2201 Miller Road
Until early 1995, Standard Commercial Corporation oversaw two international service-related businesses in two very different fields: leaf tobacco and wool. It is the world's second largest leaf tobacco importer and exporter, and was one of the world's ten largest wool merchants until it sold those interests in order to focus on tobacco. Buying leaf from tobacco growers around the world, Standard sells the product to cigarette companies for blending. Leaf dealing is sufficiently complex that only a handful of companies do it, and such industry giants as R.J. Reynolds contract for the leaf product with companies like Standard Commercial.
Standard Commercial was founded in the early 1900s by Turkish immigrant Ery Kehaya, Sr., the son of a revered teacher of religion and ethics and his wife, also from a family of religious educators and prelates. Kehaya grew up in a tobacco-growing region of Turkey along the Black Sea. Although Kehaya was groomed for a role in the church, and educated by his uncle, an archbishop in a Macedonian diocese, the young man's interests soon lead him in other directions. After traveling extensively and studying at the Sorbonne in Paris, Kehaya arrived in the United States and became a U.S. citizen. He initially found work as a waiter in a Greek-Turkish restaurant in New York City. However, the industrious young man had greater aspirations.
In New York at the time, several small factories had been established at which cigarettes were rolled by hand, using tobaccos imported from the Orient. Several tobacco importers frequented the restaurant at which Kehaya worked, and, having become acquainted with some of them, Kehaya was once prevailed upon to help sell one importer's tobacco stock to the factories. Kehaya accepted the offer, and received a commission for his sales. With the money he earned, he decided to leave the restaurant and get into the tobacco business himself.
The few thousand dollars Kehaya had earned by 1912 became the start-up capital for his new enterprise: Standard Commercial Tobacco Company. Garnering a solid reputation for the good quality of its imported Oriental tobacco, the company saw steadily increasing sales and was incorporated in Delaware in 1916. That year, as a testament to Kehaya's business acumen, Standard Commercial entered into a contract to provide Oriental leaf tobacco to R.J. Reynolds Tobacco Company. When offered a commission on the purchases, Kehaya said that he would prefer to be paid with interest in Reynolds, a company he believed offered tremendous opportunity for growth. He was right; his original shares in Reynolds would over the next ten years be worth about $5 million.
In 1917, Kehaya married Grace Whitaker, the daughter of a prominent North Carolina tobacco manufacturer. During this time, on the brink of U.S. involvement in World War I, Standard Commercial met with some misfortune. Kehaya had decided to diversify his interests, and his company had purchased two steamships, one of which was dubbed the Grace. However, that sideline business came to an abrupt end, as Kehaya and Grace, on their honeymoon, learned that their two ships had been sunk by the Germans. Also during this time, as Bolshevik forces overthrew Kerensky's regime in Russia, Standard Commercial's large store of tobacco in Russia was threatened with confiscation. While U.S. businesses, investors, and banks with holdings in Russia were losing fortunes daily, Kehaya came up with a unique plan. While other companies tried and failed to move merchandise out of Russia via railroads and established trade channels, he arranged for barges to move his tobacco up the Volga River to the White Sea and then on to the Arctic Ocean, on their way to the North Pole. Through this less travelled, and therefore unguarded, route, the tobacco reached its destination safely.
During the 1920s, Standard Commercial expanded the scope of its operations worldwide, purchasing a cigarette manufacturer in Hamburg, Germany, and establishing offices and processing plants in Korea. In fact, much of Kehaya's early work involved some real pioneering. For example, after securing a contract with a Japanese company for the export of tobacco grown in Korea, Kehaya and his wife lived in a railroad car in rural Korea for more than a year in 1922, overseeing the project, which involved teaching Korean farmers to grow tobacco.
By 1928, Standard's net worth had risen to $12 million and the company gained a listing on the New York Stock Exchange. However, the price of leaf tobacco had been depressed, and the United States was on the brink of a stock market crash that would result in the Great Depression. Having borrowed more than $15 million to purchase some Turkish tobacco, Standard was rocked soon thereafter, when the bank was forced to request repayment of the loan at maturity. Kehaya was forced to choose between selling the tobacco at the current prices and losing millions of dollars, or asking for an extension, risking the possibility of being denied further credit and potentially damaging Kehaya's reputation.
Kehaya opted to repay the loan, and toward that end he sold tobacco at record-low prices, divested many capital investments, and reduced his own salary significantly, asking his colleagues to do likewise. The Depression thus hit Kehaya and Standard very hard. But while the company founder lost much in the way of personal assets, Standard Commercial, unlike many larger corporations, survived.
As political and economic conditions overseas grew increasingly complex, Standard shopped stateside for opportunities in the 1930s. The company purchased a controlling interest in the Axton-Fisher Tobacco Company of Louisville, Kentucky, which produced the increasingly popular "Twenty Grand" cigarette brand for ten cents a pack, undercutting the more expensive brands of Camel, Lucky Strike, and Chesterfields. Standard also entered into an agreement with the Jas I. Miller Tobacco Company, purchasing and processing some of that company's products.
Since Axton-Fisher continued to prosper in the mid-1930s, Standard borrowed money to buy up its remaining stock. However, the acquisition soon soured, when, in 1937, a devastating flood hit the Ohio Valley, submerging the warehouse in which Axton-Fisher stored its redried tobacco. Costly efforts were made to salvage the tobacco, but Standard's losses and debt load were mounting.
Standard Commercial and the once-promising Axton-Fisher eventually went into bankruptcy. At that point, the Bank of America came to the rescue, becoming Axton-Fisher's majority shareholder and taking over its management, while Standard Commercial tended to its own problems. In 1944, the Bank of America decided to sell Axton-Fisher's physical assets to Phillip Morris and to liquidate all assets. As the minority shareholder of Axton-Fisher, Kehaya found an interested buyer in the Jas. I. Miller Co., which paid a good price for the tobacco inventory and helped Standard Commercial to withstand the disaster, albeit so heavily scaled-down in size and scope that in the mid-1940s the company was not much more than a handful of employees and the founder's will to reemerge.
The onset of World War II also complicated matters for Standard Commercial. Greece, Bulgaria, and Turkey had been the company's major sources for tobacco leaf prior to the war, and when Greece and Bulgaria came under German occupation, they ceased shipments. Moreover, the company's Mediterranean ports serving Turkey were also disrupted by the war. With great effort, Standard managed to get some of its stores of tobacco out of Russia during this time and also received shipments of Oriental tobacco from Rhodesia.
By 1947, with continued assistance from the Bank of America, all of Standard's outstanding debts from the Axton-Fisher disaster were paid, and, with the end of the war, the company was ready to regain its momentum. By the end of the decade, the company had reestablished relations in the East and in Europe and had reinitiated trade with Greek and Turkish markets, and formed a joint venture in Greece that was the largest of its kind at the time.
Establishment of Standard's foreign presence continued in the 1950s. In 1953, Standard formed a subsidiary in Valuz, called Eryka International, AG, to oversee purchases and sales of tobacco in the Eastern block countries, but many of Standard's dealing during this time took the form of partnerships, as had their 1955 venture to import tobacco from Thailand. With deals of such magnitude, Standard and its partners found that they needed to form a substantial subsidiary to oversee Far Eastern operations. In 1957, the Trans-Continental Leaf Tobacco Company (TCLTC) company was formed as a joint venture with the Elia Salzman Tobacco Co. Ltd. Elia Salzman, whose name the partner company bore, had founded his company in London, selling Indian tobacco in the United Kingdom and elsewhere. A formidable presence and an industry legend, Salzman could, according to Kehaya, "tear a thick phone book in half with his bare hands," and was proficient in the Russian, German, French, Turkish, Greek, and English languages. Salzman's company oversaw TCLTC's Indian business, while Standard Commercial was responsible for its business in the Orient.
In the midst of these complex foreign affairs, Standard's founder suffered a stroke, and his son, Ery W. Kehaya, was named president. The younger Kehaya had been hard at work with the company since 1945, starting out on the docks and then helping with an ultimately unsuccessful tobacco farming project in California, before becoming established in company's sales force in the 1950s.
The late 1950s and early 1960s saw the rise to prominence of TCLTC. That company took over Salzman's tobacco interests in Rhodesia and then signed a ten-year contract with the Thailand Tobacco Monopoly for exclusive rights to the export of all surplus flue-cured tobaccos. The company was also contracting with the Japan Monopoly Corporation during this time for export of their burley to Europe. Moreover, having purchased tobaccos from Thai Company, Thapawong, Ltd. for some years, TCLTC signed with them in 1962 to form a joint company, Siam Tobacco Export Corporation, which built a factory and over time bought out curing stations in order to produce and acquire its own tobaccos as security against years of small crops. TCLTC entered the Philippines in the late 1950s, exporting that country's first shipments of flue-cured tobaccos, and entered Taiwan in 1960, striking a deal with the Taiwanese Monopoly to export surplus tobaccos in Europe, Indonesia, and the United States. Business with India was ceased for some years after the death of Salzman in 1963, but would later be reestablished with the acquisition of Siemssen Threshie & Co. in the 1970s. By the mid-1960s, TCLTC had accounts in Mexico, Brazil, Argentina, and Europe, as well as smaller operations in Pakistan, Ceylon, Ghana, and Indonesia.
Meanwhile, Standard Commercial explored untapped sources such as Uganda and Tanzania in 1964. While Uganda's potential exports were ceased under the Amin regime, Tanzania proved a particularly prosperous exporter for Standard Commercial. In the late 1960s, Standard became interested for the first time in cigar tobacco and began buying it in Paraguay, Mexico, Brazil, and the Philippines, delegating responsibility for the cigar business to the German subsidiary Werkhof GmbH. However, Standard Commercial soon became dissatisfied with the operation, which proved too small to handle all of the business demands, and a more suitable arrangement was found in partnering Werkhof with the East Asiatic Co. of Copenhagen. Standard would later reacquire these cigar interests, which became known as LEAFCO, in 1982 and relocate all such operations as a division in Copenhagen.
After years of global expansion and a slowdown in the early 1970s, Standard Commercial decided to enhance its presence in the United States. In 1974, they engaged with Imperial Tobacco in establishing facilities in Wilson, North Carolina. The company also established a branch office in Richmond, Virginia. Moreover, Standard Commercial acquired the outstanding shares of its former joint venture, TCLTC, in 1975, making it a wholly owned subsidiary.
Acquisitions in the 1970s included Andrew Chalmers International, Ltd., which was eventually merged with Siemssen to form Standard Commercial (U.K.). Standard also acquired a 51 percent interest in Swiss company Spierer Freres, which moved Oriental leaf out of markets in Turkey and Greece. Jas. I. Miller Tobacco Company, Standard's frequent partner in deals, was purchased in 1978. This North Carolina-based company gave Standard a firmer presence in the United States, adding a processing factory and some great employees to the company. In 1981, Marvin Coghill was named president of Standard Commercial, as Kehaya ascended to the position of chairman.
When sanctions against Rhodesia, which had since become known as Zimbabwe, were lifted in 1979, Standard reviewed its options and decided to acquire a 49 percent interest in a plant called Tobacco Packers. Toward that end, Standard partnered with Zimbabwe's largest locally owned public company, T.A. Holdings. In 1984, Standard acquired British Leaf Tobacco Co. of Canada Ltd., which would later be merged with Standard Commercial Co. of Canada Ltd. Moreover, the company also solidified its stateside presence during this time, buying up the remaining land and buildings of Jas. I. Miller's Springfield, Kentucky facilities, after a destructive fire destroyed most of the processing machinery there. Standard eventually installed all new equipment at the Springfield facility, just in time for the 1983 burley processing season. The facility secured Standard's place in Kentucky's burley markets. That year, the company's net profit was $11.4 million.
Standard Commercial's focus changed drastically in the late 1980s. Though there had always been a need for leaf dealing, the U.S. cigarette market was shrinking, as increasingly health-conscious Americans began kicking the smoking habit. In fact, cigarette consumption domestically had been dwindling since 1981. Standard had to either downsize accordingly or widen its interests.
One of Standard's closest competitors in leaf dealing during this time, Dibrell Brothers, had diversified into the manufacturing of ice cream freezers. Standard took another direction, however. Beginning in 1986, the company spent $35 million for acquisitions in the wool industry, adding four wool trading and processing companies in 1987 alone, and the company began buying and processing wool for a long list of customers, primarily overseas. By 1988, wool accounted for 44 percent of the company's sales. Standard's global contacts in banks and business helped guide this growth.
Wool trading in the late 1980s was similar to tobacco trading in the 1950s: very fragmented. No single company owned more than ten percent of the wool business in the Free World. Nevertheless, Standard had plants in Australia, France, and Argentina by 1988, and by 1990 had acquired seven wool dealers and processors to become one of the largest entities in that market. Wool accounted for half of its $936 million in revenues in fiscal 1989.
But, just as its production was soaring, the demand for wool plunged. Prices collapsed globally and Standard was in a position eerily similar to the one its founder had faced in the Depression. Stuck with a lot of wool, few buyers and bad prices, the company had to devise a plan. Although the company tended to avoid retaining large inventories, it waited out the depressed prices, and by 1991 was able to move from a $4.3 million loss in 1991 to $6.2 million in operating profits in 1992.
Luckily, the company's tobacco business was reviving at the same time. Tobacco was then accounting for two-thirds of Standard's revenues. Foreign sales, particularly of American blends and low-tar products, increased so much that Standard's tobacco revenues increased 140 percent between 1990 and 1992. In fact, American blends represented about 30 percent of tobacco consumed worldwide in 1991, and Standard was one of that product's major exporters.
Early 1993 saw competitor Dibrell Brothers seek a merger with Standard Commercial; any tentative agreements reached, however, were scrapped the next year by Standard. Dibrell maintained a 9.9 percent stake in Standard, but opted to explore mergers with other companies instead. Also during this time, the domestic cigarette market was suffering as U.S. legislators debated enacting laws to regulate tobacco content and impose federal excise taxes on cigarettes and other tobacco products. Moreover, an oversupply of tobacco hurt everyone in the industry in 1993 and 1994, and Standard joined its competitors when it sold its inventory at a loss to manufacturers. Referring to 1994 as a "year of unprecedented difficulty," president and CEO J. Alec G. Murray pledged to divest those interests not crucial to Standard's role as wool and tobacco. However, in March 1995, Standard decided to sell its wool trading and processing business. Given the severe state of flux in the tobacco trade in the United States, the future seemed uncertain for the company, but Standard vowed to focus on improving risk management, reducing inventory, improving profitability, and strengthening its management structure in hopes of a turnaround.
Principal Subsidiaries: W.A. Adams Company; Jas. I. Miller Tobacco Company Inc.; Standard Commercial Tobacco Co. Inc.; Standard Commercial Services Inc.; Spierer Freres & Cie S.A. (Switzerland); Standard Commercial Tobacco Company of Canada Ltd.; Transconti Srl (Italy); Werkhof GmbH (Germany); Standard Commercial Tobacco Company (UK) Ltd.; Trans-Continental Leaf Tobacco Corporation; Transcatab SpA (Italy); Trans-Continental Participacoes e Empreendimentos Ltda. (Brazil); Transhellenhic Tobacco S.A. (Greece); World Wide Tobacco España S.A. (Spain).