Who is Beatrice?
For the 180 million television viewers who watched the Summer Olympics in Los Angeles, the name Beatrice became almost as familiar as Carl Lewis or Mary Lou Retton as part of a $23 million advertising blitz.
The ad campaign was aimed not at selling products, however. Instead, it was aimed at creating a corporate identity for the Chicago-based conglomerate most consumers never heard of: Beatrice Cos. Inc.
Under the approving eye of a child, a fisherman, a homemaker or a cat, a parade of Beatrice products was put on display, ranging from Wesson Oil to Peter Pan Peanut Butter to Stiffel Lamps. "Beatrice," said the voice-over ending each commercial, "You've known us all along."
A quick glance at the company's annual report reveals coupons offering savings on Tropicana Orange Juice, La Choy Soy Sauce, Bonkers Cat Treats and Fisher Nuts, some of Beatrice's best-known national brands.
Despite this large array of products, Beatrice has been criticized by investment analysts as a company with little national market presence. The corporate-identity ads are designed to increase association in the consumer's mind between successful national products and the Beatrice name.
The company hopes that, as the Beatrice name develops more clout, it will be easier to place Beatrice products on store and supermarket shelves -- not only its well-known national products, but also its strong regional brands that now lack a nationwide identity. These regional products will be distributed throughout the nation following changes in advertising and packaging, including the use of a new corporate logo.
In addition to overcoming its lack of national identity, the company also must persuade skeptical Wall Street analysts and investors that its recent $2.8 billion acquisition of Chicago neighbor and competitor Esmark Inc. makes sense, considering the billions of dollars in debt that Beatrice now has on its books.
The Esmark acquisition gives Beatrice the opportunity to distribute many of its products nationally through the strong sales and distribution systems it acquired. Esmark's Swift/Hunt-Wesson operation is believed by many experts to be the strongest distribution system in the industry.
Until Beatrice acquired Esmark, however, the company seemed to be taking a public position against such megamergers. "We are committed to our new focus on marketing and greater internally generated growth," Beatrice Chairman James L. Dutt wrote in the company's 1984 annual report sent to shareholders in May.
But on May 21, only a few weeks later, Beatrice announced plans to acquire Esmark and scrapped the program to generate growth internally. Instead, the merger creates a food-industry giant with combined sales topping $13 billion and powerful marketing muscle that can be flexed to grab more space on the grocery shelf. The Beatrice-Esmark merger, completed last month, follows by only a year the $990 million merger of food giants Esmark and Norton Simon Inc. The $2.8 billion Beatrice-Esmark combination is the biggest non-oil merger of two U.S. companies in history.
Many analysts are negative on Beatrice stock because of the $3.5 billion of debt the company assumed to buy Esmark. The interest the company will have to pay as a result has led many analysts to revise earnings estimates downward.
Beatrice stock, which traded as high as $36 a share earlier this year amid speculation that the company might be purchased by the Swiss food conglomerate S. A. Nestle', closed at 28 5/8 a share on Friday. The stock has rebounded from a low of 24 7/8 a share following announcement of the company's merger with Esmark.
Nestle' announced plans earlier this week to buy Los Angeles-based Carnation Co. for $3 billion if the merger is approved by government regulators.
Before the merger with Esmark, Robert Cummins, an analyst with Wertheim & Co., estimated that Beatrice would earn $3.55 a share this year. His estimate has dropped to $2.90 a share. Last year, Beatrice earned $3.08 a share from operations.
"Their goal is to sell off $2 billion in assets to pay off some of the debt, but that will still leave around $2.5 billion in debt on their balance sheet," said William Leach, a food industry analyst with Donaldson Lufkin & Jenrette Securities. "Before the merger, debt was 29 percent of their total capitalization, and now it is 61 percent. I just don't think the acquisition makes much sense from an earnings point of view, and I think they'll be lucky to earn $3.00 a share from operations."
Standard & Poor's Corp. downgraded its rating on Beatrice's debt from AA to A in June, citing "the significant increase in financing risk which overshadows the synergies of combining the companies."
Beatrice had many reasons for acquiring Esmark. The food industry is a mature one in which companies have merged to gain increased market share and to take advantage of cost savings resulting from combining distribution and sales systems.
Because the overall industry pie is not growing very rapidly, the most efficient path to growth is via acquisition, which gives the surviving company a bigger slice of the pie. Big mergers have been the industry trend for several years See chart, F5 .
"In one stroke, we added major new food areas, backed by the strongest grocery sales distribution system in this country," Beatrice Chairman Dutt said in his address to securities analysts in New York. " . . . Of course, we could have done all of these things ourselves over the next five to 10 years at a cost of hundreds of millions of dollars."
The company hopes to return its balance sheet to greater strength by selling businesses outside the food industry with combined sales of $3.6 billion and assets of $1.3 billion, according to the chairman. Those businesses on the auction block now include Beatrice's chemical operations, Esmark's chemical operations, Beatrice's food equipment operations, its cookie and bread operations and Buckingham Corp., the importer of Cutty Sark.
Beatrice has not publicly announced which other Esmark subsidiaries it will sell. Three highly visible Esmark operations outside of food are Avis rental cars, which earned $20 million last year after losing $35 million the previous year, Playtex intimate apparel and the Max Factor cosmetics business.
In the past 20 months, Beatrice has sold more than 30 companies in a divestiture program that has netted $76 million. Realigning advertising agencies reduced the number of firms Beatrice uses from 140 to about 10, a move that Dutt said gives weaker brands the chance to improve their images by working with top agencies.
Another plus for Beatrice is the company's ability to generate cash that can be used to reduce the debt. Last year, the company generated $725 million in cash from operations.
The $23 million corporate-image advertising campaign has touched off a debate between company officials who believe association with the company's name will help them take regional brands national on the coattails of already popular products, and industry experts, many of whom believe it is a waste of money.
"Does it give them a better image within the consuming public for someone who buys Samsonite luggage to know that the same company also makes cat treats?" asked Smith, Barney analyst Ronald Morrow. "I don't think it is worth it."
"I never thought anybody would drill for Esmark oil or rent an Esmark car as a result of this kind of advertising," said former Esmark chairman Donald P. Kelly, who went into business for himself after the merger. "The only corporate advertising I support is aimed specifically at the investor.
"The biggest challenge Beatrice faces is to get that debt level down and to determine what assets to keep and which to sell in an orderly fashion. They will have to work hard to keep morale up both in those divisions they are keeping and those that will be sold," Kelly said.
"Once the debt level starts to come down, we believe investors with doubt will be more comfortable," said Beatrice's director of investor relations, Barbara Bowles. "The opportunity for Beatrice to grow has been enhanced by Esmark, and if we are successful at bringing many of our regional brands to the national market, then the acquisition will speak for itself." CAPTION: Picture, SELECTED RECENT FOOD INDUSTRY MERGERS VALUED AT OVER $200 MILLION