victims of the hurricane, but he could do nothing to help the company. Losses continued to mount: because of high cattle feed costs, the John Morrell division contributed another $6 million in losses to United Brands’ $70 million operating loss in 1974, compared to a $16 million profit the previous year.
Black’s final attempt to alleviate the company’s troubles was to sell United’s interest in Foster Grant for almost $70 million at the very end of the year. The sale was considered a tremendous success, but apparently it was not enough for Black, who committed suicide on February 3, 1975.
Eli Black’s death sparked countless investigations into the problems of a businessman who, according to a friend quoted in The Wall Street Journal ten days later, “felt deeply his responsibilities to his shareholders, but ... also believed that business was a human operation.” The routine business investigation of Black’s death, however, soon revealed more than a personal explanation for his tragic decision. It turned up a bribery scandal that was to plague United Brands for more than three years.
In April, 1975 the Securities and Exchange Commission (SEC) charged United Brands with having paid a bribe of $1.25 million and having agreed to pay another $1.25 million to a Honduran official in exchange for a reduction in export taxes. The SEC also accused United of bribing European officials for $750,000. Trade in United Brands stock was halted for almost a week; among other suits, a shareholder filed a derivative action (for the benefit of the corporation) and class action (for the benefit of the shareholders) suit; the president of Honduras was removed by the Honduran military on suspicion of participating in the bribe; the Costa Rican president threatened to cancel all contracts with United Brands if all Costa Rican officials involved in any bribes were not revealed; and finally, a federal grand jury brought criminal charges against United Brands.
Interestingly, in the midst of litigation over these charges, major investors were faithful to United Brands. One of the largest of these investors was Carl Lindner, owner of the American Financial Corporation in Cincinnati. Elected a director of United Brands in 1976, Lindner attributed his continued investment to the company’s turnaround potential. Eight years later, Lindner himself would be the pivotal figure in returning United Brands to profitability.
In January, 1976, a federal judge signed a consent order barring United Brands from further violations and granting the SEC permanent access to the company’s records. United Brands agreed to the order without admitting or denying the allegations. Litigation continued until 1978, when the company pleaded guilty to conspiring to pay $2.5 million to the former Honduran minister of economy, Abraham Bennaton Ramos. The company was fined $15,000, the maximum sentence, and the case was officially closed.
In May, 1975 Wallace Booth succeeded the string of chairmen who had headed the company in the wake of Eli Black’s death. Booth is credited with leveling the rocky operation by methodically tightening management control, streamlining banana delivery systems, and updating meat-packing technology at John Morrell.
In the wake of the bribery scandal, United Brands agreed in April, 1976 to sell 190 miles of railroad track to the Honduran government for 50¢ and then lease it back for $250,000 a year. It also agreed to operate and maintain the railroad line. Booth furthered such placating efforts, including a similar land deal in Panama, earning himself the nickname “the Good Gringo.”
Booth resigned in 1977. Until 1984 a series of chairmen and presidents managed to keep United Brands afloat, but profits slipped and net losses increased steadily. John Morrell came close to closing a plant in the early 1980s, and in 1983 tropical storms in Panama and Costa Rica inflicted further damage.
In 1982, Carl Lindner’s American Financial Corporation began substantially increasing its stake in United Brands. A savvy investor and an expert manager, Lindner took over as chairman of United Brands in August, 1984. Lindner shifted the company away from large, diversified operations toward a narrower focus on stable profits throughout the company. He and the four new directors he elected doubled United’s cash flow between 1985 and 1988. Lindner streamlined the company’s operations by selling some of its extraneous operations, like soft drinks, animal feeds, and international telecommunications, and lowered its overhead by moving the company’s headquarters from New York to Cincinnati.
Although Lindner’s push to broaden the Chiquita product line with frozen fruit pops lost some $10 million in 1987, the company has been successful in using the Chiquita name to sell other fresh fruit, like grapefruit and pineapples. Chiquita has also recaptured first place in the banana market from Dole, which had taken the lead from Chiquita in the early 1970s.
John Morrell has not fared as well in recent years. Strikes in 1986 and 1987 at two of the largest meatpacking plants were settled in March, 1988 when the company was awarded $24.6 million in damages, as the strikes were ruled illegal. But another suit was filed on behalf of Morrell employees in October, 1988 for $35 million, claiming that workers were not paid for work involving safety equipment that they were required to perform on their own time. A week later the Labor Department’s Occupational Safety and Health Administration proposed a $4.3 million fine against Morrell for “willfully ignoring” serious injuries caused by repetitive motions used in the meatpacking business.
The complications inherent in the production, processing, and distribution of perishable fruit grown in politically unstable countries have challenged United Brands since the company’s beginnings nearly 100 years ago. After recovering from a severe decline in the mid-1970s, United Brands today is a very successful company. With Carl Lindner in charge, United Brands seems to be on a higher level of financial and managerial operation than it has ever been before. From the time of the company’s fragmented origins, the banana business has combined an obvious risk of instability with the potential for great profit. Lindner, who quieted rumors that he planned to take the company private when in 1988 he reduced his stake in the company from 87% to 84%, seems to have achieved an admirably stable balance, promising United Brands a prominent role in the industry for the foreseeable future.
Chiquita Brands, Inc.; Compania Mundimar; John Morrell & Company; Polymer United, Inc.
"United Brands Company." International Directory of Company Histories. . Encyclopedia.com. (September 19, 2018). http://www.encyclopedia.com/books/politics-and-business-magazines/united-brands-company
"United Brands Company." International Directory of Company Histories. . Retrieved September 19, 2018 from Encyclopedia.com: http://www.encyclopedia.com/books/politics-and-business-magazines/united-brands-company
Encyclopedia.com gives you the ability to cite reference entries and articles according to common styles from the Modern Language Association (MLA), The Chicago Manual of Style, and the American Psychological Association (APA).
Within the “Cite this article” tool, pick a style to see how all available information looks when formatted according to that style. Then, copy and paste the text into your bibliography or works cited list.
Because each style has its own formatting nuances that evolve over time and not all information is available for every reference entry or article, Encyclopedia.com cannot guarantee each citation it generates. Therefore, it’s best to use Encyclopedia.com citations as a starting point before checking the style against your school or publication’s requirements and the most-recent information available at these sites:
Modern Language Association
The Chicago Manual of Style
American Psychological Association
- Most online reference entries and articles do not have page numbers. Therefore, that information is unavailable for most Encyclopedia.com content. However, the date of retrieval is often important. Refer to each style’s convention regarding the best way to format page numbers and retrieval dates.
- In addition to the MLA, Chicago, and APA styles, your school, university, publication, or institution may have its own requirements for citations. Therefore, be sure to refer to those guidelines when editing your bibliography or works cited list.