Tenneco Inc. Business Information, Profile, and History

History of Tenneco Inc.

Tenneco Inc. is one of the largest diversified companies in the world, ranking among the United States' 30 largest industrial companies and among the top 100 industrial companies worldwide. Tenneco's holdings include Case Corporation, one of the world's largest manufacturers of agricultural and construction equipment; Tenneco Gas, one of the natural gas industry's largest and most profitable companies; Tenneco Automotive, a global manufacturer of automotive parts; Newport News Shipbuilding, a primary supplier to the U.S. Navy; Packaging Corporation of America, one of the world's leading packaging manufacturers; and Albright & Wilson, an international manufacturer and marketer of chemicals. During the early 1990s, these companies became the focus of Tenneco, as it divested other interests in pulp and paper chemicals; oil exploration, production, processing and marketing; and life insurance.

Much of the company's early success was attributed to its first director, Henry Gardiner Symonds. Acquiring a degree in geology from Stanford University in 1924 and an MBA from Harvard three years later, Symonds began his career in Chicago as a banker with what eventually became the Continental Illinois Bank and Trust Company. In 1930, Symonds began work with a small investment firm and bank subsidiary called the Chicago Corporation, and his success there led to his appointment as vice-president of the division in 1932.

In 1938, oil was discovered on land that the Chicago Corporation had purchased for natural gas deposits, near Corpus Christi, Texas, and Symonds was dispatched to Texas to manage the property. Later that year, he became a board member of the firm. The Chicago Corporation was unable to fully exploit the large reserves of natural gas it had developed in Texas, due to national shortages of pipeline materials essential for gas transmission. When a shortage of fuel for defense plants in West Virginia developed in 1943, the Chicago Corporation was able to obtain a Federal Power Commission (FPC) license to operate a pipeline, in addition to a priority order for pipeline materials. Symonds was placed in charge of the construction of a 1,265-mile pipeline, which linked the gas fields of the Gulf states with factories in the eastern United States.

A company called the Tennessee Gas and Transmission Company, founded in 1940 and acquired by the Chicago Corporation in 1943, was placed in charge of the pipeline. The project was completed in October 1944; however, the day after the pipeline went into operation, the FPC moved to regulate the pipeline and ordered the company to reduce its transmission rates. Symonds protested, contending that the FPC had led him to believe that the Chicago Corporation would be allowed to operate without such regulations. Regarding the FPC's actions as unfair, Symonds declared that he would never again become involved in projects subject to government regulation. Nevertheless, when the Chicago Corporation promptly divested itself of Tennessee Gas after World War II, Symonds remained with the company and was subsequently named its president.

Tennessee Gas continued to add pipelines to its network, planning 3,840 additional miles in 1946. A long coal strike that year increased demand for oil- and gas-burning furnaces and other devices, and Tennessee Gas applied for rights to build more gas lines as well as to pump oil through the government-sponsored "big-inch" and "little inch" oil pipeline programs. On July 18 of the following year, the company was reincorporated in Delaware as the Tennessee Gas Transmission Company, while its headquarters remained in Houston.

Symonds used profits from the pipeline operations to establish a separate but complementary subsidiary business in oil and gas exploration. He advocated the acquisition of existing oil companies during the 1950s, including Sterling Oil, Del-Rey Petroleum, and Bay Petroleum, and oversaw acquisitions of several petrochemical companies, diversifying the product base and involving Tennessee Gas in industrial plastics. Fifteen Oil, acquired in 1960, was one of several subsidiaries engaged in oil and gas exploration and production in places as diverse as Alaska, Canada, Latin America, and Africa. A subsidiary called the Tenneco Corporation was formed that year to coordinate the management of several company subsidiaries.

During this time, Tennessee Gas received some unfavorable publicity, when reports surfaced that company's general counsel had met with FPC officials, including FPC chairperson Jerome Kuykendall. Critics alleged that the group had privately discussed legally restricted matters, but Symonds denied any wrongdoing.

In February 1961, a corporate restructuring occurred that placed the company's non-utility subsidiaries, principally Tennessee Gas and Bay Petroleum, under the managerial authority of Tenneco. Acquisitions in the chemical industries continued through the 1960s and included the Heyden Newport Chemical Corporation, which formed the core of what later became Tenneco Chemicals, Inc. in March 1965. Moreover, the Tenneco division added a new line of business in June 1965 when it purchased the Packaging Corporation of America, a manufacturer of paperboard and packaging materials, with over 400,000 acres of timberland resources. Between September 1950 and March 1966, Tennessee Gas had acquired 22 companies.

A second corporate restructuring took place in April 1966, in which Tenneco assumed control over all the assets of Tennessee Gas, which then became a Tenneco subsidiary. Symonds was promoted from president and board chairman positions in which he had served since 1958, to chief executive officer and chief policy officer, in addition to being named the company's chairperson "for life."

Tenneco's most significant acquisition under Symonds came in August 1967, when it purchased the Kern County Land Company for approximately $430 million. Kern was established in California around 1850 by two lawyers from Kentucky, Lloyd Tevis and James Ben Ali Haggin, who intended to purchase land for resale to prospectors drawn to California in search of gold. Although the scheme failed, the subsequent development of irrigation systems transformed the 2.5 million acres of arid wasteland into arable cropland. Moreover, some of the land was later found to contain oil deposits. While the Kern Company lacked the expertise to develop these oil deposits, Tenneco was perfectly suited to develop the sites. At the same time, Tenneco had no immediate interest in Kern's agricultural businesses, but, as those businesses were profitable, they could easily be assimilated into Tenneco's existing land management group. The acquisition also included Kern's 53 percent interest in J.I. Case, a manufacturer of farm and construction machinery located in Wisconsin, and Walker Manufacturing, which produced automotive exhaust systems.

After the acquisition, Tenneco divided its subsidiaries along geographical lines, resulting in Tenneco West (formerly Kern) and Tenneco Virginia, which had grown out of the company's gas transmission business. In September 1968, Tenneco Virginia purchased Newport News Shipbuilding & Drydock Company for about $140 million. Newport News was engaged in the construction of nuclear-powered submarines and aircraft carriers, as well as merchant and commercial ships. The company also repaired and reconditioned ships, and refueled nuclear vessels. The nation's largest privately owned shipyard, Newport News was also in serious financial trouble.

Symonds died of a heart ailment on June 2, 1971. His method of expansion through diversification had been based on three rules: seeing that the company he wished to acquire would benefit from Tenneco management; choosing companies whose operations would complement those of Tenneco; and enforcing standards which kept each division "big enough to stand on its own two feet." Under Symonds's successor, James Lee Ketelsen, Tenneco continued to operate on these precepts, but the number and size of subsequent acquisitions were noticeably reduced.

The application of Tenneco management methods to Newport News had transformed the shipbuilding division into a successful venture by 1971. Over a period of several years, Tenneco invested nearly $100 million in the company, and, by 1973, the division had accumulated an order backlog of $1 billion. As a result of increased demand for imported petroleum products, Newport News engaged in the construction of large ships capable of carrying crude oil and liquefied natural gas.

In the course of restructuring Newport News Shipbuilding, Tenneco encountered strong opposition from organized labor and the Occupational Health and Safety Administration (OSHA). Eventually, after a three-month strike, all 16,500 employees of Newport News gained representation by the United Steelworkers. OSHA levied a fine of $786,190 on Newport News, citing 617 cases of deficient medical care, unsafe working conditions, and excessive noise. It was the largest fine OSHA had ever imposed on any company.

Wall Street analysts had consistently advised Tenneco to sell Newport News, warning that the division would require costly modernization and reorganization. Despite such problems, however, Tenneco officials recognized the subsidiary's potential, particularly after Navy Secretary John Lehman declared his intention to establish a 600-ship navy in 1981. Thereafter, Newport News abandoned commercial shipbuilding in favor of government defense contracts. Much of its initial work in this area centered on the Los Angeles -class attack submarine, which it designed and consistently delivered at a profit. Newport News was also the world's only manufacturer of nuclear-powered aircraft carriers, including the Carl Vinson and Theodore Roosevelt, launched in 1982 and 1986, respectively. Newport News also planned to construct servicing berths for the larger Trident submarines, then built exclusively by the Electric Boat division of General Dynamics.

Between 1968 and 1976, Tenneco acquired an additional 13 companies, including the British chemical company Albright & Wilson Ltd., and consolidated its ownership of J.I. Case. The automotive parts division of Tenneco experienced strong growth during the 1970s through the acquisition of AB Starlawerken of Sweden in 1974, Monroe Auto Equipment (best known for their line of shock absorbers) in 1977, and Lydex, a Danish company, in 1978. Tenneco started to purchase insurance companies in 1978, including Philadelphia Life and Southwestern Life Insurance.

Ketelsen, who was named chairperson and chief executive officer in 1978, was instrumental in the company's decision to convert its refinery at Chalamette, Louisiana, to process lower grades of crude oil from Venezuela and Mexico. In response to the reduction in oil prices, Tenneco redirected capital expenditures from oil and gas exploration into finding ways to produce oil at lower prices.

During the early 1980s, Tenneco sold its petrochemical and polyvinyl chloride production facilities to Occidental Petroleum. In 1984, to combat low gas prices and the adverse trends in the gas industry, Tenneco formed a new subsidiary called Tenngasco, which was responsible for sales of spot market gas in unregulated intrastate markets. Also that year, the Tenneco Packaging Corporation of America acquired Ecko Housewares and Ecko Products from the American Home Products Corporation.

In 1985, Tenneco purchased the farm machinery division of International Harvester, which had been forced to restructure as a result of a severe crisis in the American farming industry. Paying $430 million for the division, Tenneco then combined these operations with its Case subsidiary, which was also losing money. Tenneco officials believed that Case could benefit from Harvester's broader product line and stronger dealer network. The new combined group commanded a 35 percent market share for large tractors, a figure second only to Deere & Company's 42 percent. As a result of restructuring efforts and the temporary closure of several tractor plants, the new Case division registered a modest profit by the end of the year.

Having survived a 1982 attempt by stockholders to separate and sell the company's various divisions, the company was again considered a prime takeover target in 1987, given its high debt, rich assets, and record of underperformance. The company had previously insisted on paying stock dividends rather than reducing its debt or, in some other way, reducing its exposure to corporate raiders. But in the late 1980s, Tenneco began boosting its stock through massive repurchasing programs and debt retirement. From 1988 to 1990, the company bought back 26.3 million shares and paid off $5 billion in long- and shortterm debt.

In 1986, Tenneco divested its five insurance companies to I.C.H. Corporation for about $1.5 billion. The company's late 1980s efforts to refocus its business interests included the sale of all its precious metals operations, the agricultural operations of Tenneco West, Tenneco Oil Company, and the retail muffler shops of Tenneco Automotive. At the same time, a new holding company, Tenneco Inc., was organized to serve as the corporation's principal financing vehicle.

Fine-tuning continued through the early 1990s under new leadership; in August 1991, Tenneco replaced James L. Ketelsen, who had lead the company for 13 years, with Michael H. Walsh. The new president, who soon became CEO as well, found a company in far worse shape than he had been led to believe. Earnings and cash flow were falling short of targets in nearly every division, and debt stood at 70 percent of capital--"unacceptable" results, as Walsh's 1991 letter to shareholders candidly observed. By the end of the year, Walsh had instituted a $2 billion action plan that incorporated several retrenchment initiatives in the face of a lingering global recession. Walsh, dubbed a "tough boss for tough times" by Business Week, cut Tenneco's dividend in half, eliminated 8,000 jobs, divested three short-line railroads and other non-core assets, issued $512 million in new equity, and reduced capital spending for the two-year period by $300 million.

Walsh instituted additional reorganizational measures in 1992, focusing on divestments and consolidation. Tenneco Minerals company was sold for $500 million, and Albright & Wilson's pulp chemicals business was spun off to Sterling Chemicals. Although the latter sale brought $202 million to the corporation, it also eliminated 54 percent of Albright & Wilson's annual profit. Tenneco's plans for the ensuing three years included consolidation and "resizing" of production capacity, divestment of unprofitable product lines, and privatization of company-owned retail outlets. After just 18 months at Tenneco's helm, Walsh had reversed potentially dangerous trends and instilled a "no excuses" policy in its corporate culture.

In January 1993, Walsh announced that he had been diagnosed with inoperable brain cancer. Walsh elected to stay on at Tenneco and see the conglomerate through the reorganization he had begun. He designated a new recruit, Dana G. Mead, head of the Case Corporation subsidiary, as his successor and began delegating more authority to Mead and the rest of Tenneco's senior management. In February 1994, Walsh yielded Tenneco's presidency and chief executive officership to Mead and accepted the post of chairman. By that time, Tenneco was a $13 billion conglomeration, having gone from two successive years of losses totaling over $2 billion to a 1993 net income of $426 million and having reduced its debt from 70 percent of capitalization to 49.3 percent. Mike Walsh died in May 1994.

Principal Subsidiaries: Tenneco Gas; Case Corporation; Tenneco Automotive; Newport News Shipbuilding; Packaging Corporation of America; Albright & Wilson (England).