Fibreboard Corporation

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Fibreboard Corporation

2121 North California Boulevard, Suite 560
Walnut Creek, California 94596
U.S.A.
(510) 274-0700
Fax: (510) 274-0715

Public Company
Incorporated: 1911
Employees: 3,500 (est.)
Sales: $380.8 million (1995)
Stock Exchanges: American
SICs: 2491 Wood Preserving; 3292 Asbestos Products; 7011 Hotels & Motels

A venerable company with an eclectic array of business interests, Fibreboard Corporation operates in three primary business segments: vinyl siding manufacture, resort operations, and industrial insulation. During the mid-1990s, Fibreboard owned and operated Sierra-at-Tahoe and Northstar-at-Tahoe, two ski resorts in Lake Tahoe, California, a vinyl siding manufacturing and distribution business based in Ohio, and industrial insulation manufacturing facilities.

In the mid-1990s, Fibreboard derived the bulk of its sales from businesses acquired during the previous five years. While this could be said of thousands of American companies operating midway through the decade, in Fibreboard’s case the statement had special meaning, considering the company had been founded in 1884, more than a century before the sweeping changes that would redefine the company in the 1990s. The 1990s would prove to be Fibreboard’s signal decade, a period that saw the company recover from near financial ruin and managerial chaos and quickly emerge, reshaped and invigorated, as one of Wall Street’s hottest prospects. Though Fibre-board’s business was predicated on more than a century of existence as it entered the 1990s, the events following its most tumultuous year in 1991 extensively transformed the company, creating a corporate entity that increasingly bore less and less resemblance to the Fibreboard of the previous 100 years.

Origins

During the years leading up to the most significant decade in its history, Fibreboard lived a comparatively serene corporate life. The company established its first industrial insulation plant in Emeryville, California, in 1884, beginning a 112-year tenure in the East Bay area of San Francisco that included its acquisition by Louisiana-Pacific Corporation in 1976 and then its divestiture by the giant, Oregon-based forest products company slightly more than a decade later. After Fibreboard was cut loose from the aegis of Louisiana-Pacific Corporation in 1988, the company not only owned sizeable timberland and operated a wood products division but also oversaw Northstar-at-Tahoe, a ski resort in northern California developed during the 1970s on company acreage. With these primary businesses supporting the company in its newfound freedom as a spinoff from Louisiana-Pacific Corporation, Fibreboard recorded moderate success for several years under the stewardship of chairman and CEO Lawrence Hart. The company’s profitability, however, quickly began a downward spiral, raising concern among all those involved with Fibreboard about the company’s future.

In 1989, the first full year after the Louisiana-Pacific Corporation spinoff, Fibreboard posted $5.3 million in profit. The following year earnings slipped alarmingly to $1.3 million, then in 1991 the hammer fell, leaving the company with a staggering $43.9 million loss that threatened to bring to an end Fibre-board’s more than century-old business. The company’s waning profitability and its massive loss in 1991 were blamed on the acquisition of inefficient sawmills, ill-timed and ill-advised investments in experimental new ventures, and a managerial and administrative force that had become bloated. In the midst of this turmoil, Lawrence Hart relinquished his posts, with no individual immediately named to succeed him, creating a leadership void that fomented shareholder anxiety and exacerbated concerns about Fibreboard’s future. On top of these problems was heaped the most portentous issue facing Fibreboard, an ominous legal problem that had been threatening the company’s fortunes for decades. Although Fibreboard had abandoned the asbestos business in 1972, the company was facing as many as 80,000 individual claims of health damage from the fire retar-dant at the time of the disastrous loss in 1991. A legal ruling on the lawsuits filed against the company was pending as Fibre-board struggled with its financial woes, leading observers to predict the company’s imminent demise. Those who prognosticated the financial ruin of the company, however, were to be proven wrong in the years ahead.

Arrival of John Roach in the 1990s

With Lawrence Hart gone and the company on the brink of bankruptcy, Fibreboard was facing a host of problems, its future questionable at best. The company’s shareholders staged a revolt, clearly unhappy with the way things were going, and to their chagrin company officials named a successor to Lawrence Hart that met with their disapproval. Dissident shareholders wanted to bring in a professional turnaround expert to steer the company toward recovery, but instead John Roach, an industrial management graduate from the Massachusetts Institute of Technology, was selected. Roach, who joined Fibreboard in July 1991 after leaving insulation manufacturer, Manville Corp., assumed his duties despite shareholder objections, with full confidence in himself and his ability to turn an essentially worthless company, as one analyst described Fibreboard, into a flourishing concern once again.

From the outset, Roach viewed the problems riddling Fibre-board as a general would face a battle. As he later reflected, his plan for recovery was precise and comprehensive. “My assessment of Fibreboard and my own due diligence in 1991,” Roach explained in 1994, “was based on the core business and the potential of a settlement. My initial course of action was to move on three fronts: one, to demonstrate the highest potential of existing assets; two, to settle litigation; and three, rapid expansion.” Once his management team was assembled, Roach, as Fibreboard’s new chief executive officer and chairman, quickly moved to check the company’s plunging profits, consolidating Fibreboard’s six separate wood products businesses, which together generated more than 70 percent of the company’s total sales, into one. The consolidation began a little more than a month after Roach joined the company, and in the months ahead Roach continued to make his presence known by closing costly operations and cutting costs wherever he could.

By the end of 1992, positive results were already evident. Following the mammoth $44 miHion loss in 1991, Fibreboard generated $239 million in sales and posted $9.4 million in profit in 1992, quickly jumping out of the red to record a mercurial rise in net income. Once the company was operating efficiently, Roach moved to expand the company’s operations, hoping to build Fibreboard into a billion-dollar company by the end of the 1990s. To achieve this ambitious goal, Roach intended to boost Fibreboard’s financial stature through internal growth, diversification, and through acquisitions. In April 1993, Roach made his first major move, signing a letter of intent to purchase Sierra Ski Ranch, one of Lake Tahoe’s largest ski areas, a 2,000-acre facility owned and operated by the Sprock family since 1955.

The acquisition of Sierra Ski Ranch, which was subsequently renamed Sierra-at-Tahoe, bolstered Fibreboard’s involvement in resort operations, complementing the vested interest it held in running Northstar-at-Tahoe, but in terms of financial importance there were other facets to Fibreboard’s business that held greater meaning. Resort operations contributed less than 10 percent of Fibreboard’s total annual revenue, while the two other business segments, industrial insulation and wood products, accounted for the balance. The company’s industrial insulation products group, a business segment that Roach referred to as “a little jewel,” operated as a low-cost producer of highly specialized pipe insulation for the petrochemical industry, while Fibreboard’s wood products business contributed 72 percent of the company’s total revenue.

The composition of Fibreboard’s operations would soon change after 1993, but before the year was through a pernicious chapter in the company’s history was closed. In September 1993, the company agreed to pay $3 billion to current and potential victims of the asbestos products it had manufactured, bringing to an end four decades of asbestos liability problems. The settlement figure was enormous, certainly more than a company of Fibreboard’s size could be expected to pay, but thanks to two insurance policies purchased decades earlier by company managers, all the money was paid by Fibreboard’s liability insurers, Continental Casualty Co. and Pacific Indemnity Co.

1994 Acquisition of Norandex

Once free from the worries and potentially devastating affect its asbestos litigation problems posed, Fibreboard began redefining itself for the future ahead, with Roach leading the way. Financially, 1993 had been another year of positive growth, with the company collecting $265.2 million in revenue and recording $11.7 million in profit, an encouraging gain from the total registered the year before. In response to the company’s sustained financial growth, investors expressed their confidence in the company and its new management, marking a banner year for Fibreboard on the American Stock Exchange, a year during which the company’s stock price rose an eye-catching 404 percent, the second-largest gain by any company in 1993 on the exchange. Attempting to build on this success, Roach and his management team embarked on a plan to greatly alter and enlarge Fibreboard’s operations, acquiring Ohio-based Norandex in July 1994 for $120 million. The acquisition of Norandex, a leading manufacturer of vinyl siding for homes, nearly doubled Fibreboard’s sales volume, bringing the company into a new business area that was expected to support its growth in the coming years. In the wake of this pivotal acquisition, Fibreboard shored up its new involvement in the vinyl siding business by spending roughly $22 million during the year following the purchase of Norandex to acquire 22 vinyl siding distribution centers scattered across the country, thereby strengthening the new engine that would drive its growth.

For Fibreboard, the developments in 1995 would be no less determinative than the developments in 1994. Roach not too subtly hinted at what would unfold in 1995 during an interview with Walnut Creek, California’s Contra Costa Times. The subject of the interview was Fibreboard’s wood products business and its future with the company, which Roach was quite clear about, saying, “A divestiture would allow us to redeploy our financial resources and take advantage of a number of strategic opportunities which we believe may better complement our rapidly expanding franchise in the building products industry.” Roach reiterated his position regarding the wood products division, stating, “We would move forward with such a transaction if the wood products operations prove to have greater strategic value to a party other than Fibreboard.” For the wood products business, the writing was on the wall.

Before the year was through, Fibreboard had divested itself of the wood products division, selling the business for $239 million. With the proceeds from the sale, Roach paid off some of the debt the company had incurred from the acquisition of Sierra Ski Ranch and Norandex, saving the balance to fund further acquisitions as the company prepared to enter the late 1990s. For the future, Roach and his management team planned to keep expanding Fibreboard’s operations through diversification and acquisitions, but they would do so from a new headquarters location. In April 1996, the company announced its intentions to relocate in August from the San Francisco area to Dallas, where top executives would be closer to Fiberboard’s biggest businesses, which were primarily located east of the Rocky Mountains. As the company prepared to move to Texas, it was also embarking on a new era in Fibreboard’s lengthy history, reshaping itself as an aggressive, growth-oriented company for the 21st century.