Reginald F. Lewis traveled a long distance during his life, though perhaps not in miles, a journey that took him from working-class Baltimore to the power centers of Wall Street. In 1987, he cracked the exclusive club of billion-dollar deal makers when his TLC Group bought the international division of Beatrice Foods for $985 million. It was then the largest-ever offshore leveraged buyout. TLC Beatrice emerged among the BE 100s in 1988 as the nation’s largest black-owned business. Its revenues of $1.8 billion roughly equaled those of the next 40 businesses on the list–combined.
Many thought of Lewis as a fascinating overnight success story. He wasn’t. He had prepared for the moment all his life: developing relationships, establishing his credibility, and mastering the art of the deal. He experienced false starts and encountered setbacks along the way. Yet, through it all, he stayed true to a favorite motto: “Keep going, no matter what.â€
Lewis always kept going, and eventually made an indelible mark on business history. On this 25th anniversary of the Beatrice deal, Black Enterprise takes a look back at the pivotal moments in Lewis’s career, the play-by-play of the historic acquisition, and how he changed business forever.
Learning the Art of the Deal
Lewis always demonstrated a great work ethic and ambition. His drive led him from Baltimore to Virginia State University and then Harvard Law School. Armed with his degrees, he moved to New York City in 1968, joining the prominent law firm Paul, Weiss, Rifkind, Wharton & Garrison. After two years, Lewis was told he wasn’t going to make partner so he struck out on his own, eventually setting up a Wall Street law firm.
His decision to start Lewis & Clarkson coincided with the growth of Minority Enterprise Small Business Investment Cos., known as MESBICs, which directed a mix of private and public venture capital to minority entrepreneurs. It proved to be an attractive market for Lewis. “We cut our teeth on MESBIC deals,†says Charles Clarkson, Lewis’s longtime law partner. “They were often small, but we learned about things like financing, debt and equity instruments, and guarantees.â€
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Adds Frank Savage, who at the time ran Equico Capital Corp., one of the most prominent MESBICs, and hired Lewis’s firm to handle legal work, “He became well-known in the MESBIC community as the go-to lawyer because of his knowledge of securities law and investments. It was obvious he was going to go far.â€
Lewis began to master the art of the deal as he expanded his network. “Reggie never passed up an opportunity to build and develop relationships,†says JoAnn Price, co-founder of Fairview Capital Partners Inc. (No. 3 on the BE Private Equity firms list with $3.3 billion in capital under management). “He was constantly in the mix, with his ear to the ground. He had technical skills and he was comfortable in the boardroom, so he had both qualitative and quantitative attributes in his toolkit.â€
The ambitious entrepreneur eventually wanted to use his toolkit to capture bigger game. In a conversation over dinner with his old friend, Cleveland Christophe, a Citibank executive at the time, Lewis said he wanted to transition from doing other people’s deals to structuring his own. “Although I’m doing well with the law firm, I get paid by the hour and I’m still tied to the clock,†Lewis told Christophe. “I want to do something that makes me money in my sleep.â€
Searching for the Big Deal
Lewis started pursuing opportunities to acquire existing companies. He made a run at Parks Sausage Co., a legendary BE 100s company in his hometown. But initial talks stalled. He then bought a Caribbean-based radio station that ended up a financial failure. Most disappointing was his attempt to purchase Almet, a manufacturer of beach umbrellas and chairs. After an 18-month chase, the deal fell through at the last minute.
Then, in 1983, Lewis got word that the McCall Pattern Co. was for sale. Its specialization, home sewing patterns, was viewed as a declining industry. Lewis, however, thought the company had enormous potential even if he didn’t have personal experience with the product. “Reg didn’t sew,†his wife, Loida, recalls with a laugh. “He was attracted to it because it was in play. It was a pure business decision.â€
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His analysis revealed a company with a cash flow of $18 million and the sale as an opportunity to buy it at a discount to its intrinsic value. He also found an experienced, knowledgeable management team that he persuaded to stay with the company by giving them an equity stake. In the end, his newly formed TLC Group–a holding company under which Lewis would construct his deals–acquired McCall with $22.5 million financing including $1 million in cash. That included capital from his old client, Equico Capital Corp., and $19 million in debt from Bankers Trust.
After a disappointing first year in which McCall was engaged in a price war with its competitors, the company went on to have its two most profitable years in its 113-year history. By 1985, Lewis was running a holding company that generated revenues of $60 million, earning the No. 8 position on the 1986 be top 100.
These results would have satisfied most entrepreneurs. Not Lewis. “He was looking to sell the company as soon as possible,†says Tom Lamia, a lawyer involved with the transaction. “He wanted to realize gains and free up his capital to do other deals.†In 1987, the TLC Group sold McCall to a British company for about $65 million, plus an agreement to transfer all the outstanding debt. In total, taking into account prior distributions and a recapitalization that occurred before the sale, Lewis achieved a 90-to-1 return on the initial equity investment.
The deal gave him capital, credibility, and clout. With the McCall divestiture completed, Lewis shifted his focus to a new target: the international foods division of sprawling Beatrice Foods.
The Big One: Beatrice
It was the summer of 1987, and Christophe, who had left Citibank, was in his first week at TLC Group. Operating in his temporary office in the mailroom and seated at a card table, he was greeted by Lewis with papers in hand. It was a photocopy of the divestiture memorandum on Beatrice. Lewis had ambitious ideas about the company, and asked his old friend to take a look. Christophe stayed up all night, conducting a financial analysis of its operations. In the morning, the two quickly agreed that the division was worth pursuing.
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The conglomerate’s international food operations were spread over 31 countries and had 64 operating companies. Despite its size, top management had never put an integrated structure in place. TLC sensed opportunity. Since each company was an autonomous unit, it would be easy to finance the acquisition by selling separate pieces of the organization. “We developed the best strategy for acquiring a firm with all of its operating income outside the United States, with financing from the world’s most efficient capital markets, which were in the United States,†says Christophe. “One needed to do that in order to maximize the interest deductibility from a taxation standpoint. We figured that out better than anyone else.â€
Of course, they would need financing for this novel strategy. At the time, the No. 1 guy on Wall Street was the legendary Michael Milken. By 1987, he had turned his investment banking firm, Drexel Burnham Lambert, into a Wall Street powerhouse by, among other things, financing leveraged buyouts. Milken and Lewis had known each other for years. From the outset of their relationship, Lewis had expressed his desire to do business together. Milken stressed, however, that first Lewis had to build a track record. With the McCall deal done, Lewis was ready.
“Reg was talented, insightful, with great attention to detail and great vision,†says Milken. “We had financed the leveraged buyout of Beatrice when it was bought by [private equity firm] Kohlberg Kravis and Roberts, and when the decision was made to sell the international operations, Reg, in my opinion, had put together the best offer, and I made sure he had a chance.†In fact, KKR wasn’t going to let TLC in the auction because, in their view, Lewis lacked credibility. Milken famously replied, “He’s got credibility with me.â€
TLC competed against heavyweights such as Citibank, Pillsbury, and Shearson Lehman Bros.–and won. By August, the agreement was announced: TLC Group was buying Beatrice’s international food division for $985 million. But the work had just begun.
Using the strategy of financing the purchase through the divestiture of its
parts, they identified the core European companies as the ones they wanted to keep. TLC Group then hawked other units such as its Canadian and Australian assets. At one point, there were so many deals that TLC transactions were the focus on five floors of Lewis’s old law firm, Paul, Weiss.(Continued on next page)
By the time the deal closed, TLC had sold assets for roughly $430 million, cutting almost half of its debt. The ownership of the new company, now called TLC Beatrice International, was distributed 55% for TLC, 35% for Drexel and its partners, and 10% for management. Lewis was now leading a company that generated nearly $2 billion in revenues a year, making it the 1988 be 100s Company of the Year.
The Transition
Lewis was aware of the deal’s significance but, as always, focused on business. To run his international conglomerate, he was now spending as much time in Paris as in New York. In addition to meeting with managers, he walked through factories, learning about his business as he asked questions of workers. By 1990, TLC Beatrice’s operating income had grown to more than $94 million, a 56% spike from his first year leading the business.
In addition to maximizing profitability, he sought more deals. Those ambitions were stifled when efforts to take TLC Beatrice public, which would have enabled it to use both cash and stock in transactions, proved unsuccessful. Additionally, a bid to acquire Beatrice’s domestic operations was not accepted. Despite these setbacks, as his motto dictated, Lewis kept going, no matter what.
Everything changed in the winter of 1992 when Lewis was told he had a brain tumor. Shortly thereafter, the 50-year-old trailblazer died, on Jan. 19, 1993.
His brother, Jean Fugett, was named his successor. An attorney and former pro football player, he had been involved in many of Lewis’s dealings. Nonetheless, taking over was a huge challenge.
In addition to the difficulty Fugett faced sustaining what Lewis had built “without the architect,†he also dealt with a deep recession throughout Europe that caused TLC Beatrice’s operations to suffer. After roughly a year, Loida assumed her husband’s old position as CEO. “I’ll always be grateful to Jean because he held it together,†she says. “However, I decided to take over because if it ended up a mess, I wanted it to be on me.â€
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Her first goal was to stabilize the company and steer it back in the right direction. The company cut staff, sold its plane, and downgraded office space. It also refinanced $170 million in debt with European banks. Loida met regularly with managers to ensure that they were hitting their goals, and profits began to rise again. By 1994, earnings reached more than $11 million and topped $15 million the following year. “Loida’s contribution cannot be overstated,†says Savage. “She had just lost her husband, she’s got kids, and she jumped into his seat and did a fantastic job.â€
With the company back on track, she began to explore ways to unlock the value of the company. “My husband always said that he bought the company to create wealth, that was his ultimate goal,†she asserts. “So I always stuck by that goal.â€
Liquidation began in 1997, with the sale of its French food division. Then, it unloaded its European beverage operations, Spanish ice cream unit, and Irish snack business. Hundreds of millions of dollars were distributed to shareholders. By 2000, the liquidation of TLC Beatrice was complete, bringing to a close a momentous chapter in business history.
The Lewis Legacy
The TLC Beatrice example continues to inspire business leaders today. “Reggie was not afraid of going beyond what black business was, which was privately owned companies run by family members to be passed on to family members,†says Bob Johnson, chairman of the RLJ Cos., a $5 billion holding company. “He got access to public capital, which gives you leverage in deal making.â€
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In the years since the TLC Group’s leveraged buyout, African American entrepreneurs have continued to access financing and build wealth, unlock value from their businesses, and develop their companies’ vision. Several black-owned companies now generate revenues of $1 billion or more (see sidebar, The Billion-Dollar Club). Despite these gains, most think there is still a long way to go in accessing capital. And many of today’s entrepreneurs, inspired by the example of Lewis and many others, continue the fight to open new doors of opportunity.
Along with her two adult daughters, Leslie and Christina, Loida is focused on preserving the legacy of her late husband. In 1994, a best-selling book about his life, Why Should White Guys Have All the Fun? (John Wiley; $18.95) was published; it continues to be a must-read for entrepreneurs and deal makers. Through the Reginald F. Lewis Foundation, Loida supports a number of educational and civic causes including the Reginald F. Lewis Museum of Maryland African American History & Culture in Baltimore. And hundreds of students study in the Reginald F. Lewis International Law Center on the campus of Harvard Law School, an institution he gave a gift of $3 million. “She has kept his personal legacy alive,†says Savage. “It’s important, particularly for our young people, to know that people like him existed.â€
So 25 years after Lewis’s historic deal, his example continues to resonate. He showed that success requires a lifetime of preparation: honing skills, developing relationships, overcoming failure. He was tough, to some difficult to work with. But his goal was to compete at the highest levels of finance, and he did. In so doing, he’s helped inspire a generation of entrepreneurs to keep moving forward, no matter what.