280 Park Avenue
The key elements of our business strategy include: focusing our resources on our consumer products businesses--beverage and restaurant franchising; building strong operating management teams for each of the businesses; and providing strategic leadership and financial resources to enable the management teams to develop and implement specific, growth-oriented business plans.
Triarc Companies, Inc. operates as a beverage producer, a producer of soft drink concentrates, and as a franchiser of restaurants, marketing well-known brand names that include Snapple, Mistic, Stewart's, Royal Crown Cola, and Arby's. Triarc was created in 1993 as the result of a court-ordered reorganization of the DWG Corporation, whose century-long existence established some of the businesses Triarc's management inherited. The company is led by Chairman and CEO Nelson Peltz, who spearheaded the transformation of the company into a branded consumer products concern.
19th-Century Birth of a Cigar Enterprise
Triarc's predecessor, DWG, had two very different lives. The company was first established in 1890 as a small Ohio-based partnership. The founders of the Deisel-Wemmer Company (their full names have disappeared into obscurity) dealt in the importation and manufacturing of cigars. Highly popular during the early years of the 20th century, cigars were a common male accessory that indicated discretion, affluence, and manliness. The cigar trade was a very profitable business, populated with hundreds of specialty manufacturers.
Deisel-Wemmer was subsequently acquired by an investment group on January 23, 1929, and changed its name to Deisel-Wemmer-Gilbert. The new firm continued to operate as a formidable cigar manufacturer, although not on the same scale as large tobacco companies that maintained stables of several mass-produced brands. Unable to compete with the marketing muscle of these large tobacco combines, the Deisel-Wemmer-Gilbert company was forced to acquire other small competitors simply to maintain market share. It purchased the brand and manufacturing operations of Odin cigars in 1930 and the Bernard Schwartz Cigar Corporation in 1939. On May 15, 1946, the company reduced its cumbersome name to a simple set of initials, and became the DWG Cigar Corporation. The series of acquisitions resumed in 1948, when DWG took over the Nathan Elson Company. In 1955 DWG acquired A. Sensenbrenner & Sons, and a year later bought out Chicago Motor Club Cigar and Reading, Pennsylvania-based Yocum Brothers.
By this time, however, the cigar market had weakened substantially. Years of doctors' advisories about the dangers of smoking, the rise of cancer deaths among smokers, and growing public intolerance with the socially brash habit caused many men to quit. But perhaps most responsible for the demise of cigar smoking was the cigarette industry. Convinced that they should abandon cigars, many men simply switched to cigarettes, which were less obtrusive and carried a less severe health stigma. In addition, cigarette advertising was feverish during the 1950s and led smokers to believe that they gained status by using brands such as Lucky Strike, Chesterfield, and Camel.
The trend toward cigarettes spelled the end for DWG's cigar operations. Quite gradually, the company began to consider other lines of business where its wholesale and distribution skills could be effectively employed. In the meantime, DWG reorganized its stagnant but still profitable tobacco operations. The company purchased the M. Trelles Company in New Orleans in 1961, and in 1963 formed a new subsidiary in Columbia to oversee the company's South American buying and processing operations. By this time, several other cigar operations had been wound up, and the product line was slimmed down. This process helped to derive new efficiencies from DWG's cigar business, but also compacted the widely varied operations into a single unit that could be disposed of quickly and easily.
Victor Posner-Led Diversification Begins in the 1960s
Ready to plunge into new markets, DWG began purchasing small stakes in other businesses, including consumer products. After an attempted takeover of the Allegheny Pepsi bottling company failed in 1965, the New York Stock Exchange delisted DWG from the big board. This removed the final obstacle that prevented DWG from a wholesale divestment of its cigar operations. The dying business was sold in one chunk, while some smaller assets were simply written off. The 1966 sell-off provided DWG with millions of dollars in new acquisition capital. In November 1966--coincident with the company's adoption of a new name, DWG Corporation--the hunt for new businesses turned up an unexpected candidate. DWG purchased a 12 percent share of the National Propane Corporation. Far removed from the cigar business, National Propane marked a clean break from DWG's earlier business ventures.
But it was also at this time that a new force behind DWG came into the picture. Run for decades as a quiet company with a typical consensus-management leadership, DWG became dominated by an institutional shareholder called Security Management Company, headed by Victor Posner. Posner began in business at the age of 13, amassing a small pool of capital by delivering groceries for his father. While still a teenager in the 1930s, Posner began buying run-down houses in his native Baltimore. Reportedly, he realized huge gains on his investments by reselling the houses to economically depressed urban blacks. Aware that people could more easily afford the homes if he retained ownership of the land, Posner's Security Management Company charged buyers a small amount of rent for the land the houses sat upon. Failure to pay land rent could result in foreclosure. This practice earned Posner the unsavory reputation of slumlord. It was this business, however, that formed the basis of Posner's real estate operation and made him a millionaire at an early age.
In 1956, having grown weary of real estate transactions, Posner retired to Sunset Island near Miami. He spent the next ten years without engaging in commercial activity. Posner found a new hobby in 1966, when he began dabbling more actively in the stock market. Familiar with the practice of trading blocks of shares for small profits, Posner now decided to get more deeply involved in the companies he targeted. One of these companies was DWG. Having witnessed DWG's bold but slow transformation from a sleepy cigar company into a corporate raider, Posner saw huge numbers of investors abandon DWG for its failure to maintain a big board listing. From his experience in real estate, he looked upon DWG differently. Rather than seeing a shrinking company in the middle of a huge transition, he saw an undervalued firm with substantial assets.
But for Victor Posner, DWG was more than a great investment. He decided to use the company as an investment vehicle, engineering additional takeovers of other firms through DWG. In January 1967, Posner used DWG to purchase a controlling share of Wilson Brothers, then a failing shirtmaking concern. Later that year, DWG collected an additional 77 percent of the shares of National Propane. In 1969 DWG acquired 40 percent of the Southeastern Public Service Company, a medium-size utility maintenance and storage company, and the following year increased that holding to more than 50 percent.
DWG became the controlling agent for only half of Posner's empire. He used another company, the vulcanized fiber manufacturer NVF, to build up a controlling interest in Pennsylvania-based Sharon Steel Corp., one of the country's largest specialty steel manufacturers.
As Posner grew more active, company presidents across the United States feared that their daily mail would bring a dreaded schedule 13D. This Securities and Exchange Commission (SEC) filing announced that someone had acquired more than five percent of their company's shares. Posner had an unusual talent for inspiring wrath in his dealings. He was often attacked, and frequently sued, for installing himself as chairman and chief executive of companies he had taken over. With the titles came paychecks, and Posner drew reasonable compensation from each of his companies. Collectively, however, Posner was one of the highest paid executives in the country, surpassing the heads of IT & T, Exxon, General Motors, and Ford Motor Company. Posner also employed his son and two brothers in important positions in his growing corporate empire. In addition, Posner's Security Management Company, the ultimate parent of DWG and NVF, still collected land rent from the homes he sold in Baltimore.
In 1971 the SEC sued Posner for improperly compelling the pension fund of Sharon Steel to invest in Posner properties. Some shareholders lambasted Posner at shareholder meetings and threatened to take him to court. These actions were only occasionally successful. Posner's defense was to simply point to the track record of companies he had taken over. Both DWG and Wilson had been 'dead on arrival,' yet Posner resuscitated them. Other successful companies such as National Propane, NVF, and Sharon Steel were only marginally profitable before Posner became involved with them. Nonetheless, Posner settled his SEC suit by agreeing not to sit on his companies' pension boards. But this did little to improve his image in the business community. Posner's usual recipe for turning companies around mirrored his strategy with Sharon Steel; after gaining control of the steelmaker in 1969, he eliminated a quarter of the salaried jobs and held whomever remained to ambitious productivity goals. Costs were reduced, and output increased.
By 1976, Posner's Security Management Company controlled 67 percent of DWG's shares. In addition, the parent company held a 44 percent share of NVF and another quasi-investment vehicle, the Pennsylvania Engineering Corporation, a steelmaking equipment manufacturer which Posner acquired in 1966. In turn, DWG held 51 percent of Southeast Public Service Company, 42 percent of Wilson Brothers and 100 percent of National Propane. Posner's corporate conglomerate held few synergies--particularly within DWG. Through his other companies, Posner bought small shares of Burnup & Simms, a small utility service company; UV Industries, a smelting and mining company; and Foremost-McKesson, a large food and drug company. With these similarly undervalued companies in play, and the 13D form on each president's desk, these companies scrambled to keep Posner out of their boardrooms. Their defense strategies varied. Foremost-McKesson sought out a rival bidder and UV Industries broke up. Even in cases where the companies bought up their own shares, Posner usually emerged with a handsome profit. If he met no resistance, he ended up with yet another undervalued company to turn around.
DWG traded over the counter since it was delisted by the New York Stock Exchange. Its share value fluctuated, nearly in the penny stock range, between one and four dollars. But for all its accessibility came volatility. The company could double its value in one year or plunge by half. Over the long run, however, businesses such as steel manufacturing and casting and DWG's storage operations were capable of operating with little additional investment beyond basic maintenance. As long as they continued operating, the combination of taxation, inadequate maintenance, and inflation had the effect of liquidating these marginally performing assets. Posner was allegedly draining them of resources to take advantage of high depreciation on his undervalued properties.
Meanwhile, Posner continued to use DWG to acquire other companies. In 1982 the company took over the Graniteville Company, a textile manufacturer based in South Carolina. In 1984 DWG built up a 25 percent share of Axia Incorporated, and completed a deal in which its Southeastern Public Service subsidiary acquired Royal Crown Cola, the Arby's fast food restaurant chain, a Texas grapefruit grove, and numerous other small companies. Later that year, DWG added the Evans Products fiber group, and in 1985 took over the Fischbach Corp., an electrical contracting business.
This flurry of activity proved to be the undoing of Victor Posner. The acquisition spree and subsequent earnings failures placed DWG deeply in debt. On more than one occasion Posner was forced to seek a financial bailout from one of his backers, Carl H. Lindner. Their friendly relationship came to an abrupt end in 1986 when Posner received his own 13D schedule, indicating that Lindner's American Financial Corporation had acquired warrants for more than 30 percent of DWG's shares. Posner had become a victim in the takeover game. DWG was rich in assets, had steady cash flow, and was undervalued. It was exactly the kind of company that Posner himself would target. But rather than exercise his warrants on the beleaguered DWG, Lindner presented Posner with a contract that capped the chairman's salary at $3 million--down from $8.4 million the previous year.
Meanwhile, Posner worked to shore up DWG's balance sheet by disposing of the Foxcroft and Enro shirt groups and the citrus operation, while a $200 million deal for Royal Crown fell through. He also had the benefit of talented outside managers, including Leonard Roberts, whom he hired to run Royal Crown after his acquisition of that company caused Arby's management to resign en masse. He had also placed Harold Kingsmore, a veteran of the Cannon and Avondale textile companies, in charge of Graniteville.
While the threat from Lindner subsided, another far more complex battle emerged. A financier that Posner had retained to pull Sharon Steel out of bankruptcy referred a possible sale of Posner's Fischbach electrical contracting unit to his lawyer, Andrew Heine. When it appeared the deal would go through, Heine suddenly backed out and launched a bid for all of DWG. Once again, Posner was on the defensive. He immediately converted his DWG options into voting shares, but was ordered not to vote them by an Ohio judge.
Heine, through his Granada Investments Company, sued Posner for failing to take his $22 per share bid for DWG seriously. Posner countersued, maintaining that the bid was without merit. In 1991 Posner lost to Heine, whose company was awarded $5.5 million for its expenses. In addition, Judge Thomas D. Lambros, noting court investigations of Posner's compensation and charges of illegal stock trading to acquire Fischbach, appointed three directors to DWG's board, with responsibility for the company's audit, compensation, and intercorporate transactions committees.
By the end of 1991, the three directors appointed by Lambros had presented Posner with a critical report on his dealings with DWG. Posner, with eight solid votes on a board of 13, adjourned meetings to discuss the report. In response, Judge Lambros converted half of Posner's share in DWG into non-voting preferred shares and compelled Posner to sell the remaining common shares. Posner, battered by years of damaging litigation, resigned his chairmanship of DWG in 1992 and walked off with $77 million from his share sales. In return, shareholders agreed to drop their longstanding lawsuits charging the 73-year-old raider with plundering DWG. His shares were purchased by the Trian Group, a New York-based investment partnership led by Nelson Peltz and Peter May.
Trian, the parent company of Triangle Wire and Cable, had amassed a series of canning and packaging companies during the 1980s. They sold Triangle Industries, the parent company of American National Can, to Pechiney S.A. for $1.36 billion. This provided the necessary investment capital to purchase DWG. Trian declared that it had no plans to break up DWG or raid its operations for capital to pay down debt. Instead, with good business prospects the partners proposed only to change the name of DWG to Triarc Companies, Inc.
Peltz was named chairman and chief executive officer of Triarc while May was named president and chief operating officer. The new team appointed a series of new heads for the company's subsidiaries. John Carson was put in charge of Royal Crown, Donald Pierce took over at Arby's, Ronald Paliughi headed National Propane, and Douglas Kingsmore was promoted to the top position at Graniteville. The ouster of Victor Posner, the change in management and, perhaps most importantly, the supervision of the company's activities by Judge Lambros did a great deal to shore up DWG's balance sheet and improve share value. These provided an important base for the company as it began its transformation into Triarc.
Triarc Takes Shape: 1990s
As Triarc set out, it comprised a jumbled mass of unrelated businesses assembled during the Posner era. Triarc's management was intent on giving the company what it had lacked for decades--a defined strategic focus--which meant shedding disparate assets such as lamp manufacturing operations and grapefruit groves and creating a company with a much narrower operating scope. Divestitures ensued, leaving the company focused on four areas of interest: soft drinks, fast food, textiles, and liquefied petroleum gas. The company's strategic focus would be sharpened further, but initially, amid a series of divestitures, attention had to be paid to resolving the operational difficulties bred under the controversial leadership of Posner. By 1995, much of the healing work was completed, enabling executives to devote their energies toward more positive work. With the proceeds gained from asset sales, Triarc assumed an acquisitive posture and began adopting the attributes that described the company at the start of the 21st century.
In August 1995, Triarc acquired the non-alcoholic beverage assets of Joseph Victori Wines, Inc. for $97 million. The purchase added greatly to the beverage business represented by Royal Crown Company, giving the company a new brand called Mistic, a leader in the 'new age' beverage segment. Mistic, used as the brand name for a variety of fruit drinks, iced teas, and flavored sparkling waters, was suffering from a somewhat tarnished image, but soon after gaining control of the brand, Triarc restored profitability. In doing so, the company demonstrated its talent for improving relations with distributors, its flair for marketing, and its shrewdness in developing new products for an established brand. These qualities would come to define Triarc during its first decade of business.
By the time Triarc completed its next acquisition--one that would dwarf the purchase of Mistic--management had further refined what its core businesses included and what the company would become. Triarc's ties to the textile business were severed and its involvement in liquefied natural gas was slated to end as soon as an agreement could be reached to divest National Propane, leaving the company focused on two business segments: beverages and restaurants. Management had resolved to turn Triarc into a branded consumer products company, and moved headlong toward such an objective in 1997. In May, Triarc acquired Snapple Beverage Corporation, adding substantially to the branded beverage side of its business. Snapple was acquired from Quaker Oats, which had purchased the popular beverage company from its founders. Quaker Oats paid a staggering $1.7 billion for Snapple, and quickly saw its investment sour as the brand suffered several years of double-digit volume declines. Quaker Oats' mismanagement of the brand turned into Triarc's gain, enabling the company to purchase Snapple at the drastically reduced price of $300 million. Six months later, in November, Triarc bolstered its beverage business further by acquiring Cable Car Beverage Corporation, maker of Stewart's Root Beer and other flavors.
Like Mistic, Snapple was a company in distress when Triarc management took control of the once powerful brand. Quaker Oats had attempted to assimilate the brand into its corporate culture and, consequently, drained Snapple of its strength. The conglomerate began selling Snapple in supermarkets and other large retail channels, ignoring the brand's remarkable success in smaller retail formats, such as delicatessens and convenience stores. Distributors became disgruntled as sales declined, a situation exacerbated by the ouster of the widely popular Wendy Kaufman, who championed the product line in television commercials as 'The Snapple Lady.' Triarc, which had started to create a reputation for itself as a company with an ameliorative touch following its turnaround of Mistic, cemented its reputation as a savior by quickly reversing the damage done by Quaker Oats. The company worked on improving relations with distributors, rehired Kaufman, and returned Snapple to the retail locations where it had earned its popularity. By 1998, Snapple had regained its luster, buoyed by Triarc's skill as a marketer, which was typified in new product introductions. In April 1998, Triarc launched a new Snapple beverage called WhipperSnapple, a shelf-stable line of fruit smoothies in six flavors. WhipperSnapple was selected as the New Beverage Product of the Year by Convenience Store News and awarded the American Marketing Association's Edison Award for Best New Beverage of 1998.
As its beverage business blossomed, Triarc also achieved significant strides in its other business segment. In 1997, all the company-owned Arby's restaurants were sold as part of a strategic decision to operate exclusively as franchiser of the brand. Freed from its role as a restaurant operator, Triarc was able to direct all of its attention toward marketing the Arby's brand and promoting expansion of the concept. Management expanded the restaurant's menu by developing co-brands for Arby's franchisees, such as T.J. Cinnamons, which offered cinnamon rolls and premium coffees. In 1999, another Arby's co-brand, Pasta Connection, was nearing the end of its testing phase, promising the addition of pasta dishes to the Arby's concept.
As Triarc completed its first decade of business, executives completed the transformation of the company into a branded consumer products company. In 1999, Triarc sold its stake in National Propane, leaving it focused on the production and marketing of beverages and the marketing of its franchise restaurant systems. As the company prepared for the 21st century, further brand development in these two core business segments stood as the primary emphasis for the future.
Principal Subsidiaries: Triarc Consumer Products Group LLC; CFC Holdings Corporation; Mistic Brands Inc.; Cable Car Beverage Corporation; Snapple Beverage Corporation; Arby's, Inc.; Royal Crown Company Inc.
Principal Divisions: Triarc Beverage Group; Triarc Restaurant Group.
Principal Competitors: The Coca-Cola Company; McDonald's Corporation; PepsiCo, Inc.; Dr Pepper/7Up Companies, Inc.; KFC Corporation; International Dairy Queen, Inc.; Subway.