Universal Corporation Business Information, Profile, and History

History of Universal Corporation

Universal Corporation was known until the 1980s as Universal Leaf Tobacco Company, Incorporated, and it remains the world's largest independent leaf tobacco dealer. Universal buys, processes, stores, and sells tobacco in all of the world's tobacco-growing regions. For many years, Universal's most important customer has been Philip Morris, the world's leading cigarette manufacturer. During the course of its long career in international markets, the company also has built a thriving trade in other commodities such as tea, rubber, and peanuts, and has amassed sizable European interests in timber and building supplies.

Tobacco buying in the United States has long been conducted at auctions held throughout the prime growing areas in North Carolina, Kentucky, Virginia, and other states. As intermediaries between growers and manufacturers of tobacco products, leaf dealers achieved a position of some power prior to the formation in 1889 of The American Tobacco Company, the so-called tobacco trust of James B. Duke. Duke's trust controlled all of the large U.S. tobacco manufacturers, and it was not long before American Tobacco took steps to circumvent the tobacco leaf dealers by buying its product directly from farmers at auction. Under the pressure of American Tobacco's overwhelming presence in the market, the number of independent leaf dealers dwindled until the dissolution of the trust in 1911. By that time, what dealers remained had combined into larger and more effective organizations that were able to capitalize on the sharp rise in demand for tobacco then beginning. Although the successor companies to the tobacco trust--R.J. Reynolds, Liggett & Myers, Lorillard, and a smaller American Tobacco Company--continued to dominate the leaf markets, the overall growth in tobacco consumption in the United States left room for a limited number of independent dealers to prosper throughout the 1910s.

This renewed vigor among the leaf dealers culminated in the 1916 establishment of the International Planters Corporation, a nationwide organization of dealers that was apparently powerful enough to maintain somewhat firmer prices to its large manufacturing customers. One of International Planters' largest clients was the new American Tobacco, whose president, Percival S. Hill, was instrumental in the creation of a second, competing organization of leaf dealers, Universal Leaf Tobacco Company. The company's nucleus had been formed in 1916, when Hill's vice president of leaf purchasing, Thomas B. Yuille, resigned from American Tobacco and gained control of J.P. Taylor Company, a prosperous dealer in the rich tobacco lands of Virginia and North Carolina. To this foundation, Yuille and Hill added 13 other local dealers, 6 from other states, and storage and shipping facilities in New York City. Together, Universal Leaf's subsidiaries and affiliates bought 100 million pounds of tobacco in the company's first year of existence, or nearly 10% of national production--an extraordinary figure for any industrial newcomer. Within eight years, Universal became the largest independent tobacco dealer in the world, a status it has maintained.

Percival Hill died in 1925, and by 1930 American Tobacco was again doing all of its own leaf purchasing, while Universal Leaf had forged a new alliance with Philip Morris that would prove to be of long duration. Philip Morris was late in joining the ranks of the major tobacco manufacturers, and as its business expanded dramatically in the middle decades of the 20th century Philip Morris found it simpler to leave most of its leaf buying in the hands of Universal, rather than take the time to create its own staff of buyers and warehousers. The relationship thus established between the two companies was intimate and durable, even including the financing by Universal of some of Philip Morris's tobacco purchases in the 1930s, and in effect Universal served as Philip Morris's tobacco purchasing department for many years. Philip Morris grew into the world's leading maker of cigarettes, and its leaf requirements increased, strengthening the relationship between Philip Morris and Universal Leaf.

A second important customer for Universal during its early years was Export Leaf Tobacco Company, the purchasing arm of British tobacco giant, British American Tobacco (BAT). Export Leaf did not buy its burley tobacco directly, relying instead on Universal Leaf's network of experienced burley dealers for its requirements. Leaf tobacco may broadly be divided between burley and flue-cured varieties; burley became a key ingredient of the increasingly popular "American blend" cigarette. Export Leaf shipped its burley purchases to BAT, which in turn used the bulk of it for the manufacture of Brown & Williamson brands, such as Raleigh and Viceroy. Universal bought all of its burley via a subsidiary of its own called Southwestern Tobacco Company, which by the end of the 1930s was buying about 20% of the entire U.S. crop. Some 60% of Southwestern's burley went to Export Leaf making that company one of the two pillars, with Philip Morris, of Universal Leaf's prosperity at that time. Universal Leaf was able to carve out a place for itself in the international markets by offering large manufacturers the expertise they could not otherwise obtain. In the case of Export Leaf, it was probably also helpful that the presidents of Export and of Universal were brothers.

Universal's numerous foreign affiliates and offices were important to its growth. As early as the 1930s, Universal was both exporting and importing large quantities of tobacco leaf. In addition to its sales to Export Leaf, destined for markets in the British Commonwealth, Universal shipped U.S. cigarette tobacco to manufacturers around the world, including those in Scandinavia, Turkey, and Japan. Universal Leaf not only established trading offices around the world but also built processing plants for local threshing and storage, and in some cases provided training and financial help to individual farmers. Its international business eventually included plants in Brazil, Italy, Korea, and the African nations of Malawi and Zimbabwe, as well as a network of dealers and brokers who slowly began to handle other commodities such as cocoa, tea, peanuts, and rubber. The trade in commodities was a natural outgrowth of Universal Leaf's foreign tobacco business; it developed slowly and was dispersed among a large number of non-consolidated subsidiaries and affiliates whose contribution to Universal Leaf's growth was rarely noted by financial analysts. Similarly, Universal Leaf quietly put together a large timber and building supplies distribution business in Europe, primarily in the Netherlands, which along with the commodities business grew to provide approximately 33% of the company's revenue.

In 1940 Universal Leaf was one of eight tobacco companies charged with violations of the Sherman Antitrust Act. The federal government brought suit in a Kentucky court, charging the industry leaders with price manipulation in both the purchasing and sales aspects of the business, including an alleged conspiracy to limit prices paid for leaf tobacco at auction. The three largest defendants, American Tobacco, R.J. Reynolds, and Liggett & Myers, stood trial on behalf of all eight, with Universal Leaf and the other four companies agreeing to abide by the court's decision. Like most antitrust cases, the outcome of this struggle was less than definitive. After years of argument the eight defendants were found guilty as charged, although no evidence of actual collusion was found or even asserted; and after paying the insignificant sum of $255,000 the eight companies returned to business as usual, the court offering no suggestions as to how the market might be made more competitive. The trial's message seemed to be that the tobacco market's domination by three or four manufacturers rendered it inherently monopolistic--or at least not ideally competitive--regardless of whether the parties involved were engaged in literal collusion, but no changes in the market were effected or recommended by the court. Universal Leaf was barely affected by the case, as its costs were largely borne by the three lead defendants.

The post-World War II decade saw a remarkable surge in the popularity of cigarette smoking in the United States, and in particular the rise of Philip Morris to national leadership. As Morris's unofficial leaf buyer, Universal Leaf benefited from the growing international success of such Philip Morris brands as Marlboro, which rose from obscurity to become the world's leading seller in the 1980s. Universal Leaf's sales reached $215 million in 1961, on which the company earned a low but very steady 2% to 3% profit. With commission work representing the bulk of Universal Leaf's business, its revenue was fixed to a cost-plus-fee basis, limiting net income but offering exceptionally stable growth from year to year. Still, the gradually accumulating evidence of tobacco's health hazards prompted Universal Leaf to diversify its asset base. The company's first significant acquisition outside the tobacco leaf business was its 1968 purchase of Inta Roto Company, makers of packaging equipment, and of Overton Container Corporation, suppliers of boxes to the tobacco industry. This was followed closely by the purchase of Unitized Systems Company, the beginning of Universal's interest in the building supplies industry, and the creation of a land development subsidiary called Universal Land Use Corporation. None of these early efforts at diversification was of great importance, however, when compared to Universal's holdings in the early 1990s in commodities and European building materials.

By the mid-1970s Universal Leaf's steady growth and valuable ties with Philip Morris attracted the attention of Congoleum Corporation, a Milwaukee-based maker of linoleum and furniture that was looking for acquisitions. In October 1976 Congoleum made an unsolicited bid of $32.50 per share for all of Universal's common stock, surprising Wall Street and enraging the directors of Universal. Universal's chairman and chief executive officer, Gordon Crenshaw, led a complex strategy of resistance to the takeover, filing suits in Virginia and Chicago, and amending the corporate charter. When Crenshaw and other top Universal officials made it clear that if the company were bought they would take their customers with them to some new and competing venture, Congoleum withdrew its offer.

In 1984 with sales at around $1.3 billion, Universal made a second and more serious attempt at diversification when it purchased two of the leading title insurance companies in the United States, Lawyers Title Insurance Company and Continental Land Title. At first the insurers produced an excellent return on their $200 million in sales. The late 1980s saw a severe recession in real estate, however, which coincided with an increase in claims. In September 1991, with no end in sight for the real estate downturn, Universal spun off its title insurance companies as an independent corporation called Lawyers Title Corporation, with Universal shareholders becoming the initial owners of Lawyers Title's stock.

In the early 1990s, Universal Corporation--the company's name was changed in the mid-1980s following the adoption of a holding company structure--was sailing on much as it had for the past 60 years, the core of its business generated by tobacco. As a result of further diversification moves in the mid-1980s, its overseas subsidiaries in commodities and housing supplies have flourished to such an extent that they supply a significant amount of revenues and earnings. Universal operated in the early 1990s under the guidance of new chief executive Henry Harrell, who replaced Gordon Crenshaw in October 1988 after the latter had served nearly 25 years in that position.

Principal Subsidiaries: Universal Leaf Tobacco Company, Incorporated.