Dibrell Brothers, Incorporated - Company Profile, Information, Business Description, History, Background Information on Dibrell Brothers, Incorporated

512 Bridge Street
Danville, Virginia 24543

History of Dibrell Brothers, Incorporated

An international leader in two business lines, Dibrell Brothers, Incorporated purchases, processes, and sells leaf tobacco and operates as an importer, exporter, and distributor of fresh cut flowers. Tobacco and flowers together, the company operated in 24 countries throughout North America, Europe, the Middle East, the Far East, and South America, deriving 87 percent of its revenues from outside the United States.

Formed as a partnership in 1873, Dibrell Brothers entered the tobacco trade several decades before widespread consumption of leaf tobacco in the United States began. To be sure, tobacco represented one of the chief agricultural crops supporting the country's growth, beginning with its introduction into the American colonies in 1612, then underpinning the growth of the southern United States throughout the eighteenth and nineteenth centuries. However, domestic leaf tobacco consumption did not reach great proportions until cigarettes became a widely consumed product during the early 1900s. Before then, tobacco was most widely used to produce plug and twist tobacco, chewing tobacco, smoking tobacco, and cigars, the manufacturers of which constituted Dibrell Brothers' customers during its first several decades of existence.

Functioning as a tobacco merchant, Dibrell Brothers purchased raw tobacco from individual growers or at auctions, cured it, stored it, and then sold and transported the processed tobacco to manufacturers. Although many tobacco manufacturers first entered the industry as tobacco farmers then diversified into the manufacturing side of the business, most could not fulfill all their tobacco needs, a deficit tobacco merchants like Dibrell Brothers filled. This, then, was the company's role in the tobacco industry. Positioned between tobacco farmers and tobacco manufacturers, Dibrell Brothers served both, inextricably woven into the process of tobacco manufacture and consequently an indispensable part of the dramatic growth of the tobacco industry during the twentieth century.

Founded in Danville, Virginia, where the company headquarters remained a century later, Dibrell Brothers was located in the perfect place for a business of its type, on the border dividing Virginia and North Carolina, the principal and almost exclusive region of tobacco farming and manufacture in the United States. Not long after the company was formed, the manufacturing side of the tobacco industry--Dibrell Brothers' customer base--comprised only a handful of manufacturers. Accordingly, Dibrell Brothers' potential customers were a limited few, consisting primarily of the five principal manufacturers that dominated the 1870s and 1880s: Washington Duke Sons & Co., Allen & Ginter, Kinney Tobacco Co., William S. Kimball & Co., and Goodwin & Co.

These companies formed what was known as the "Tobacco Trust," an elite group of tobacco manufacturers that wielded overwhelming control of the industry and purchased nearly all of Dibrell Brothers' processed tobacco. In 1890, these companies joined together at the urging of Washington Duke Sons & Co.'s James Duke to form the American Tobacco Company, which held nearly every part of the industry until the U.S. Supreme Court issued a dissolution decree in 1911 that divided the tobacco giant into 16 independent corporations. During the period bridging the birth of the American Tobacco Company and its court-mandated dissolution, Dibrell Brothers was incorporated in 1904, formally beginning a corporate history that would see the former partnership evolve into the largest company of its kind in the United States.

Under the American Tobacco Company's 20-year reign, Dibrell Brothers prospered, supplying the huge company with the processed tobacco necessary for producing chewing tobacco and cigars.

During the 1920s and 1930s, domestic leaf tobacco consumption jumped nearly 43 percent, driven largely by the enormous 1,450 percent leap in cigarette production from 8.6 billion to 125.2 billion during the period. With the widespread popularity of cigarettes came the exponential growth of the tobacco industry and the prosperity of those companies involved in it, a prosperity Dibrell Brothers shared in. However, it was not until the 1970s, a century after its formation, that the company became a major player in the tobacco processing market.

By the early 1970s, Dibrell Brothers had enjoyed considerable success, having paid a dividend to its shareholders every year since 1925. In the decade to follow, the company began its ascent to the number one position in its industry. This transformation occurred as a result of Dibrell Brothers' geographic expansion, which, aside from increasing the physical and financial size of the company, helped insulate it from the usual risks involved in dealing with an agricultural commodity, including political unrest, inclement weather, and import/export restrictions.

During the 1970s, Dibrell Brothers enlarged the boundaries of its area of operations considerably. Expanding on its operations in Canada and the United States, the company also moved into Central and South America, the Far East, India, and Italy, where a joint venture in 1972 with Italian partners ceded Dibrell Brothers a minority interest in a company named Reditab S.p.A. and, more important, gave the company entry into the European Common Market. Following this initial burst of overseas expansion, the company relocated its international sales operations to Europe in 1980, a move that resulted in tax savings on the profits from sales of non-U.S. tobacco. In 1980, the United Nations decided to lift Zimbabwean tobacco sanctions, and Dibrell Brothers established a presence in Zimbabwe, adding a nominal presence in Africa to its expanding worldwide operations.

During this time, the company expanded in the United States as well, diversifying into businesses unrelated to tobacco. In 1967, the company acquired Richmond Cedar Works Manufacturing Co., a manufacturer of home ice cream freezers and decorative woodenware. Two years later, Dibrell Brothers purchased Dunning Industries, the largest manufacturer of wooden lamps in the country. Dibrell Brothers also moved into the restaurant business in 1973, when it launched a chain of steak houses in Kentucky and Tennessee called Kentucky Rib-Eye. By the end of the decade, there were eight restaurants in the chain, including operations in Indiana, and the subsidiary was renamed Briarpatch, Inc.

Such non-tobacco businesses generated $14 million in annual revenues in 1975, helping Dibrell Brothers post $227 million in aggregate revenues for the year. By this point, roughly five years into the company's concerted movement to diversify and expand abroad, its financial performance had improved dramatically. The revenue total in 1975 was more than twice that of four years earlier, when Dibrell Brothers generated $112 million. The company's net income recorded a commensurate leap, increasing from $1.3 million to $2.7 million, confirming management's belief that Dibrell Brothers' path to greater success was routed through global expansion and diversification.

Despite the irrefutable success of the company's entry into foreign tobacco markets, its attempts at diversification led to more prosaic financial results. With the exception of its freezer business, none of the company's diversification moves had proven particularly successful by the end of the 1970s, so the company began the 1980s by selling one of its non-tobacco businesses, its wooden lamp manufacturer, Dunning Industries. The company's two remaining non-tobacco subsidiaries, Briarpatch, Inc. and Richmond Cedar Works, contributed 4.6 percent of Dibrell Brothers' total sales and 3.6 percent of its operating profits in 1980; clearly diversification had not added greatly to the company's financial performance. Within the next ten years, both Briarpatch and Richmond Cedar Works would be divested as well, but the company's resounding success in tobacco offset the lackluster performance of its non-tobacco business ventures. In less than a decade, Dibrell Brothers had become a leading force in the tobacco processing industry.

By 1980, Dibrell Brothers was recognized as the second largest independent processor of leaf tobacco in the United States, a distinction almost entirely earned by its successes abroad. The previous decade's expansion had driven the proportion of the company's international sales upward so that they now represented 60 percent of Dibrell Brothers revenue volume. These foreign customers, primarily cigarette manufacturers, helped propel the company's sales growth, which proceeded at a less prolific rate than during the first half of the 1970s, but engendered an enviable record of net income growth nonetheless. From 1975 to 1981, Dibrell Brothers' sales recorded a respectable 6.6 percent increase, climbing from $227 million to $328 million, while the company's bottom line grew more robustly, soaring from $2.6 million to $5.4 million.

Encouraged by these results, the company's management made another overseas move in 1981, when Dibrell Brothers acquired Amsterdam-based B.V. Tabak Export & Import Compagnie (TEIC) for approximately $25 million. The acquisition was regarded by industry pundits as the most ambitious to date, and one that gave Dibrell Brothers many valuable overseas assets, assets that together generated as much profit as Dibrell Brothers' entire existing operations. Through the acquisition, Dibrell Brothers inherited TEIC's operations in Zimbabwe, West Germany, the Dominican Republic, and northern Brazil. The company also assumed ownership of TEIC's wholly-owned subsidiary, Verafumos Ltd., one of the leading producers and exporters of Brazilian tobacco.

The acquisition of TEIC added much, particularly the Brazilian properties, which a company spokesperson described at the time as providing a "quantum jump" in Dibrell Brothers' supply of Brazilian tobacco. However, following the purchase of TEIC, until the late 1980s, the company registered essentially flat financial growth. Sales fluctuated during this period, amounting to $327 million in 1984, then rising to $381 million the following year, and finally dipping to $308 million in 1987. The company's net income was similarly erratic, plunging from $5.7 million in 1984 to $647,000 the following year, then rebounding to $5 million in 1986. 1987 represented the nadir of Dibrell Brothers' 1980s revenue plunge, but by the following year a recovery was clearly on its way, as the company experienced a resurgence that would carry it into the early 1990s, a revitalization sparked by Dibrell Brothers' first overwhelming success with a non-tobacco business.

In 1987, Dibrell Brothers acquired a 54 percent interest in Florimex Verwaltungsgesellschaft mbH for $10.7 million, then purchased the remainder of the company over the next three years. Once Richmond Cedars Works was sold in 1990, Florimex, involved in the importation and distribution of fresh-cut flowers in Europe, North America, and Japan, would stand as Dibrell Brothers only non-tobacco property and one that greatly contributed to its recovery from the financial malaise afflicting the company in 1987. Dibrell Brothers lost $1 million on $308 million in sales in 1987, closed three of its five U.S. facilities, and then, with the addition of Florimex, reversed its fortunes and generated $12.7 million in net income in 1988 on sales of $555 million. Florimex was responsible for 70 percent of this increase in sales, buoying the company's financial prospects for the future and giving Dibrell Brothers a reliable source of income excluded from the cyclical tobacco market.

During the late 1980s, the tobacco market was undergoing more sweeping and defining changes than the usual market fluctuations. Throughout the world, but particularly in the United States, consumers were increasingly opting for low-priced generic cigarettes, a trend that intensified during the early 1990s and promised to reshape the tobacco industry. Dibrell Brothers stood well-positioned for the changes affecting the industry because for years it had imported a sizeable amount of inexpensive tobacco, thereby enabling it to benefit from the popularity of low-priced cigarettes. Moreover, the company had responded early to another trend affecting the tobacco industry: the popularity of the lighter "American blend" cigarette. Eastern Europeans, who previously smoked high-tar cigarettes, demonstrated a preference for lighter cigarettes in particular during the early 1990s, a predilection Dibrell Brothers' management had foreshadowed in 1988 by moving out of high-tar tobacco markets in countries such as the Dominican Republic and Indonesia.

Prepared as such for the changes that were taking place in the tobacco industry, Dibrell Brothers began demonstrating a vitality that few of its competitors could match. The company's stock tripled in value in 1991, driven by the profitability of Dibrell Brothers' Brazilian operations and the remarkable growth of Florimex, which doubled its annual revenue total between 1989 and 1993 to reach $360 million, or $42 million more than Dibrell Brothers generated when it acquired the fresh-cut flower concern. Sales eclipsed the $1 billion plateau in 1991, having nearly doubled in three years. However, shortly thereafter, the company's exponential spurt of growth screeched to a halt, arrested by a worldwide oversupply of tobacco.

To offset the effects of tobacco oversupply, Dibrell Brothers looked to increase the economies of scale involved in its tobacco processing operations; more volume meant lower processing costs and higher profit margins. This prompted the company to conduct negotiations with Standard Commercial Corp., a worldwide leaf tobacco processor, about the possibilities of a merger. In early 1993, the merger was announced, creating, once the shareholders of the two companies and the federal government gave their approval, a tobacco processing giant with more than $2.2 billion in annual revenues. Several months later, however, Standard Commercial backed out of the proposed merger, explaining to the Wall Street Journal that the merger was "not in the best interest of our shareholders."

Dibrell Brothers pursued Standard Commercial throughout 1993 and into 1994, but the Wilson, North Carolina-based company remained adamant in its refusal to merge. The difficulties caused by the oversupply of tobacco, meanwhile, had crippled Dibrell Brothers' financial performance, knocking the company off the $1 billion plateau. The company recorded $919 million in sales in 1994 and reported a loss of $9.1 million, a precipitous drop from the $38 million gain registered the year before.

In late 1994, however, Dibrell Brothers at last found an agreeable partner for a merger, buoying hopes that the company could reverse its retrogressive slide. In October, Dibrell Brothers and Monk-Austin Inc., a Farmville, North Carolina-based tobacco processor, agreed to merge, creating a $1.4 billion operation to be called DiMon Inc.

The addition of Monk-Austin's operations instilled Dibrell Brothers' management with hope for a recovery in the mid-1990s. By combining processing operations in Brazil, Africa, and the United States, where both companies maintained a presence, fixed costs were expected to decline and profits to rise. As the company entered the mid-1990s, its most immediate task was to conclude the merger and combine operations where appropriate, then begin building toward a more profitable future in the company's third century of business.

Principal Subsidiaries: Eastern Carolina Leaf Processors Inc.; Tobacco Export & Import Co. Inc.; Dibrell Brothers GmbH (Germany); Dibrell Brothers Tobacco Company, Inc.; Dibrell Brothers Tobacco Processing, Inc.; Dibrell Brothers of Canada Ltd.; Dibrell Brothers International S.A. (Switzerland); Dibrell Limited (England); Dibrell do Brasil Tabacos Ltda. (Brazil); Dibrell International B.V. (Holland); Felemenk Turk Tutun A.S. (Turkey); Rohtabakvergaetungs A.G. (Germany); Florimex Verwaltungsgesellschaft MbH (Germany); Baardse B.V. (Holland)

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Further Reference

Biesada, Alexandra, "Dibrell Brothers Shares Are Still Smokin'," Financial World, January 21, 1992, p. 13Campanella, Frank W., "Steak Houses to Tobacco, Dibrell Finds Diversification a Boon," Barron's, February 2, 1976, p. 65."Dibrell and RJR Unit Reach a Settlement on Brazil Firm's Sale," Wall Street Journal, October 17, 1991, p. A9."Dibrell Bros. and Standard Commercial, Leaf-Tobacco Processors, Agree to Merge," Wall Street Journal, March 29, 1993, p. B3."Dibrell Brothers, Incorporated," Barron's, August 24, 1992, p. 44."Dibrell Brothers, Incorporated," Barron's, August 29, 1988, p. 39."Dibrell Brothers, Incorporated," Barron's, February 3, 1986, p. 67."Dibrell Brothers, Incorporated," Wall Street Transcript, October 12, 1981, p. 63,278."Moving Abroad," Barron's, July 12, 1982, p. 42.Ruffenach, Glenn, "Dibrell Brothers and Monk-Austin Inc. Agree to Merger of Tobacco Merchants," Wall Street Journal, October 24, 1994, p. A5.Schwartz, Jerry, "2 Big Tobacco Processors to Merge," New York Times, October 25, 1994, p. D4."Standard Commercial Corp.," Wall Street Journal, March 28, 1994, p. B4."Still Smoking," Forbes, January 4, 1993, p. 157.

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