Independent existence soon may end for the Macke Co. of Cheverly -- one of the Washington area's major corporate enterprises, a business that grew up with the federal city in the past half-century and became a nationally known name in the vending and food services industry.
Next Jan. 31, Macke stockholders will be asked to vote their company out of existence in exchange for $14.50 for each share of stock they hold. If the vote goes as expected, Macke will be merged into Allegheny Beverage Corp., a Baltimore bottling concern.
After a brief, if heated, defense by Macke management against Allegheny, the Baltimore firm last summer gained control of Macke, a company almost twice Allegheny's size and one of the first businesses started in this area to be listed by the New York Stock Exchange.
Allegheny began buying up Macke's shares very quietly earlier this year. After gaining control of a modest share, an acqusition proposal was made to Macke but was rejected by the Washington firm's major owners. So Allegheny continued to buy shares and eventually gained a substantial and controlling interest.
How does a smaller firm acquire a major corporation? And what is the future for Macke and its 11,000 employes? There is no clear answer to either question at this time.
The principles of both Macke and Allegheny refused to be interviewed for this article. Noting that Allegheny is in the process of registering a new offering of securities with the Securities and Exchange Commission, the top executives said that agency rules limited their public comments during the registration period.
The Macke name, which is well-known in the machine vending business, will most likely survive the merger. As for the Macke management and the rest of the business -- which includes family restaurants and office furniture sales outlets -- that decision will have to wait until the merger is completed. Nor can the fate of Macke employes be determined yet.
Explains Harry Conn, financial vice president of Allegheny: "We haven't been inside Macke yet."
For Allegheny's chairman, 51-year-old Morton Lapides, the takeover of Macke is a realization of claims he made more than a decade ago. Back then, Lapides told Wall Street analysts of his plans to build a mid-Atlantic business empire, according to several analysts who remember Lapides.
Lapides, who plans to finanance his ambitious expansion with a combination of debt and equity (including loans from a Washington bank to buy Macke stock), enjoys nearly absolute control over Allegheny. He owns about 22 percent of the company's common stock and all of its Series A preferred stock, which means that he personally picks five of the nine Allegheny board members.
In 1975, Lapides' independent ways got him into trouble with the SEC. At the agency's behest, a federal court judge ordered Lapides to repay Allegheny $70,000 in profits he gained from trading stock allegedly financed with company funds. He also was ordered by the court to repay $540,000 of corporate funds he allegedly used for personal purposes. Without admitting or denying the SEC's allegations, Lapides consented to the court order.
As for Macke, the suburban Maryland-based firm appears to have grown tired in recent years, which made it vulnerable to the takeover. The company perhaps reflects the advanced stages of its two major shareholders.
Meyer Gelfand, 61, is chairman and chief executive officer of Macke, and 66-year-old Aaron Goldman is chairman emeritus and a consultant to the company. Together, the Goldman and Gelfand families own about 22 percent of the Macke stock.
Macke has made efforts, without much success, to diversify away from the vending machine business that made it a major enterprise. Desks & Furnishings, an office furniture sales operation, contributes only about 5 percent of the company's business from 11 retail showrooms, a design devision and a wholesale division in the D.C., Baltimore and Richmond markets.
And Family Fish Houses, a chain of some 30 family seafood restaurants in Maryland, Virginia and North Carolina, was aquired in 1978 at the very time the family restaurant business was beginning to fade. Indeed, the restaurant chain has proved a drag on Macke's earnings.
Smaller subsidiaries are engaged in janitorial services from Washington to St. Louis and New Orleans and coin-operated laundry services (34,000 washers and dryers, making Macke one of the largest companies in laundry machines).
But Macke's major business lines remain food and vending. The company has more than 1,000 food service accounts throughout the eastern half of the United States, and some 37,000 vending machines are used to service just these accounts. Macke provides university dining hall services, hospital and nursing home food and operates more than 10,000 cigarette, snack and drink machines in restaurants and other public locations.
Therefore, it is more troubling to the company that its vending machine business has produced only a modest earnings growth of late, even though the firm has produced record sales and profits during the past four years. This fact is highlighted when Macke's earnings are compared to those of Allegheny.
Allegheny in 1979 had revenues of $129 million compared with $261 million for Macke in fiscal 1979. But while its revenues were nearly twice Allegheny's, Macke had pretax earnings of only $8.9 million that year while the pretax earnings of the much smaller company were $8.7 million.
"Years ago, Macke enjoyed much better profit margins," says one securities analyst. "In his younger years, Aaron Goldman was more agressive. But then, the company has stayed in a highly competitive, low-margin business, where other companies have taken more significant market positions."
Pretax earnings of the key Macke food and refreshment operations, for example, increased from $8.04 million in fiscal 1976 to $10.8 million in fiscal 1979, an expansion of profitablity of just $2 million over four years.
Allegheny has enjoyed about the same success as Macke when it has attempted to diversify away from its basic business, bottling Pepsi-Cola.
In the 1960s Allegheny acquired a school materials company, which eventually was "disposed of," in the words of Allegheny vice president Conn. Allegheny also became principal in a commuter airline called Sun Airline, based in St. Louis. "Disastrous" is how Conn describes that brief venture.
But Allegheny's bottling business has been quite a different story. Lapides took Allegheny public in 1960 to raise money to acquire his first Pepsi-Cola bottling franchise in central Pennsylvania. Allegheny has added three other valuable franchises since then in Tidewater Virginia, Baltimore and Richmond.
In 1968, Allegheny acquired Fowler Products Co. Inc., a bottling equipment manufacturer. About 25 percent of Allegheny's soft drink revenues come from its own vending operation, so in acquiring Macke it will greatly enhance one significant segment of its business.
When Allegheny quietly began to acquire Macke stock late last January, it was selling for about $9 a share. This was about $8 below the company's book value (assets minus liabilities), making the Macke shares a bargain.
But while the price of Macke stock reflected the company's bland performance of recent times, the company nevertheless has accumulated valuable assets that make it an attractive merger partner.
As Sid Wachtel, of the Washington brokerage firm of Wachtel & Co., notes: "In locating a takeover candidate, the first step is to compare book value with the price of the stock."
In many ways, the Allegheny-Macke story reflects a national trend. Recently, it has been open season on companies whose stock is placed under book value.
The main reason for this, according to Robert Cryan, a vice president in the Philadelphia office of the brokerage Moseley, Hallgarten, Estabrook & Weeden Inc., is that it has become cheaper for corporations to acquire existing assets through mergers and acquisitions than to create new ones.
"With the escalating cost of building new facilities," says Cryan, "it has been increasingly attractive to companies to acquire existing facilities through mergers or acquisitions."
Adds Eliot Benson, vice president and research director of Ferris & Co. Inc. of Washington: "Plants and facilities may be carried by a company at a modest value on its balance sheet. But these assets may be worth much more because of inflation." b
A study published in August by W.T. Grimm & Co., the Chicago management organization, clearly shows the growth in corporate takeovers. According to the study, there were 248 acquisitions of publicly owned companies that were completed or were pending in 1979, nearly double the 130 takeovers in 1975. Meanwhile, the money paid for those corporate assets more than tripled in the same period to a total of $5.9 billion.
Last summer, Macke attempted to ward off Lapides by seeking a court order to block Allegheny from acquiring additional stock. The complaint, put together by Macke's New York investment banking firm of Goldman Sachs & Co., was laced with innuendo, dated information and outright lies. On July 18, a federal judge rejected Macke's attempt to stop Allegheny from buying more of its shares. Goldman and Gelfand soon found theire shares outnumbered by those of Allegheny.
Earlier this month, signaling a formal end to hostilities, both sides signed a definitive merger agreement. This leaves it up to the Allegheny shareholders to give the deal their blessing.
Allegheny has registered with the SEC an offering of $12.5 million in senior subordinated debentures. Proceeds from that issue would be used to pay the debt incured so far by Allegheny in buying nearly 1 million of Macke's 3 million shares outstanding.
Allegheny also has loan commitments from two sources, each for $35 million. One of them is a group of banks headed by Riggs National Bank of Washington. The $35 million loan will be used by Allegheny, which now holds 34.5 percent of Macke shares, to purchase the balance of the stock.
Allegheny already has $35 million of longterm debt on its books. In acquiring Macke, it gets another $26 million of long-term debts owed by that company.
Thus, the younger, ambitious company is going heavily into debt for its upstart courtship and marriage with a grande old dame.
Macke was founded here in 1926 by Gordon B. Macke in the basement of his home, a few blocks from the White House. A California businessman-engineer, Macke saw Washington as the best market in which to place 50 newly invented cigarette vending machines. He had trouble from the start. Wholesalers refused to sell him cigarettes. Slugs were invented. Tobacco retailers sought heavy license fees for machines, to stop the competition.
Two well-liked local businessmen, Hymen Goldman and Harry Gelfand, partners in a newly organized Standard Cigar & Tobacco Co., became interested in Macke's operation, and in 1934 Macke sold a controlling interest in his firm to the Goldman and Gelfand families as annual sales were approaching $300,000.
Sons Aaron Goldman and Meyer Gelfand later became the moving forces in Macke's local, regional and national business expansion. As Franklin Roosevelt's New Deal brought tens of thousands of new people to the Washington area, Macke began to grow. Annual sales were up to $1.7 million by 1941. Postwar growth was rapid as Macke moved into sandwiches, soup, soft drinks and other food. By 1953, Macke was the largest privately owned vending firm in the nation, with sales of $6 million.
Macke started to expand out of the Washington area in 1953, and in 1960 it went public through a sale of common stock. Aaron Goldman, who joined the firm at the age of 21 in 1935, retired as board chairman in 1975 -- but only after a board majority asked him to step aside after an era when Macke's business was sluggish.
A much younger firm, Allegheny Beverage was incorporated in 1966. Allegheny Pepsi-Cola Bottling serves the Harrisburg, Baltimore, Richmond and Norfolk markets, with a population exceeding 5.5 million. In addition to Pepsi-Cola products, other Allegheny national brand franchised drinks include Dr. Pepper, Schweppes, Frostie and Dad's Root Beer and it also bottles soft drinks under the trade name Suburban. Its soft drink bottling operations account for more than 90 percent of revenues and profits.
Whether the May-December union of the two firms will work, after their turbulent courtship and an expensive wedding, at this point is no more predictable -- and just as subject to unforeseen pressures and peccadillos -- as such marriages usually are.