Leucadia National Corporation - Company Profile, Information, Business Description, History, Background Information on Leucadia National Corporation

315 Park Avenue South
New York, New York 10010

History of Leucadia National Corporation

A holding company, Leucadia National Corporation owned an array of companies involved in diverse businesses, ranging from insurance to motivational services, to manufacturing. Although the roots of Leucadia National stretch back to 1854, the essence of the company in the 1990s reflected a truly modern creation: a company formed through the acquisition of various businesses, irrespective of their business lines. Leucadia began to grow through acquisitions in 1980, and from that year forward purchased companies that increased its financial magnitude. Through the course of the company's growth during the 1980s, it became heavily involved in the insurance business, specifically commercial and personal property and casualty insurance, as well as health and life insurance. In addition to these businesses, Leucadia National also owned significant interests in banking and lending, trading stamps, bathroom vanities manufacturing, and motivational services. By the early 1990s, the company had achieved encouraging results, raising its annual revenue total from $39 million in 1980 to $1.40 billion in 1993.

Both the Leucadia name and the corporate strategy that engendered its exponential increase in revenues emerged in 1980, but the foundation from which Leucadia was built was formed more than a century earlier, in 1854, when James Talcott, Inc. was established. James Talcott, Inc., incorporated 60 years after it was created as a factoring concern, generated revenue initially by accepting accounts receivable from companies involved in the textile industry and using those accounts as security to provide short-term loans. James Talcott, Inc.'s importance to Leucadia, however, did not arise until the company evolved into a more diversified concern, when it began acquiring numerous financial institutions during the 1950s and 1960s, becoming, in 1968, Talcott National Corporation, a company engaged in commercial financing, real estate mortgage financing, equipment financing and leasing, factoring, and consumer financing.

Shortly after Talcott National came into being, the seeds for Leucadia's emergence were sown. In the early 1970s the company launched an imprudent diversification into insurance, fire engines, leather processing, and machine parts that led to a $20 million loss in 1972. Although the company attempted to recover, the losses resulting from the early 1970s saddled Talcott National with mounting debt. From 1972 to 1977 these losses amounted to $355 million, and the company began to flounder, reeling from successive, unprofitable years during the decade.

Although the company was on the brink of failure, several Utah businessmen, led by a Salt Lake City investor named Brooke Grant, believed they could extricate Talcott National from its financial malaise. The investors formed Uintah National Corp. in 1976 to purchase a controlling interest in Talcott National. They borrowed $6.9 million to buy 1.6 million Talcott National shares, which gave them a 53 percent stake in the company. Grant set out to rebuild Talcott National. Within a year of assuming control of the company, Grant enlisted the help of a young, respected businessman named Ian M. Cumming, who was president of a Utah-based land development company and who would soon become the chief architect of Leucadia's creation.

While working at New York-based Carl Marks & Co., a specialty Wall Street firm active in leveraged buyouts and venture capital, Cumming convinced his company to invest $1.5 million in a small land development company in Utah named Terracor. The company's investment, however, began to sour in the early 1970s, when a deteriorating market for second homes negatively affected Terracor's business, so the Wall Street investment firm sent Cumming to Utah in 1971 to help Terracor effect a recovery. Cumming became president of Terracor within several months after his arrival, then began cutting the company's expenses and repositioning its role in the housing market.

Although Terracor continued to lose money, incurring more than $100 million in debt during the decade, Cumming's talents gained Grant's attention, and he called Cumming, asking for his help in restoring Talcott National's financial health. Cumming was elected as Talcott National's chairman and president in mid 1978. Cumming's leadership of the company was open to much debate several years later, when two lawsuits were filed against him. Once Cumming assumed stewardship of the company, he decided against the plan he and Grant had originally formulated to sell a large group of Talcott National's assets to pay off its debt. Instead, he decided to sell the portfolios of the company's commercial loan offices piece by piece, enlisting the help of Carl Marks & Co. in New York, and recruiting a former Harvard Business School classmate and vice-president at Carl Marks & Co., Joseph S. Steinberg, to assist him in his endeavors at Talcott National.

Once Cumming and Steinberg were together at Talcott National they began engineering a plan to take the company over. They convinced Talcott National's creditor banks to approve a restructuring plan in 1979, then formed a partnership with Carl Marks & Co. and Stern & Stern Textiles, a textiles company that Steinberg had helped acquire while at Carl Marks & Co. Named TLC Associates, this partnership included Cumming, Steinberg, John W. Jordan II, a former Carl Marks vice-president, and Lawrence D. Glaubinger, Stern & Stern's chairman. After some initial disagreements between Cumming and Grant, TLC purchased Uintah and thereby a controlling interest in Talcott National, paying Grant slightly more than $900,000 and two of his remaining partners $28,000 to assume Uintah's $7.4 million in debt.

Several years later, in 1982, after Talcott National had become Leucadia and the company's stock began to soar, Grant filed a lawsuit against Cumming, accusing him of breach of contract and violations of fiduciary duty and security laws. Grant claimed he had not been paid the fair market value for his shares in Talcott National and that he had never received an additional payment he and Cumming had agreed upon in a peripheral deal during the TLC-Uintah negotiations, accusations that Cumming denied were true.

As this legal battle intensified, Cumming and TLC become the object of another lawsuit that same year, when Senior Corp., Terracor's main creditor, demanded Leucadia stock as partial payment of the more than $100 million debt Terracor owed. Senior Corp. charged that Cumming, who was still president of Terracor while he was working for Talcott National, had used Terracor funds to loan Grant $200,000 after his arrival at Talcott National, and had used Terracor time to negotiate for and acquire Talcott National, which entitled Senior Corp., according to its argument, to a portion of Leucadia.

Both of these cases were settled within the next two years. In the dispute with Grant, Cumming was ordered to pay $4.5 million, which he obtained from Leucadia, and in the lawsuit involving Senior Corp., Cumming and his associates retained their shares in Leucadia and gave Senior Corp. approximately half of the properties owned by Terracor, properties that were worth roughly $20 million at the time.

Part of the underlying reason both Grant and Senior Corp. had pursued their lawsuits against Cumming was attributable to the rapid success Leucadia had enjoyed during its first several years under Cumming's and Steinberg's guidance. From 1980 to 1984, the year the last of Cumming's legal disputes were concluded, the two partners had transformed Leucadia from a company with $39 million in annual revenues to a company that generated $232 million in annual revenues. Essentially all of this growth had been realized through acquisitions orchestrated by Cumming and Steinberg, something both were adept at and something they both began engaging in shortly after they gained control of Talcott National.

In 1980, after changing Talcott National's name to Leucadia National Corporation, Cumming and Steinberg sold the company's factoring unit, James Talcott Factors Inc., the 126 year-old remnant of James Talcott, Inc., to U.K.-based Lloyds & Scottish Ltd. for approximately $123 million. Once divested of the company's factoring unit, Cumming and Steinberg set out to expand Leucadia's operations through acquisition, a strategy they would employ throughout the decade and one they first put into practice in December of 1980.

For Leucadia's first acquisition, Cumming and Steinberg selected American Investment Company, owner of a small-loan company and life insurance firm, which combined were much larger than Leucadia. To finance the acquisition, Leucadia arranged for American Investment to purchase the net assets of Leucadia's consumer finance company, for which Leucadia received $94 million, and then used the money obtained from this sale to purchase American Investment for $73.6 million. Leucadia then made three significant investments in 1982 by first purchasing a 57 percent interest in TFI Companies, Inc., then becoming a 50 percent partner in a newly formed private investment firm managed by John Jordan II, called The Jordan Company. The third investment was the acquisition of Terracor, the company that had originally brought Cumming to Utah. Leucadia purchased the remainder of Terracor after the settlement with Senior Corp. for $5.9 million.

By 1984, Leucadia's partnership in The Jordan Company had given it an interest in ten companies, which added $4.8 million to the company's profit total for the year. Its most profitable achievement for the year, however, and a striking example of Cumming's ability to generate profit through aggressive corporate tactics, involved an attempted acquisition of Avco Corp., a defense supplier as well as a financial concern. Over a five-month period, Leucadia spent $77.5 million to acquire a 12 percent stake in Avco, then made a $930 million bid for the company. Not wishing to sell, Avco's management decided to buy back the stock Leucadia had acquired for $100 million. This by itself gave Leucadia a $22.5 million profit, but Cumming had secured an agreement with Avco that stipulated if Avco was acquired by another company within a year, then it would pay Leucadia the per-share difference between the price Avco's acquirer paid and the price Avco paid Leucadia to buy back its stock. Within the agreed upon time frame, a company named Textron acquired Avco for $50-a-share, $14.25 more per share than Avco had paid Leucadia, which gave Cumming's company an additional $39.8 million in profit.

By the mid 1980s, among the host of companies Leucadia either owned or maintained an interest in, the company's two principal operations were a small-loan company named City Finance Company, which James Talcott, Inc. had purchased in 1966, and Charter National Life Insurance Company, an insurance firm that sold single-premium life policies. Leucadia's investments were strengthened considerably in 1988, when Leucadia increased its interest to 64 percent in PHLCorp, a company it became involved in during a failed takeover four years earlier. One of PHLCorp.'s main operating properties was The Sperry & Hutchinson Company, Inc., which was later divided into two divisions after Leucadia increased its ownership of PHLCorp. These two divisions were organized as a trading stamp business and motivation services business, which designed and managed incentive programs. The other main operating property belonging to PHLCorp., and the company that enriched Leucadia's insurance holdings, was Empire Insurance and its then-85 percent owned affiliate Allcity Insurance Co. Based in New York and primarily serving the New York City metropolitan area, Empire wrote property and casualty policies, which broadened the scope Leucadia's insurance operations and added assets to the company valued at more than $200 million.

By this time, at the end of 1988, Leucadia was generating roughly $735 million in annual revenues and well on its way toward recording a $1 billion increase in its sales volume in a decade. An enormous step toward that direction was achieved in 1991, when the company acquired Colonial Penn Group Insurance Co. from FPL Group for $150 million. Leucadia's third insurance company, Colonial Penn was a direct marketing insurance company that became an integral component of the company's life insurance business and a nationwide provider of private passenger automobile insurance and homeowners insurance.

The addition of Colonial Penn helped elevate Leucadia's revenues to $1.57 billion in 1992, up from $1.08 billion recorded the year before, and a tremendous increase from the $39 million generated in 1980. By the conclusion of 1993, after 15 years of Cumming's and Steinberg's leadership, the value of Leucadia had increased considerably. The net worth of the company at year's end was $907.8 million, or $32.54 per share, compared to negative $0.22 in 1978 when Cumming and Steinberg assumed management of Talcott National. Leucadia's stock price also demonstrated commensurate growth, soaring from $0.16 in 1978 to $41 by 1993.

As the company planned for the future, it focused on increasing the profitability of its investments rather than increasing their market share or magnitude, a corporate philosophy that Cumming and Steinberg believed, as they wrote in a letter to the company shareholders in 1993, conformed to "the theory that the world can tolerate many mice, but few elephants." Operating according to this strategy, Leucadia looked for further growth in the 1990s.

Principal Subsidiaries: American Investment Bank, North America; American Financial; Charter National Life Insurance Company; Empire Insurance Group; Colonial Penn Life Insurance Company; Colonial Penn Insurance Company; CP Group; The Sperry & Hutchinson Company, Inc.; Allcity Insurance Co.; PHLCORP, Inc.; Charter National Life Insurance Company.

Additional Details

Further Reference

"Colonial Penn Life, PA.," Best's Review - Life-Health Insurance Edition, June 1991, p. 122.George, John, "Leucadia Buys Colonial Penn for $150 Million," Philadelphia Business Journal, April 15, 1991, p. 3."Package Deal," Forbes, April 1, 1976, p. 71.Rosenberg, Hilary, "Elusive Leucadia," Barron's, November 11, 1985, p. 6.Schwer, Robert B., "Hidden Value," Barron's, November 26, 1990, p. 16.

User Contributions:

Comment about this article, ask questions, or add new information about this topic: