M & F Worldwide Corp.

1850–2000

M & F Worldwide Corp. is a holding company that, through its wholly owned subsidiary Pneumo Abex Corporation, is the world's largest producer of licorice flavors. About 70 percent of its licorice sales are to the worldwide tobacco industry for use as flavoring and moistening agents in the manufacture of American-blend cigarettes, moist snuff, and chewing and pipe tobacco. M & F Worldwide also sells licorice flavors to confectioners, food processors, and pharmaceutical manufacturers for use as flavoring or masking agents. In addition, the company sells licorice-root residue as a garden mulch and produces natural flavors and plant products from roots, berries, spices, and botanicals for use in food, tobacco, and pharmaceutical products. The company's predecessor, MacAndrews & Forbes Co., was the second company acquired by Ronald O. Perelman, who went to on to build a multibillion-dollar business empire under the names MacAndrews & Forbes Holdings Inc. and Mafco Holdings Inc. Headquartered in the same Manhattan mansion where Perelman lives and administers MacAndrews & Forbes Holdings, M & F Worldwide was, in 2000, 32 percent owned by Perelman through Mafco Holdings.

A Century of Licorice Production: 1870-1970

The licorice plant grows wild in a belt of Eurasia running along the 40th parallel north and was exploited by ancient civilizations from Egypt to China for the root, which yields a sweetening agent with nearly 50 times the saccharinity of cane sugar. Two Scots, Edward MacAndrew and William Forbes, traveled to Turkey in 1850, where they established the firm of MacAndrew & Forbes. Within a short time they built a licorice-extracting factory in Sochia. In 1870 James C. MacAndrew, David Forbes, and Alexander Geddes established an American firm by the same name in Newark, New Jersey, where they built another such factory. The firm became MacAndrews & Forbes Co. in 1902, following the purchase of Mellor & Rittenhouse Co., a licorice-extracting firm with a plant on the Delaware River in Camden, New Jersey. The merged company closed its Newark facility and moved to this location.

MacAndrews & Forbes was now the world's largest producer of licorice and licorice products for the rapidly growing tobacco industry. It became a subsidiary of James Buchanan Duke's American Tobacco Co. in 1904 and also had a Baltimore plant by 1911, when the U.S. Supreme Court dissolved the union on antitrust grounds and required the sale of said plant to J.S. Young Co. MacAndrews & Forbes had assets of $16.3 million and a net profit of $1.94 million in 1920. By the end of this decade it had added boxboard, wallboard, insulation board, and fire-extinguishing agents as products derived from licorice-root residue. The company also had a subsidiary producing carpets and rugs in Gloucester, New Jersey, Greece, and China. Company sales rose as high as $12.66 million in 1927. During the Depression, MacAndrews & Forbes remained profitable even though annual sales dipped below $6 million, but it disposed of its carpet-and-rug business. The company also moved its headquarters from Camden to New York City.

MacAndrews & Forbes's sales reached a peak of $15.82 million in 1951. In addition to the sales of licorice extract from the Camden plant to the American tobacco market, it was supplying about 60 percent of the licorice products needed for the European market. Its only U.S. competitor was J.S. Young, and more Americans were smoking cigarettes than ever before. The tobacco industry used relatively more licorice in the other forms of tobacco consumption than in cigarettes, and perhaps this was the reason that sales and profits slipped during the 1950s. Certainly the company did not have to fear competition in its field, because extracting and processing licorice called for years of experience. In 1952 nearly one-third of the firm's employees had been on its payroll for at least 25 years.

MacAndrews & Forbes had assets of $16.3 million and a net profit of $1.94 million in 1920.

1963–1984

In 1963 MacAndrews & Forbes began selling licorice-root mulch to the public, under the name Right Dress, within a 200-mile radius of Camden. Insulation-board manufacturing ended in 1965, and the following year the company acquired the Philadelphia paperboard-coating facilities of the International Paper Co. Sales and profits were stagnant, but this posed no danger under ultraconservative management. Indeed, the company's rock-solid finances attracted suitors, among them Raymond Perelman, a Philadelphia entrepreneur, and two Philadelphia textile manufacturers, Samuel Rosenman and Lawrence Katz. Rosenman and Katz purchased about 25 percent of the stock--a controlling interest--in 1967 and assumed management of the company, moving its headquarters to Philadelphia.

At this time MacAndrews & Forbes was processing roughly half the world's total annual crop of 35,000 to 40,000 tons of licorice root. Rosenman and Katz purchased M.F. Neal & Co., Inc. of Richmond, Virginia, to sell a variety of other natural flavoring agents to the tobacco industry. They also bought Wilbur Chocolate Co. of Lititz, Pennsylvania, a producer of cocoa mixes and chocolate coatings with annual sales of $21 million, for $5.7 million in 1968. Their main interest, however, was to use the company's cash to move back into the textile field. In 1968 they opened a plant in McBee, South Carolina, for the manufacture of polyester textured yarn and knitted fabrics. Two paperboard machines were shut down in 1968, and the remaining one was sold in 1973 for about $6.5 million.

Organizational Changes: 1975-95

Of MacAndrews & Forbes's 1975 sales, chocolate accounted for 42 percent, textiles for 30 percent, and flavors (much the most profitable item) for 28 percent. With the fading of the brief polyester boom, the textile division lost $1 million the following year and the company disposed of it in 1977, when total sales came to $110.06 million. Rosenblum and Katz frequently traveled to Iran to search for licorice root and dined at the palace of the shah of Iran. Following the shah's fall in 1978, they sought to sell the business. An offer from Ronald Perelman, however, was most unwelcome (probably because of previous differences with his father) and in 1979 they sold their shares to Richard and Burton Koffman for $8.6 million. Perelman persisted in seeking the company, and in 1980 purchased what amounted to a 22 percent share from the Koffmans for nearly $10 million.

This purchase was made through Perelman's first acquisition, Cohen-Hatfield Industries, Inc., a jewelry company. Cohen-Hatfield then acquired the rest of the company in a tender offer for $34 million. Cohen-Hatfield next merged with MacAndrews & Forbes to form MacAndrews & Forbes Group Inc., which moved to New York City. This company acquired Technicolor Inc., a processor of color film, in 1982, for $105 million. The following year Perelman offered to buy the 62.5 percent of MacAndrews & Forbes Group that he did not own for $52.7 million. Nine separate shareholder suits sought to block the transaction in court on the grounds that the price was too low, but in vain. Following approval of the offer in 1984, MacAndrews & Forbes Group was privatized as a subsidiary of MacAndrews & Forbes Holdings Inc., a newly formed, closely held company owned by Perelman. To raise the cash for the purchase, the holding company sold low-grade, high-yield 'junk' bonds to clients of Drexel Burnham Lambert Inc.

1979–2000

MacAndrews & Forbes Co. continued in existence as a flavors operation, the jewelry segment being discontinued in 1985 and the chocolate division being sold in 1986 for $40.5 million. The company maintained a 45 percent share in an Iranian licorice-extraction plant and purchased from Pakistani merchants any licorice root that came over the border from strife-torn Afghanistan. Nevertheless, seeking to reduce dependence on such chancy sources, Perelman sent buyers to Russia, Iraq, eastern Turkey, and western China to negotiate long-term contracts for supplies at low cost. He extended the company's wholesale market to Europe in 1986 by purchasing a French operation, Extraits Vegetaux et Derives, S.A., which had its own extraction plant and an established continental distribution network. A Business Week article reported in 1986 that the MacAndrews & Forbes licorice business was five times larger than it had been in 1979. According to Institutional Investor, which in 1989 called Perelman the richest man in the United States, earnings tripled between 1980 and 1988, when they reached $20 million on sales of more than $100 million. Also according to the magazine, the company was valued at $350 million by Wall Street (although an internal MacAndrews & Forbes memo scoffed at that sum, describing it as the work of 'someone [who] must be smoking licorice root').

Public Company: 1995-2000

In 1995 Perelman acquired Abex Inc., a producer of flight- and engine-control systems and hydraulic pumps for aircraft. This company was merged into a subsidiary of Mafco Holdings Inc., save for the aerospace division, which became Power Technologies Inc., a publicly traded company. The aerospace business was sold in 1996 for $201.1 million. Later in 1996 Power Technologies acquired Flavors Holdings Inc. for $180 million. This Perelman entity included the licorice business, which was then a subsidiary of Flavors Holdings named Mafco Worldwide Corp. Through a series of transactions, Mafco Worldwide merged with and into Pneumo Abex Inc., a previously indirect, wholly owned subsidiary of Abex incorporated in 1988. Pneumo Abex became a subsidiary of Flavors Holdings. Power Technologies was renamed M & F Worldwide in 1997. There was method behind these convoluted transactions and reshufflings, since the complicated Perelman empire of holding and operating companies was, according to Leah Nathans Spiro of Business Week, 'a clever structure that yields tax, financial, and management benefits.'

M & F Worldwide added a Chinese subsidiary and joint venture in 1998 with a factory in Xianyang. In 1999, foreign suppliers of the company were obtaining bales of licorice root that originated mainly in Afghanistan, Azerbaijan, China, Pakistan, Syria, Turkey, Turkmenistan, and Uzbekistan. Four suppliers of the root met 55 percent of the company's purchases that year. At the end of 1999 M & F had on hand about a two-year supply of the root, which had an indefinite retention period when kept dry. The company also was purchasing licorice extract produced by others for use as a raw material, primarily in China and Turkmenistan. M & F was shredding the root to matchstick size at its facilities in Camden, Xianyang, and Gardanne, France, and then extracting licorice solids from the shredded root with hot water. After filtration and evaporation, the concentrated extract was being converted into powder, semifluid, or blocks, depending on the customer's requirements. Licorice root residue was still being sold as a garden mulch under the Right Dress name.

Non-licorice flavoring agents and plant products were being produced in Richmond, where unprocessed spices, herbs, and plant products, principally chilies, sage, cassia (cinnamon), cocoa-bean shells, dried palmetto berries, goldenseal root, slippery elm bark, and many other natural products were being cleaned, ground, or cut. Customers included tobacco and confectionery producers, both in the United States and abroad.

1995–2000

M & F believed that it was manufacturing more than 70 percent of the worldwide licorice flavors sold to end-users in 1999. About 71 percent of its licorice sales went to the worldwide tobacco industry, with Philip Morris Companies Inc. alone accounting for about 30 percent of company sales. Net sales came to $95.9 million in 1999, and net income to $19.1 million. The company's long-term debt was $49 million at the end of the year. In mid-2000, M & F had about $124 million of tax-loss carryforwards inherited from Power Control Technologies and available to be used to offset future federal income taxes payable. Perelman owned 32 percent of the stock through Mafco Holdings Inc. Although no longer chairman of the board (as he was from 1995 to 1997), he remained chairman of the executive committee of the board. James P. Maher, who previously held executive positions in other Perelman entities, was president, chairman, and CEO of the company.

In November 2000 Perelman proposed that M & F Worldwide purchase Mafco Holdings' 83 percent stake in Panavision Inc. This manufacturer of motion picture and television cameras and lenses lost money on sales of $202.8 million in 1999, mainly because of heavy interest payments on long-term debt of nearly $500 million arising from a complex 1997--98 recapitalization in which Mafco Holdings gained its controlling share. Perelman proposed that M & F Worldwide pay at least $190.3 million, or $26 a share, in cash and stock for Panavision. This was the amount that Mafco Holdings paid for the shares, but the stock was trading at only about $6 a share in late 2000. An M & F shareholder filed suit to prevent the purchase, charging that the proposal constituted 'unfair self-dealing and breach of fiduciary duties.'