General Host Corporation History

Company History:

General Host Corporation owns and operates Frank's Nursery & Crafts, Inc., a chain of specialty retail stores that sell craft and Christmas supplies as well as lawn and garden products. The company that became known as General Host, however, spent its first 50 years managing a group of bakeries. In the late 1960s, the company shifted course dramatically, looking for growth in several fields, but chiefly in food preparation and retailing. By the early 1990s General Host had discarded its earlier businesses and was focusing primarily on Frank's, the largest U.S. retail chain of its kind. Since 1970 General Host has been under the direction of Harris J. Ashton, the company's president, chairperson, and chief executive officer.

The history of General Host may be traced to 1911, when the General Baking Co. was incorporated in New York as an amalgamation of 19 former baking businesses covering many major cities between New Orleans and Boston. By 1930 the company owned 50 plants serving cities in 18 states. The production of bread, sold under the trade name of "Bond Bread," accounted for over 90 percent of its sales and production averaged nearly 1.5 million loaves per day. Cakes and pies were also manufactured under trade names. Net 1930 earnings of $8.1 million fell to $2.8 million in the Depression year of 1933.

Major expansion at General Banking did not take place until 1956, when the company bought a controlling interest in Van de Kamp's Holland Dutch Bakers, Inc. of Los Angeles, thereby stretching its operations to the West Coast. Besides Van de Kamp's bakeries in Los Angeles and Seattle, this company had 240 supermarket service and retail store units, four coffee shops, and a drive-in restaurant in California, in addition to 54 self-service retail stores, four supermarket outlets, and ten bakery shops in Washington. The acquisition added $22 million in annual sales to General Baking's $128 million from 40 bakeries. At the end of 1957 the company expanded its network to the Rocky Mountain states by acquiring Eddy Bakeries, Inc., of Helena, Montana.

By the early 1960s General Baking was earning less than one percent profit on its sales and suffering from increased competition from supermarkets, many of which had begun equipping their stores with their own bakeries. General Baking lost money in 1961 and 1965, and control passed to a Canadian firm, Denison Mines, Ltd., before the 1963 annual meeting.

In 1965, Goldfield Corp., an investment oriented mining concern, acquired 41 percent of General Baking's stock, which it raised to a majority share by June of the following year. Its chairperson, Richard C. Pistell, became chairperson of General Baking. The flamboyant Pistell, a rough-and-tumble former merchant seaman, shook the tranquil enterprise to its foundations.

One of Pistell's first moves was to address General Baking's loss of nearly $2 million in the first half of 1965 by closing 15 collectively unprofitable plants and distribution centers. The Bond Baking Co. division, previously run from headquarters, was made a separate entity with its own president. Eddy Bakeries, formerly a wholly owned subsidiary, was merged into General Baking as a division. In October 1966 General Baking acquired from Goldfield all outstanding stock of Yellowstone Park Co., Everglades Park Co., and five parcels of land in Arizona, Colorado, and New Mexico, together with related assets, for $6.4 million. These companies housed vacationers in motels and camps on park concessions. To better reflect the company's new activities, General Baking was renamed the General Host Corp. in 1967.

The late 1960s and early 1970s brought several challenges to General Host. First, in March 1968, a federal grand jury indicted seven baking concerns and eight of their officials on charges of illegally conspiring to fix bread prices in the Philadelphia area. Among these companies and officials were General Host, its president, and the regional manager of Bond Baking. As a result, General Host and the other bakeries agreed in 1971 to certify that each sealed bid for the sale of bakery products in the Philadelphia area had not involved collusive activity. In a similar case, four companies, including General Host, pleaded no contest in 1972 to a charge of fixing bread prices in the New York metropolitan region. Three of the four, including General Host, were fined $50,000 each.

During this time, General Host acquired Li'l General Stores Inc., operator of 377 convenience stores in seven states. The merger plan called for nine-tenths of a share of General Host stock to be exchanged for each Li'l General share. By then Goldfield's stake in General Host had been reduced to 17 percent. One month later Pistell made a much bigger deal, acquiring a one-eighth interest in Armour & Co., a diversified meat processor. This holding was expanded in subsequent months to between 53 and 57 percent of Armour's common stock, at a cost of $261 million in debentures, notes, a warrant, and carrying costs. By acquiring a majority interest in a company ten times its own size in sales and four times its assets, critics noted that General Host had taken on long-term debt of $207 million--far beyond its assets of $38 million.

Another problem for General Host was that a competing offer by Greyhound Corp. for Armour had secured that company a one-third interest, keeping General Host from authorizing a merger with Armour or a consolidation for tax purposes. Accordingly, General Host sold its Armour stock to Greyhound in May 1970 for $211 million, of which nearly $100 million was in not easily traded Greyhound warrants and convertible preferred stock. General Host reported a $67.3 million loss for 1969, including an extraordinary loss of $58.3 million, mainly from the Armour transactions. To fend off a possible challenge from unhappy shareholders, the managers had pushed through a series of far-reaching amendments to General Host's certificate of incorporation in October 1969, making it harder to oust them from office.

After the Armour fiasco, Pistell resigned, took a marquesa for his third wife, and left New York for an extended African safari. Harris J. Ashton, a corporate lawyer whom Pistell had made president of General Host, stepped up to become chairperson and chief executive officer as well. Like his predecessor, Ashton was not one to stand still. "I remember my mother always used sayings like 'never a lender nor a borrower be'," he told an interviewer for New England Business in 1987, "and I often tell her that I'd be broke if I followed that advice. You have to want to take risks and have confidence that you're going to extricate yourself if things go wrong."

Under Ashton, General Host acquired 86 percent of another meat processor, Cudahy Corp., in July 1971. Eventually the rest of Cudahy's stock was purchased, and the company, in February 1972, was merged into G.H. Holding Corp., a General Host subsidiary. The acquisition cost about $80 million. Hot Sam Co., a pretzel and snack-food retailing chain, also was purchased in 1971, for $2.2 million. Meanwhile, the company was disposing of virtually all of the Bond division, a process completed in 1972, on the ground that it did not indicate a potential for earning a reasonable rate of return on invested capital. And in January 1971 General Host exercised its option to acquire Goldfield's 17 percent stake in the corporation's common stock, an action that was challenged by Goldfield in court.

In January 1973 the Securities and Exchange Commission charged General Host with fraud in connection with its Armour transactions and of fraud and other violations of federal securities laws in its acquisition of Li'l General Stores and its Goldfield dealings. Under a settlement in December 1973, General Host agreed to be permanently enjoined from violating specific provisions of the securities laws and to be required in certain future acquisition efforts to follow procedural safeguards intended to ensure compliance with these laws, including the appointment of an "acquisition supervisor." Ashton was ordered to sell within five years 10,000 shares of General Host he had purchased in 1969 for $12 a share when the market price was $23.75, and to return the excess proceeds from this sale.

Despite such trials and tribulations, in 1973 General Host was being courted by two companies that were attracted to its estimated $40 million in cash and marketable securities and about $80 million in net worth. In addition, the company had accumulated large tax credits for use in future years. General Host, however, fought the takeovers, accusing one suitor, Triumph American, Inc., of violating federal laws in its attempt to acquire the company and repelling a bid for control by Life Investors International Ltd.

For several years thereafter General Host kept a low profile. Net losses were reported in 1976, 1977, and 1978. The following year, however, the company began reporting healthy quarterly profits, accomplished largely by its cutting loose the subsidiaries that had lost money. By 1981 Ashton had lopped off about 15 businesses acquired since 1966 and had also cut the company's 1972 long-term debt of about $190 million by one-third. When a much smaller company, Clabir Corp., increased its existing stake in General Host stock to 24 percent in 1979 and began a takeover bid, Ashton countered by calling for redemption of General Host's convertible debentures. This move added 1.1 million shares to the 1.7 million outstanding and thereby reduced Clabir's share of the company. Clabir and its group of coinvestors sold their stock back to General Host in 1980 for $18 million.

In 1980 General Host attempted to acquire the Ponderosa System Inc., but the latter sought a temporary injunction preventing the takeover. General Host subsequently sold its 9.4 percent interest back to the steakhouse concern for about $7.3 million and promised not to buy Ponderosa stock for ten years. Concurrently, General Host began a tender offer for stock in Hickory Farms of Ohio Inc., in which it already held 45 percent. The nation's largest chain of specialty food stores, Hickory Farms was operating about 80 stores and franchising 450 more. Hickory Farms was fully acquired later in the year for about $41 million. In December the largest Hickory franchisee was purchased for an additional $11 million.

General Host's next mission was to unload Cudahy, which represented 51 percent of its sales of $762 million in 1979 but only 24 percent of its profits of $24.2 million. Unable to find a buyer, however, Ashton simply disposed of the subsidiary's meat operations, which has lost $2.5 million in 1980. Also sold were other Cudahy enterprises that had been spun off into General Host divisions and subsidiaries when the company was acquired in 1971: the Allied leather division, sold in 1978; Milk Specialties Co., sold in 1986, and American Salt Co., sold in 1988.

General Host next purchased Frank's Nursery & Crafts Inc., whose 95 stores sold lawn and garden supplies, plants, Christmas trees, and crafts. Purchased for $44.5 million, Frank's would eventually become General Host's core business, but at the time General Host remained essentially a food company. Its All American Gourmet Co. launched the popular Budget Gourmet frozen entrees during this time, and Hickory Farms, now with 1,300 stores, had become, according to a Forbes article, the premier gourmet food shop of middle America. One problem at Hickory Farms, however, was the seasonal nature of the business and revenues, since its products--chiefly gift boxes of cheese and beef sausage--were popular Christmas gifts, and the cumulative 1984 profit was practically nonexistent due to a weak Christmas season that year.

That year General Host sold Little General Stores (renamed in 1980) for $110 million and Van de Kamp's lucrative frozen-food division (dating from the 1960s) for $102.5 million. Also during this time, General Host acquired Flower Time, Inc., a Northeast chain, for about $27 million. Flower Time was merged into Frank's Nursery in 1989. To fend off corporate raiders eager to acquire General Host for its infusion of cash, the company in early 1985 adopted a "poison pill" defense that would make a takeover very expensive for any acquiring company.

By the spring of 1985 Ashton had decided to make the retailing of plants and flowers, rather than specialty foods, the centerpiece of his company. Encouraged by a report that almost all Frank's Nursery shops made a profit of more than 18 percent on sales, Ashton foresaw supermarket-style outlets with shopping carts and wide aisles offering the public huge selection and competitive prices. An increase in common shares from 30 million to 100 million was authorized to raise capital. To accumulate even more, General Host sold the Hot Sam network of food stands for about $20 million in 1986.

The company's stock, as low as $2 a share in 1980, climbed to $25 in 1986. Still, the company suffered losses, which it attributed primarily to a mistake in Frank's Nursery's computerized accounts-payable system, which had understated the amount owed to suppliers. Nevertheless, Ashton remained committed to making Frank's the focus of General Host's operations. In 1987 Hickory Farms was sold for about $38 million, while General Host's remaining three-quarters share in All American Gourmet went for a whopping $96 million. An 80 percent interest in Calloway's Nursery Inc. was acquired by 1988 but was sold off three years later for $13.5 million. Ashton indicated his confidence in General Host's future by raising his personal stake in the company to more than eight percent by 1991.

By 1992 Frank's Nursery was General Host's core business. Serving customers out of 288 stores in 17 states, Frank's was a leading retailer of crafts, using its seasonal business in Christmas decorations and gifts to compensate for the lawn and garden trade's slack period. Trees, shrubs, roses, and plants accounted for about 24 percent of its 1993-94 sales; seeds, bulbs, accessories, and equipment for 26 percent; craft merchandise for 32 percent; Christmas items for 16 percent; and pet food and related supplies for two percent.

Despite the cash infusion of its recent sales, General Host remained burdened with debt, and during 1993 Ashton and his peers developed a plan to pare down General Host's long-term debt of $238 million by reducing costs. The plan included closing 26 unprofitable Frank's stores, mainly in Florida and the Nashville, Tennessee, area, freezing administrative salaries, implementing an inventory reduction program, and replacing the cash dividend with a stock dividend.

The company also opted to divest itself of its interests in the Sunbelt Nursery Group, Inc., of which it had acquired a 49.5 percent share from Pier 1 Imports Inc. in April 1993. The earnings of Sunbelt--which had more than 100 lawn-and-garden centers under the names of Nurseryland Garden Centers in California, Tip Top Nursery in Arizona, and Wolfe Nursery in Texas and Oklahoma&mdash′oved disappointing. So, in September 1994, General Host announced that it would sell its interests in the company to another lawn and garden chain for $4.2 million.

In the early 1990s, General Host began bolstering Frank's presence and product lines, creating the "Christmas by Frank's" boutique, which specialized in holiday merchandise, as well as opening two Frank's SuperCrafts superstores of 20,000 square feet apiece in the Detroit area. By the end of 1993, around 104 of the holiday boutiques were in operation, and sales from the superstores were exceeding expectations. At Frank's Nursery stores, General Host implemented a line of proprietary lawn and garden products, including weed and pest control products, which the company hoped would compete effectively with national brands.

After its restructurings, General Host moved into the mid-1990s seeking to strengthen its balance sheet and maintain its share of the market for lawn and garden and craft supplies. Ashton expressed optimism in a letter to the company's shareholders, published in the 1993 annual report, stating that "we are convinced that Frank's will retain its position as the best and largest lawn and garden chain in the United States and that this position is unassailable."

Principal Subsidiaries: AMS Industries, Inc.; Frank's Nursery & Crafts, Inc.; General Host Holding Corp.

Further Reading:

• Byrne, Harlan S., "General Host," Barron's, May 24, 1993, pp. 39-40.
• Curtis, Carol E., "Middle America's Gourmet," Forbes, March 14, 1983, pp. 90-92.
• "General Host: Vertical Integration to Save a Subsidiary It Couldn't Sell," Business Week, January 19, 1981, pp. 103-104.
• Ginsberg, Stanley, "No More Excuses," Forbes, April 11, 1981, pp. 78, 81.
• "Growing--But Not by Bread Alone," Business Week, September 14, 1968, pp. 174, 176.
• "It's All Done with Arithmetic," Forbes, February 15, 1970, pp. 22-23.
• King, Rosa W., and Rebecca Aikman, "Blooming Madness or the Seeds of Success?" Business Week, April 22, 1985, p. 102.
• Marcial, Gene G., "This Gardener's Thumb Is Finally Turning Green," Business Week, May 27, 1991, p. 100.
• McGurrin, Lisa, "If You Really Want to Thrive, You've Got to Be a Self-Starter," New England Business, October 19, 1987, p. 72. Nagle, James J., "General Baking Turns New Loaf, New York Times, May 29, 1966, p. 15.

Source: International Directory of Company Histories, Vol. 12. St. James Press, 1996.

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