The Interlake Corporation
Address:
550 Warrenville Road
Lisle, Illinois 60532-4387
U.S.A.
Telephone: (708) 852-8800
Fax: (708) 719-7277
Statistics:
Public Company
Incorporated: June 23, 1905, as By-Products Coke Corporation
Employees: 4,800
Sales: $708.2 million
Stock Exchanges: New York, Chicago
SICs: 3535 Conveyors & Conveying Equipment; 3728 Aircraft Parts & Equipment Nec; 3399 Primary Metal Products Nec
Company History:
The Interlake Corporation, once a company within the steel industry, is currently engaged in the design, manufacture, and sale or distribution of a variety of engineered metal products, although it no longer manufactures steel. The company's primary customers are in the automotive, aerospace, materials handling, and packaging industries. Interlake has 11 manufacturing plants in the United States, in addition to operations in Canada, the United Kingdom, Germany, Belgium, and Australia. Interlake exemplifies some of the conditions operating within the American steel industry in the 20th century, providing an interesting example of how changes in that industry caused companies to re-evaluate their core businesses and adapt to new market conditions.
The earliest predecessor of Interlake was a small furniture shop in Shelbyville, Missouri. There, in 1880, a furniture maker named M. E. McMasters developed a barbed steel staple that he used to join wooden bed rails. The staple was a rigid metal form with teeth cut into it. When hammered into place, it held two pieces of wood securely at a specific angle. In 1882 the business relocated to Quincy, Illinois where the operation was reincorporated as the Quincy Plate and Staple Manufacturing Company. After several years making metal plates and staples of the type invented by M. E. McMasters, the company added a line of new implements to the product line, prompting yet another name change, this time to the Quincy Hardware Manufacturing Company.
In 1889, however, the enterprise was acquired by the Acme Flexible Clasp Company under undocumented circumstances. Acme Flexible Clasp, basically a manufacturer of hinges and other small metal products, was based in Chicago. Business was very strong in that city during the late 1890s and early 1900s. Much of the damage from Chicago's great fire had been repaired, and the city was by now a growing metropolis and railway and shipping terminus.
Demand for building materials was so strong that by 1904 Acme was forced to build a new production facility on Chicago's Archer Avenue. The company's headquarters were moved to this site from Clark Street, as were other small production shops. After changing its name again to Acme Steel Goods Company, the firm purchased a 133-acre site on the Little Calumet River at Riverdale, Illinois in 1917. A year later the company built a hoop mill on the site.
In 1926 Acme Steel built a second rolling mill, and three years later added the number three hot mill, both of which were used to produce formed and sheet steel, as opposed to block ingots. The new plants were built at the Riverdale site, which had become the company's center of production.
The company endured several years of hardship during the Great Depression, but was among the first to recover as a result of President Roosevelt's heavy industry-oriented New Deal Programs. Some years later, during World War II, Acme Steel became deeply involved in war production, turning out a variety of steel products for artillery and mechanized armament manufacturers. Steel products and production quotas were strictly enforced by the government's War Production board. So, while Acme was unable to profit greatly from its war production, it was provided a valuable opportunity to establish relationships with new customers.
In 1947, after the close of the war, Acme acquired the Hoffert Machine Company in Racine, Wisconsin. This brought Acme into a new line of finished products, manufacturing stitching machines for the boxboard and graphic arts industries. Acme made its first international expansion in 1952 when it established a steel strap slitting and painting facility at Scarborough, Ontario.
In 1954 the company added a new building at Riverdale for the production of stitching and strapping tools and machines and other accessories. The company continued its expansion in 1956 by acquiring the Newport Steel Company in Newport, Kentucky. With the acquisition of Newport, Acme became a producer of steel ingots made from scrap steel and pig iron, freeing it from increasingly unstable supply prices. Newport also manufactured hot and cold rolled steel products, silicon and alloy sheets and bars, and electric weld line and conductor pipe, in addition to other steel products.
A year later Acme closed its Archer Avenue plant and transferred all production from that facility to Riverdale. In 1959 Acme opened a new steel line at Riverdale using the more efficient, higher quality oxygen converter system. The expansion caused Acme's debt to grow from $5.2 million in 1955 to $35 million in 1961. To make matters worse, six top officials retired simultaneously, leaving Acme with scant managerial expertise at the highest level. By 1964, however, the worst was over. Acme chair G. Findley Griffiths retired half the company's preferred shares and reduced debt by $20 million.
Despite its measured growth and expansion into new product lines, Acme was not a fully integrated steel manufacturer, although it began making its own raw steel in 1956 for downstream use and thus could be considered semi-integrated. It was mainly involved in the final stage of steel production, manufacturing finished products, and had no control over the price or availability of scrap, coal, or iron ore. Larger companies that were most successful at this time had control over these various factors and were thus able to exercise greater control over the market, to the detriment of companies such as Acme. This concentration of power was later illustrated by President Kennedy's showdown with United States Steel.
Another small company limited to one primary production process was Interlake Iron Corporation. Interlake, headquartered in Cleveland, produced pig iron, coke, and ferroalloys. Interlake sold its pig iron primarily to foundries and steel companies. Interlake was slowly being squeezed out of its limited market by new materials, changing technologies, and growing pig iron imports.
Interlake had considered diversification as early as 1949 but had dismissed all proposals as too risky or not yet urgent. By 1964, however, the pig iron market had collapsed and the situation had become urgent. Now, however, the company was not financially sound enough to pull off a diversification.
Interlake president Thaddeus F. Bell met with Griffiths to discuss a merger. Interlake's ore mining companies, Erie Mining in Minnesota and Wabush Mines in Canada, would provide an adequate source of iron ore for Acme's finishing plants. In addition, Interlake operated a blast furnace only 15 miles from Acme's Riverdale facility. This would enable molten iron to be transported by special rail cars directly from Interlake's furnaces to Acme's steel plant, eliminating the need for secondary melting facilities.
Acme Steel, with $138 million in assets, and Interlake, with $136 million in assets, formally merged in 1964. The new company, called Interlake Steel Corporation, instantly became a much stronger organization. The combined operations included steel plants in Riverdale and Wilder, Kentucky, and pig iron and coke plants in South Chicago, Erie, Pennsylvania, and Toledo, Ohio.
Griffiths was named chair of the new company, Bell was named president. George Enos, who had become chair of Interlake after merging his coal mining company with Interlake some years earlier, became a director.
In 1967 Interlake's management scrapped a proposed $200 million expansion program and decided instead to begin a diversification strategy aimed at reducing the company's dependence on its core steel business. The first move in this direction came in 1968 when Interlake purchased a two-thirds interest in the American subsidiary of the Swedish company Hoganas A.B. The subsidiary, Hoeganaes Corporation, was a ferrous metal powder manufacturer based in Riverton, New Jersey. The company also acquired Redirack Industries, Ltd., a Canadian firm that specialized in the manufacture of warehouse storage products. The company later introduced a new line of manual and automated stacker-retrievers that could neatly stack boxes or pallets of stock in warehouses.
In 1969 Interlake opened a technical research facility at Riverdale and later that year acquired the Gary Steel Supply Company, a warehousing and pickling operation at Blue Island, Illinois.
Also in 1969, Interlake took over Lodi Fab Industries of Lodi, California. This company manufactured storage rack systems, adding new products to the mix and providing Interlake with a presence in the Western United States. In 1970, after dropping "Steel" from its name to emphasize the growing diversification, Interlake purchased the Burmac Corporation, a steel strapping equipment and storage system manufacturer based in Ottawa, Illinois.
By 1972 Interlake had reduced the volume of its steel sales to 68 percent of total sales. In addition, 30 percent of the company's steel output was consumed by Interlake's nonsteel operations. While this showed rapid diversification away from steel, Interlake's new chair Reynold C. MacDonald continued to press on.
In the steel operations that remained, MacDonald encouraged the growth of specialty steel operations, producing smaller quantities of unusual steel that larger producers would charge a premium for. The company's profitability was held back by prohibitions on imports of Rhodesian chromium, and sales at Hoeganaes had dropped in 1970 and 1971, but rebounded in 1972. The production of steel had another drawback. In 1972 MacDonald stated that Interlake had already invested $1.5 billion in pollution controls and anticipated being forced to spend another $3.5 billion. "You look at those numbers," McDonald noted, "and ask how do you get the job done and keep your steelmaking facilities up to date?" Some environmentalists accused the company of poor pollution control practices, but an Interlake spokesperson pointed out that Interlake had taken a leadership role in pollution control efforts beginning in the early 1960s, and in fact was recognized by the Chicago City Council in 1965 for its contributions toward combatting air pollution.
Continuing its campaign of expansion, in April of 1973 Interlake acquired the Selma, Alabama-based silicon metal and ferroalloy manufacturer Alamet (Alabama Metallurgical Corporation). In 1974, Interlake formed a joint venture with Kawasaki Steel. The company, Kawatetsu/Interlake, Ltd., was created to market storage rack systems in Japan. In October of that year, Interlake acquired Dexion Comino International, a British material handling firm.
In December, Interlake established a joint venture with the Ford Motor Company, Wheeling Pittsburgh Steel, and Pickands Mather & Company to build and operate a huge coal mine near Pikeville, Kentucky. Each company was ensured a share of the mine's production, which exceeded 1.25 million tons per year. The company also took over the A. J. Bayer Company in December of 1974. Bayer, located in Shepherdsville, Kentucky, was a manufacturer of conveyor systems, which became a part of Interlake's material handling business.
Hoeganaes had record sales in 1972, 1973, 1974, and 1976, and introduced a new powdered welding alloy called Atomweld 525. Hoeganaes produced more than 50 percent of the metal powders in the Western Hemisphere. Despite the success of some of its products, the company faced a lagging demand for metal powders. In anticipation of future growth, Interlake increased its control of the company to 80 percent, and expanded its production capacity.
In April of 1976, Interlake acquired the Arwood Corporation. Based in Rockleigh, New Jersey, Arwood was principally engaged in the die casting and investment casting business.
By 1978 some of Interlake's larger steel production assets began to exhaust their useful lives. That year the company took a $15.7 million write-off for closing its merchant pig iron complex at Toledo. Interlake sold the adjacent coke battery to Koppers.
In December, 1978, Interlake President Frank Burgert was elevated to assistant to Reynold MacDonald. He was replaced by Frederick C. Langenberg, who reportedly had great plans to restructure the company's steel business. His initial emphasis was on moving Interlake away from its aging steel and strapping businesses and into newer lines such as castings, specialty metals and the material handling operations.
In 1980, after steel workers at Interlake's Wilder and Newport, Kentucky locations refused the company's request for a one-year wage freeze, MacDonald authorized shuttering the plants in those locations. While this involved a $37 million write-off, the plants were only marginally profitable. Also in 1980, Interlake closed Burmac and sold off the Gary Supply company. The company closed or sold several other smaller operations during the 1980s, including the die casting, silicon, and ferroalloy business, and in 1982 repurchased $20 million worth of shares that had been controlled by the Madison Fund.
Sales at Hoeganaes, meanwhile, grew slowly, especially after a second plant was opened at Gallatin, Tennessee. Also experiencing better sales was the Globe silicon metal and ferroalloy division.
In 1986 Interlake reorganized along holding company lines. The iron, steel, and strapping business were transferred to a new company called the Acme Steel Company, and all other assets were transferred to the newly formed Interlake Companies, Inc. Both companies were, in turn, controlled by a new parent company called The Interlake Corporation.
The directors subsequently voted to spin off shares of the Acme Steel Company to Interlake shareholders, absolving Interlake of the steel operations. Acme Steel was back but, with all the company's steel operations, it was no longer part of Interlake.
The company's improved prospects as a result of the reorganization produced an unintended result: a raider. In July of 1989, Mark IV Industries, a corporate takeover group, announced plans to purchase as much as 15 percent of Interlake. As with other similar acquisitions, the plan may have been to carve up Interlake and sell its pieces to other companies at a premium.
Interlake immediately took drastic action. The company declared a huge one-time $45 dividend, created an employee stock ownership plan that snapped up $20 million worth of shares, and dove $550 million into debt. Even if Mark IV could gobble up Interlake, it was likely to spit it out. It was a classic poison pill defense, in which the suitor would be faced with a radically altered and much less attractive balance sheet if the takeover bid went through.
This defense was costly, but it succeeded. It enabled Interlake to concentrate its energy on what were now its core businesses: Hoeganaes, Dexion, Material Handling and Packaging, and Chem-tronics, a components manufacturer that Interlake had purchased in 1984 for $52 million.
By 1991, Interlake was operating under recessionary conditions, which hurt sales growth but did not deter the company from enhancing its long-term competitive position. Interlake continued to emphasize cost reduction and productivity increases while investing heavily in new product development. While the company's sales volume has decreased in recent years, operating income has risen and losses have been reduced. The company's transformation to solid financial performance is in progress, but far from complete.
Interlake is today a diversified metal products company that no longer manufactures steel. Its business is divided among five main divisions. Among them, Hoeganaes remains one of the world's largest manufacturers of ferrous metal powders, which are used to manufacture precision parts for automobiles, light trucks, farm and garden equipment, and other products. Chem-tronics is involved mainly in the production of precision aerospace components and jet engine repair. Dexion, headquartered in Great Britain, is one of the leading storage systems manufacturers, with the bulk of its sales growth in Eastern Europe and the Middle East. Interlake's domestic material handling unit has recently concentrated on providing complete storage solutions for warehouses and distribution centers. The Interlake packaging group manufactures a variety of strapping and packaging systems for the graphic arts, steel, lumber, brick, newspaper, textile, corrugated, can, and bottle industries.
Principal Subsidiaries: The Interlake Companies, Inc.; Chem-tronics, Inc.; Interlake Packaging Corp.; Dexion Group PLC; Hoeganaes Corp. (80%).
Further Reading:
"From the Frying Pan," Forbes, June 1, 1964, pp. 42-43.
"Good Match," Forbes, February 15, 1965, p. 30.
"Stockholders OK Merger of Acme Steel, Interlake Iron," Steel, December 21, 1964, p. 32.
"Steel Takes a Back Seat as Interlake Diversifies," American Metal Market, May 30, 1972, pp. 1-7.
"Interlake May Act to Expand Hoeganaes Metal Powder Unit," American Metal Market, April 16, 1974, pp. 1-25.
"Langenberg to be Interlake President, Chief Operating Officer," American Metal Market, December 20, 1978, p. 1.
"Changing the Mix," Barron's, April 27, 1981, pp. 39-46.
"Reorganization Is Completed at Interlake," American Metal Market, June 6, 1986, p. 4.
"Interlake's Plan Is Viewed as Ploy to Thwart Suitor," Wall Street Journal, p. B2.
"The History of Interlake, Inc.," Company Document, April 4, 1978.
"Interlake Corp.," Moody's Industrial Manual 1992, p. 3186.
The Interlake Corporation Annual Report, 1991.
Source: International Directory of Company Histories, Vol. 8. St. James Press, 1994.
