2100 Sanders Road
Northbrook, Illinois 60062
Telephone: (708) 272-9200
Fax: (708) 205-4804
Sales: $1.06 billion
Stock Exchanges: New York Midwest
SICs: 2819 Industrial Inorganic Chemicals, Nec
IMC Fertilizer Group, Inc. (IMCF) was created in 1988 when the onetime International Minerals & Chemicals Corporation divested its fertilizer assets in the form of a new, publicly traded company. As the fertilizer market was then in the midst of a long and disastrous slump, the spin-off proved to be most beneficial for the parent company, which promptly changed its name to Imcera Group, Inc., and entered the market of high-tech health and animal care products. IMCF, meanwhile, the largest private-sector producer of phosphate and potash fertilizers in the world, was left to contend with the continuing collapse of its domestic and international markets, which never recovered from the price shocks caused by the 1973-74 oil crisis. IMCF's strategy was a proposed joint venture with its nearest domestic competitor, Freeport-McMoRan Resource Partners, itself the result of a divestment move similar to that which created IMCF. If the joint venture was approved by antitrust regulators, it would control nearly half of all United States phosphate production--an enviable position to occupy, if and when the fertilizer market regained its former health.
The ancestor of IMCF was formed at the end of the nineteenth century, a time when farmers in the United States and western Europe were switching from traditional fertilizers to the use of commercial chemical fertilizers. Scientific experiments in the first half of the nineteenth century had identified precisely the nutrients needed for plant growth and continued soil fertility. Chief among these were nitrogen, phosphorus, and potassium, known by their chemical symbols as the basic N-P-K triad of nutrients. During the preceding centuries of farming, trial and error experiments had discovered sources for each of these nutrients in such traditional fertilizers as animal manure, bones, guano, and fish scrap; but with the progress of chemical knowledge came the search for methods by which N-P-K could be produced in their most concentrated and inexpensive forms. In the United States commercial fertilizer was especially desired in the eastern and southern states, where older, over-farmed land responded well to their application. By the last quarter of the nineteenth century a strong business had grown up around the phosphate mines of Florida and Tennessee.
The earliest predecessor of IMCF was founded in 1897 in Tennessee by Thomas C. Meadows and his brother-in-law Oscar L. Dortch. Meadows was an engineering graduate of Vanderbilt University who understood the potential market for Tennessee's phosphate rock, which when treated with sulphuric acid yielded a product rich in the form of phosphorus most readily absorbed by growing plants. With Oscar Dortch, Meadows formed T.C. Meadows & Co. to mine, process, and sell this "superphosphate" both by itself and in ready-mixed fertilizer containing suitable proportions of the other two basic nutrients, nitrogen and potash. These would have to be purchased on the market from sources originating as far away as Germany and Chile, making the business of fertilizers capital intensive and encouraging the development of large combines capable of supplying all three ingredients.
With that in mind, Meadows & Co. changed its name in 1899 to United States Agricultural Corporation and began acquiring the assets it would need to survive in the rapidly consolidating fertilizer industry. In 1900 it gained control of two companies engaged in the Florida phosphate mines, Florida Mining Company and Peoria Pebble Phosphate Company. Because Florida's phosphate fields, located in the central and northern parts of the state, were richer and easier to mine than those of Tennessee, they soon became the backbone of the U.S. phosphate industry. In most cases the mines were laid in remote, inhospitable, and sparsely settled areas where employers such as United States Agricultural could find few workers to perform the manual labor then required to extract phosphate. The mining companies turned this to their advantage, however, by building primitive "company towns" and importing convicts from the state of Florida and others from neighboring Georgia and Alabama. The combination of high-grade phosphate and cheap labor enabled United States Agricultural to make an excellent return on its Florida operation and attracted the attention of outside investors eager to get into the growing fertilizer industry.
Among the financial backers rounded up by Meadows and Dortch, the most important was Waldemar Schmidtmann, member of an Austrian family that controlled one of the largest potash mines in Germany--Kaliwerke Sollstedt. Potash is the most abundant mineral source of potassium and for many years virtually all of the world's known potash was found in Germany, giving that nation a powerful bargaining chip in its trade with the United States. An industrial cartel set prices and controlled production of German potash; only intermittently effective, the cartel was nevertheless sufficiently troublesome for United States importers to make the possibility of ownership in a German potash mine extremely appealing. Thus Meadows and Dortch were happy to listen when Schmidtmann proposed a union of their respective holdings, and in 1901 the Austrian became a partner in the newly renamed International Agricultural Corporation (IAC). Along with an investment of cash, Schmidtmann also brought to IAC a part interest in Kaliwerke Sollstedt, guaranteeing the U.S. company access to two of the three basic fertilizer nutrients.
IAC moved swiftly into the finished product end of the fertilizer business as well, buying up mixed fertilizer plants from Maine to Alabama in an effort to complete the vertical integration of the company. IAC was also heavily involved in the growing export market for high-grade Florida phosphate, whose value as a plant nutrient was gradually being recognized around the world. It would not be long before the peasants of China and villagers of remote Bulgaria were introduced to the wonders of commercial fertilizer, and, especially as population pressure increased in Asia and Africa toward the middle of the twentieth century, the export of phosphate and mixed fertilizer became increasingly important to the U.S. fertilizer industry.
By 1910 IAC was firmly established as one of the handful of consolidated companies dominating the U.S. fertilizer business. Controlling between 30 and 40 subsidiary companies engaged in every aspect of fertilizer production, IAC generated revenues of approximately $8.5 million, on which it earned a net income of about $1 million. The industry as a whole had enjoyed a tremendous upsurge over the preceding 20 years; U.S. commercial fertilizer consumption more than quadrupled, while the traditional methods of organic fertilization all but disappeared from the landscape.
Problems arose with the approach of the World War I, however. Not only was IAC and the entire U.S. fertilizer industry dependent on German potash mines, German scientists had also developed the first reliable method of fixing atmospheric nitrogen in the form of ammonia, which could then be used in the production of two radically different but equally crucial materials--fertilizer and explosives. The war forced the U.S. government into a frenzied development of its own nitrogen-fixing process and the fertilizer industry into a long search for domestic sources of potash. IAC temporarily lost access to its Sollstedt mine in Germany, but upon the war's conclusion in 1918 resumed its imports of potash, leaving to other companies the 20-year search for North American deposits.
It was not until the late 1930s, when war again threatened to cut off German supplies, that IAC joined other fertilizer concerns in exploring the American Southwest for potash. Oil drilling had established the presence of potash near Carlsbad, New Mexico, as early as the mid-1920s, and in 1937 IAC invested $100,000 in the Union Potash Company in exchange for a portion of its findings. When these proved sizable, IAC effectively bought out Union Potash and built itself a state-of-the-art potash facility in time to meet its own needs before the onset of World War II in 1939. IAC has remained one of the largest American producers of potash, pioneering several new techniques at the Carlsbad mine and in 1962 opening a second major deposit at Esterhazy, Saskatchewan. The latter required five years of engineering effort to complete its 3,000-foot shaft but yielded an enormous find of unusually high quality potash.
Phosphate, however, remained the strength of IAC. The company continued to buy or lease acreage in the central Florida area, where in 1929 it pioneered the flotation method for separating phosphate pebbles from surrounding sludge, thereby greatly increasing the yield potential of any given mine. Shortly before that, IAC had opened its first major phosphate processing plant in Wales, Tennessee, where raw phosphorus was converted into a variety of products, including such fertilizers as superphosphate and diammonium phosphate and also cleaning agents like tri-sodium phosphate. By 1939 IAC was the largest producer of phosphate rock in the world. Population pressure in Asia and Latin America, combined with the needs of larger, state-owned farms in Eastern Europe and Russia, gave to the business of fertilizers an importance that ensured that the decades of the 1950s and 1960s would be highly profitable for manufacturers such as IAC.
As if anticipating the postwar explosion in its foreign trade, IAC in 1941 changed its name to International Mineral & Chemical, Inc. (IMC) and also shifted its headquarters from Atlanta to downtown Chicago. With the war's end in 1945, American agricultural methods were studied and adopted by nations first awakening to the problems of overpopulation and land exhaustion, and America's agriculture depended above all else on large quantities of fertilizer. Soon Japan was importing potash for its burdened rice fields, followed by India and a host of lesser Asian countries, while in the impoverished lands of Africa chemical fertilizers were adopted with the hope of averting wholesale famine. As long as the world's leading suppliers of commercial fertilizer were located in the United States and western Europe, fertilizer prices only strengthened as developing and communist countries upped their usage. Producers such as IMC responded by increasing capacity and enjoyed a 20-year period of solid profits and continued expansion.
In 1963 IMC made its belated entry into the nitrogen business, forming a joint venture with Northern Natural Gas of Omaha, Nebraska, to build an ammonia plant on the Mississippi River in Cordova, Illinois. A year later IMC underscored its faith in the export business by building its own ocean shipping terminal near Tampa, Florida, with storage facilities for phosphate rock and chemicals and a mechanized loading system capable of handling 2,500 tons per hour. At the same time, to solidify its land transportation IMC began assembling its own fleet of rail cars, ensuring itself of adequate rolling stock for the highly seasonal business of mixed fertilizers. The company also took a few tentative steps toward diversifying its holdings with the 1967 purchase of two industrial mineral firms and the acquisition a few years later of several container companies.
By that time, however, the world fertilizer market was in the midst of a radical change. Third World and Communist-bloc nations had placed great emphasis on developing indigenous supplies of the basic fertilizer nutrients, seeking to free themselves of dependence on the Western multinationals, and as a result total world production was up sharply by the early 1970s. Many of the new producers were under government control or enjoyed state subsidies, making it impossible for Western suppliers to offer competitive pricing. This shift was dramatized by the oil crisis of 1973-74, when skyrocketing energy prices pushed fertilizers up by as much as 300 percent, providing further impetus for the development of Third World and Communist-bloc supplies. (The production of nitrogen in the form of ammonia is extremely energy-intensive, and as nitrogen is the most widely used fertilizer in the world, fertilizer prices tend to follow the cost of energy.)
Fertilizer prices quickly returned to pre-1973 prices, but the turmoil only confirmed the resolve of IMC president Richard A. Lenon to pursue a program of diversification. In 1975 IMC paid $207 million for Commercial Solvents Corporation, a major producer of industrial chemicals, hydrocarbons--including explosives--and pharmaceuticals, including various growth hormones for livestock. Commercial Solvents also brought with it a sizable ammonia plant in Sterlington, Louisiana, to which IMC soon added a second facility in an effort to protect itself against any further price panics in the nitrogen market. 1975 was also the year in which IMC's new state-of-the-art processing plant began operations near Mulberry, Florida, increasing the company's production of phosphate and other chemicals in anticipation of energy-driven cost and price surges.
Unfortunately for IMC, however, the fertilizer market has drifted continually downward ever since the mid-1970s. What the business periodicals referred to as "the notoriously cyclical fertilizer industry" was in fact entering a depression that has proven to be all but permanent. Worldwide use of fertilizers continued to climb, but an ever greater percentage of fertilizer was produced in developing and centrally planned economies. According to the World Bank, in 1950 the capitalist West produced about 70 percent of the world's fertilizer; by the 1980s that figure was down to around 30 percent, with the bulk of the new producers located in Communist-bloc countries that could sell their excess fertilizer below Western market prices. Exacerbating this general decline was the recession suffered by U.S. agriculture throughout the 1980s, when grain surpluses drove down the commodity markets and idled many farms in the United States and Canada. Further, the use of phosphates in detergent was banned by the Environmental Protection Agency in the 1970s, while a growing proportion of the U.S. public expressed concern about the presence of nonorganic fertilizers in their food.
In the meantime, IMC management made a number of poor business decisions in the early 1980s. The company embarked on a vast expansion of its Florida phosphate rock holdings, doubled the capacity of its processing plant at Mulberry, and pursued a technique for uranium oxide recovery at a time when the nuclear energy industry had been brought to a standstill by opposition from environmentalists. When the fertilizer market hit a ten-year low in 1986, new IMC Chairman George Kennedy succeeded at last in diversifying the company's holdings with the purchase of Mallinckrodt Corporation from Avon, Inc., for $675 million. Mallinckrodt, a 115-year-old St. Louis firm, was powerful in medical imaging technology and pharmaceuticals. IMC soon added Pitman-Moore, an Illinois-based manufacturer of animal health products.
IMC's Kennedy then made the kind of brilliant strategic decision that will doubtless be the subject of a business school case study. Recognizing the fundamental weakness of the fertilizer business, which then supplied about half of corporate revenue, he made IMC into a holding company with three separate subsidiaries--IMC Fertilizer, Mallinckrodt, and Pitman-Moore. When fertilizer prices rose briefly in early 1988, he sold off 62 percent of IMC's stock in a public offering, then gradually sold the remainder of IMC's holdings back to IMC itself. By means of this adroit maneuver, IMC freed itself of the troubled fertilizer business while picking up the cash to make another major purchase in 1989, when it added Cooper Animal Health Group. Kennedy changed IMC's name to Imcera Group, Inc., and has fared splendidly ever since.
IMCF has not prospered to nearly such a degree. U.S. agriculture remained weak, while the demise of communism brought an enormous amount of fertilizer into the open market at bargain prices; the formerly state-controlled economies were desperate to obtain cash from the West. The severe recession that began in 1989 was a further blow to IMCF's fortunes, as were a 1992 special charge of $166 million for accounting charges and a 1993 settlement of a lawsuit for $169 million. The suit was brought by various parties following an explosion at a nitroparaffin plant in Sterlington, Louisiana, in May of 1991; eight employees were killed and many injured by the explosion, which occurred in a plant operated by IMCF although owned by Angus Chemical Company.
With fertilizer prices dropping to their lowest levels since the mid-1970s, IMCF formed a joint venture in 1993 with Freeport-McMoRan Resource Partners to pool their phosphate holdings. While it is hard not to see this move as the rather desperate attempt of a staggering giant to salvage what it can from a hopeless situation, it may yet prove to be a winning combination once the world fertilizer market returns to some semblance of order. With one half of all U.S. phosphate production, the new joint venture would obviously dominate a healthy phosphate market, but as of 1993, it remained only the largest player in a losing game.
Chemical Week, January 27, 1993, p. 9.
"Growing With Agriculture to Feed a Hungry World," Northbrook, Illinois: IMC Fertilizer corporate publication, c. 1991.
"IMC Group Charts Chemical Course," Chemical Week, September 17, 1975, p. 18.
"IMC: Slimmer Profits for a Fertilizer Giant," Chemical Week, March 17, 1982, pp. 44-50.
Improving the Supply of Fertilizers to Developing Countries, Washington, DC: The World Bank, 1989.
Kemezis, Paul, "Imcera's Quick-Change Act," Chemical Week, July 18, 1990, pp. 22-24.
Nelson, Lewis B., History of the United States Fertilizer Industry, Muscle Shoals, AL: Tennessee Valley Authority, 1990.
"Prairie Province Goes Wild Over Potash," Business Week, July 21, 1982, pp. 110-114.
Source: International Directory of Company Histories, Vol. 8. St. James Press, 1994.