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Praise for Can't Take It With You
"Lewis Cullman is one of this nation's major and most generous philanthropists. Here he combines a fascinating autobiography of a life in finance with a powerful expose' of how the business of giving works, including some tips for all of us on how to leverage our money to enlarge our largesse."
"Lewis Cullman has woven a rich and seamless fabric from the varied strands of his business, philanthropic, and personal life. Every chapter is filled with wonderful insights and amusing anecdotes that illuminate a life that has been very well lived. This book has been written with an honesty and candor that should serve as a model for others."
"Lewis Cullman's memoir made me feel good. A vibrant, thoughtful, and gracious man has written a wonderful tale about living a full life and giving back a lot to society."
Former Chairman, Securities and Exchange Commission
"I was so enjoyably exhausted after reading the book-I can only imagine living the life! It seems there is no good cause that Lewis has not supported, no good business opportunity that Lewis has missed, and no fun that Lewis has not had."
President Emerita, The Museum of Modern Art
"Now I know that venture capitalism and horse trading are almost as much fun as looking for new species in the Amazon. This book is exceptionally well written. The prose is evocative, vibrant, and inspirational."
-Edward O. Wilson
Professor Emeritus, Harvard University
Honorary Curator in Entomology, Harvard's Museum of Comparative Zoology
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About the Author
Read an Excerpt
Can't Take It With YouThe Art of Making and Giving Money
By Lewis B. Cullman
John Wiley & SonsISBN: 0-471-65763-8
Chapter OneDEAL ME IN
Every life has a turning point, a moment when what you will be begins to break away from what you were. Mine came on a sunny day in June 1963 as Herb Weiner and I were having lunch at the Wall Street Club, on the sixtieth floor of the Chase Manhattan Plaza, at Pine and William streets. Designed by Gordon Bunshaft of Skidmore Owings & Merrill, the Chase Manhattan building had been completed only two years earlier, and the Wall Street Club was its crown: high-ceilinged, with sweeping views in all directions from a wall of windows. Most important for this story, the club was just around the corner from my office at 120 Broadway.
Herb Weiner didn't cut a great figure-he was short and dark haired, with a mottled complexion. Sadly, he didn't have that much longer left to him either. Within a decade of our lunch, still in his forties, Herb would be dead of what was then known as galloping leukemia. But Herb was a brilliant tax accountant and tax lawyer-as smart a man as I have known, with some of the most expressive gestures I've ever seen. Herb's hands were a kind of running commentary on everything he had to say, and believe me, Herb liked to talk.
The subject of our lunch that day was a fund I had started not long before with a group of primarily Canadian investors. To get around the glacial proceduresof the Securities and Exchange Commission, we had incorporated the fund north of the border as The Incubation Group, Ltd., but its focus was purely American. Our goal was to invest in unrecognized stocks-ones with strong fundamentals but little-to-no market charisma, a "sleepers fund" you might call it today. We figured we could buy the securities at a deep discount and wait for the investing herd to discover their virtues. Herb wasn't with the fund, but we had worked together for several years at Cullman Bros., Inc., the family tobacco business then headed up by my father, Joseph Cullman Jr. Herb left to rejoin Touche Niven (later Touche Ross) about the same time I went out on my own. Both of us had had it with the slow pace of life at an old-line, in-bred company. As I'll get into later, I also had family dynamics to contend with. But I made it a point to stay in touch with Herb because I valued his advice, his analyses, and above all, his original way of looking at the world of finance and investments.
That's what we were doing over lunch at the Wall Street Club: running over Incubation's holdings, tossing around possible additions and subtractions. I was eating a salad, picking apart some long-forgotten outfit's profit and loss statement, when Herb held up one of those expressive hands and stopped me cold.
"You know," he said, "you're making a great mistake."
"What do you mean?" I asked. I was startled.
"Instead of investing in these securities, why don't you buy the companies?"
I remember my response exactly: "Well, that's very interesting. How do we do that?" I had nothing against the idea in principle, but there was the little matter of means to get around. I wasn't from a poor family, but I wasn't sitting on tens of millions of dollars of ready cash either, and Incubation didn't specialize in tiny companies. Buying any of our holdings was going to take some serious money.
Herb's answer was as enigmatic as anything I ever knew him to say: "I have a brother-in-law named Abe Kaminsky, up in Troy, who has this computer...."
That was the moment, really, when the light first went on for me, the moment when I began to glimpse how you could buy a company by mobilizing its own resources. The real-estate people had been doing the same thing for years-leveraging deals based on physical assets such as buildings and land. Talking with Herb, I had a hunch that we might be able to do the same thing using nothing more than a company's earning capacity. We called it a "bootstrap" operation in those early days. The term "leveraged buyout" wouldn't come into common usage for another decade or so, and it would be longer than that before Jerry Kohlberg, Henry Kravis, and others would make the term famous. KKR, the firm Kohlberg and Kravis helped found, along with George Roberts, would even carry the leveraged buyout to its illogical extreme when it paid the staggering sum of $25 billion for RJR Nabisco, then the largest buyout in Wall Street history; but back in 1963, Kohlberg and Kravis were still toiling away at Bear Stearns.
Herb and I were the ones who built the model that the LBO rose from-the ones who first applied the ancient principles of leverage to the complex world of modern finance. Of necessity, we did it entirely on the fly, making it up almost every inch of the way. Within 15 months of our lunch at the Wall Street Club, with a grand total of $1,000 of our own money at stake, Herb and I would engineer the purchase of a business with a market value of $62.4 million.
If only it had been as easy as that makes it sound.
* * *
Abe Kaminsky turned out to be no slouch in the brain department himself. Abe was a professor at Rensselaer Polytechnic Institute in upstate New York. I no longer remember what he taught, but his job gave him access to one of those room-sized computers seen in old photos: vacuum tubes, trips and switches every which way, punch cards, the whole nine yards.
Herb and I briefed Abe on our luncheon conversation. Then Abe took the securities I already had in Incubation, entered in their numbers, cross-referenced them with a bunch of criteria we thought would make sense for an acquisition, and sent the computer to work. What would seem like days later to a modern laptop user, the trusty RPI machine kicked out the results, ranked according to the greatest probability of pulling off a successful acquisition. Ironically, or maybe not so, this cutting-edge technology of 1963 had selected as its top pick a company that made its money killing rats and other pests: Orkin Exterminating Company of Atlanta, Georgia.
Otto Orkin probably deserves a book of his own. His parents emigrated with their six children from Latvia to the United States in 1891, when Otto was five years old. He was still in his single digits when he was assigned the chore of controlling rats on the farm the family settled on, near Slatington, Pennsylvania, in the eastern part of the state, northwest of Allentown. By 12, Otto was spreading arsenic in places where rodents liked to gather. Two years later, all of 14 years old, he borrowed 50 cents from his dad, bought his first load of bulk powdered arsenic, and began mixing and selling his poisons door to door.
Teased by locals who called him "the Rat Man," Orkin appropriated the name for his business and started spreading out along the eastern seaboard, working south all the time. By 1909, still in his early twenties, he had saved up $25,000, then a princely sum. Based in Richmond, Virginia, Otto Orkin and the Rat Man Co. began to expand into other pests: bed bugs, carpenter ants, cockroaches. (Generally speaking, cockroaches get bigger the further south you go. In Florida, where they're known as Palmetto bugs and get as big as a toddler's fist, they actually fly!)
Diversification worked. Twenty years later, Otto Orkin was headquartered in Atlanta, with more than a dozen offices in eight states. In 1937, he celebrated surviving the Great Depression by renaming his business Orkin Exterminating Company, Inc. The Rat Man had gone upscale.
Otto Orkin gets credited with many innovations in pest control. He was among the first in the business to begin using DDT, after the military had tested it during World War II. As early as 1950, when television was still in its infancy, he began running ads featuring the "Orkin Man," a corporate logo that over a half century would grow from a cartoon sprayer to a muscle-bound Master of the Pest Control Universe. Otto was a showman, too. Around 1950, he marked the expansion of his Atlanta headquarters by having the mayor scissor through a ceremonial ribbon of mousetraps. But his greatest innovation had to do with the very nature of the business itself.
Early on in the formation of his company, Otto Orkin did some elementary market research that showed customers didn't think his rat poison was very good. The Rat Man knew his arsenic compounds killed rats as well as anything available, so he questioned his sample group further and learned the real problem was that people didn't know how to use the poison he was providing them. That led to his breakthrough realization: Instead of just selling chemicals, he should be selling a service-rodenticide and application rolled into one-and that's how his business evolved and why it succeeded so well while myriad other small pest-control outfits fell by the wayside.
By 1960, Otto Orkin was nearing his mid-seventies and was ready to step back from a prolific work life that had started in the previous century. He had eight more years remaining-he would die in 1968-but he had begun to cede control of the company to his sons, Sanford and Billy, and son-in-law Perry Kaye. (Sanford and Billy's sister, Bernice, got a share of the pie, too.) The Orkin children showed no reluctance at grabbing the reins. First, they bought out their father. Then in 1961, with the founder gone from the picture, they took the company public, offering up 360,000 shares, or 15 percent of the company, at $24 a share.
Initially, at least, all this maneuvering seemed brilliant. Orkin Exterminating caught the crest of a rapidly accelerating market and rode it to what must have seemed dizzying heights. By late 1961, Orkin stock was selling at $30, up 25 percent from its initial price and almost 50 percent from its low for the year. Because the Orkins held 2.04 million shares of the company, they figured their 85 percent of the business must be worth in excess of $60 million. Then reality set in.
At the peak of the 1961 market, the Dow Jones Industrial Average stood at 735 with a price-earnings ratio greater than 20, and stocks yielded more than bonds. In short, the market was a bubble, waiting to burst. The bear market that followed-fed by the lethal combination of inflation and stagflation-troughed in 1962 with the DJIA at 536, down more than a quarter in less than a year. Orkin Exterminating did not escape the carnage. It bottomed out along with the market at $18 a share, which by the same series of calculations they had used earlier, put the family's share at slightly over $36 million, down a hefty $24 million or so.
Mind you, Orkin Exterminating was still an absolutely delightful business. The company was doing about $37 million a year in revenues and earning $6.7 million pre-tax. It had $10 million in excess cash, virtually no inventory other than some chemicals and applicators, and almost no receivables because the route man would pick up cash on the kitchen table when he came to squirt the poison around. That's why we had added it to Incubation. The share price didn't affect any of that. But having once felt richer than the facts merited, the Orkin clan suddenly felt poorer than they really were. That's the nature of money: It fools you equally on both the high and low ends.
Abe Kaminsky's computer was right. The company had glowing fundamentals, and its owners were motivated sellers, looking for ways to get their money out of a business they had no desire to run. Herb Weiner and I had to sell them the solution. Then we had to figure out how to pull it off with almost no money of our own.
* * *
Our first trip to Atlanta, in early October 1963, did not start propitiously. We told the cab driver to take us to the address we had copied down from an old annual report. Turns out, that was the former headquarters. Just after going public, Orkin had moved to a very fancy, almost extravagant building, which was part of a new office park. When we finally found the place, we were led into Perry Kaye's office, and then Perry brought in his brothers-in-law Sanford and Billy. I was in my early forties then, but among this group, that seemed almost ancient. None of the three was out of his twenties. Billy, in fact, might have been half my age.
Sanford, it turned out, was the dandy of the triumvirate, and maybe the playboy. He had a fondness for suits hand-tailored in Manhattan-we took to kidding him about it as the negotiations went along. As I was later to learn, Sanford also was not inclined to a long work day. He and Billy both had offices with rear doors that opened up to the business park. Sanford liked to come to the building and check with the receptionists at the front desk to see if any business was pending; then if none was (and that seemed to be the rule), he would head out the back exit of his office and take off for the golf course.
Whether Billy headed for the golf course most days himself, I never figured out. He was simply too young, and mostly too silent, to get much of a bead on. Perry Kaye, clearly, was the brains of the outfit-the only one, in fact, who seemed to do a damn thing actually related to the business-so it was Perry on whom Herb and I concentrated.
Our strategy, basically, was to tell the Orkins what they didn't want to hear, then come back with something that would be much more interesting to them. First and foremost, what they didn't want to hear was that the company should be paying dividends; so that's where I started.
"Look," I explained, "what you've got here is an unregulated utility. I mean, a pest-control service really isn't much different than an electric company or a phone company. People subscribe to the service. They take it month after month. They pay month after month and so on. Now, normally utilities are dividend-paying stocks. People expect that. They buy the stocks because of the yield. So if you want to boost the share price and take your money out of the company, why don't you start paying dividends?"
It was a sensible enough suggestion for someone in my position to make. I was representing an institutional investor in the company; Orkin had excess cash lying all over the place; and announcing a dividend would almost certainly juice the share price, which was then lingering in the low, low twenties. But Herb and I also knew full well that the very idea of a dividend would give the Orkin family conniption fits. They owned 85 percent of the company-paying dividends would be like taking money out of their own pockets. And the dividends the family got on their own 2-million-plus shares would be subject to a top federal personal tax bracket that was then set at 91 percent on taxable income over $400,000, a ridiculous rate.
Perry, Sanford, and Billy didn't disappoint. By word and expression, they made it clear that they would rather remove their own appendix without aid of anesthesia than pay a dividend. That brought me to the second part of my spiel.
Excerpted from Can't Take It With You by Lewis B. Cullman Excerpted by permission.
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Table of ContentsFOREWORD.
CHAPTER ONE: Deal Me In.
CHAPTER TWO: Marching to New Haven.
CHAPTER THREE: Weathering the War.
CHAPTER FOUR: “You Just Might Meet Someone”.
CHAPTER FIVE: From Investor to Owner.
CHAPTER SIX: Building a Business.
CHAPTER SEVEN: Giving as Good as I Got.
CHAPTER EIGHT: Letting Go.