Alleghany Corporation History

Company Perspectives:

Alleghany intends to continue to expand its operations through internal growth at its subsidiaries as well as through possible operating-company acquisitions and investments.

Key Dates:

1929:

The Van Sweringen brothers establish Alleghany as a holding company for their railroad investments.

1934:

Control of the company passes to J.P. Morgan and others.

1937:

Robert R. Young--funded in part by Allan P. Kirby--acquires Alleghany.

1949:

An interest in Investors Diversified Services Inc. (IDS) is acquired.

1966:

The firm sells most of its shares in New York Central.

1984:

IDS is sold in an $800 million deal; Alleghany Financial Corporation is formed.

1986:

The company begins a liquidation process; Alleghany Financial is renamed Alleghany Corporation.

1998:

Alleghany spins off Chicago Title Corporation.

2001:

Alleghany Underwriting is sold to Talbot Holdings Ltd.; Alleghany Asset Management Inc. merges with an ABN AMRO subsidiary.

2002:

Alleghany acquires Capitol Transamerica.

Company History:

Alleghany Corporation operates as a diversified conglomerate with holdings related to insurance, industrial minerals, and steel fasteners. Three major subsidiaries--Alleghany Insurance Holdings LLC, Capitol Transamerica Corporation, and Platte River Insurance Company--oversee the company's interests in property, casualty, fidelity, and surety insurance. Alleghany's industrial minerals arm includes World Minerals Inc., Celite Corporation, and Harborlite Corporation. The Heads & Threads International LLC unit is responsible for steel fastener importing and distribution. Alleghany also owns and manages real estate in California through its Alleghany Properties Inc. subsidiary.

Origins

Alleghany was founded in 1929 by the well-known and eccentric Van Sweringen brothers of Cleveland as a holding company for their railroad investments. When Alleghany slid into receivership in 1934, control of the company passed to J.P. Morgan and others. Shares of the company floated around among a few different parties for the next few years, eventually landing in the hands of George Ball, of Ball Jar fame. Wheeler-dealer Robert R. Young bought the stock from Ball in 1937. Most of the money Young used to acquire controlling interest in Alleghany was put up by Allan P. Kirby, Fred's son. Young became chairman of Alleghany, while Kirby remained behind the scenes as his silent partner. The centerpiece of the extensive but struggling Alleghany empire was its two million plus shares of the Chesapeake and Ohio Railroad.

Young spent his first few years at Alleghany whittling down the company's massive debt and untangling its gnarled finances. A legal victory against Ball provided much of the desperately needed cash for the task, and eventually Alleghany's books were in order. Under Young, the Chesapeake & Ohio (C&O) underwent something of a facelift. Equipment was modernized and many new conveniences were introduced in its passenger service. In 1945, Young decided to go after another railroad, the New York Central. That year, he purchased 225,400 shares of the Central for $4.2 million. Two years later, more shares were acquired. Initially, Interstate Commerce Commission (ICC) regulations prevented Alleghany from taking control of additional railroads. Several years of maneuvering followed, including the sale of most of Alleghany's C&O stock to associates. Young finally managed to wrest control of the New York Central away from its bank-dominated board of directors in a hotly contested proxy battle in 1954.

Meanwhile, Alleghany was transforming itself from strictly a railroad force into a financial force as well. In 1949, the company purchased controlling interest in Investors Diversified Services, Inc. (IDS), the world's largest mutual fund group. At the same time Young was purging the Alleghany portfolio of dozens of unwanted holdings. From 66 different securities in 1947, the company pared its collection down to less than ten a decade later. By 1957, Alleghany's investments consisted primarily of a "big four": the New York Central, now the company's main railroad project; IDS, in which Alleghany still maintained a strong position although actual control had been sold to Texan Clint Murchison, a longtime Young accomplice; the Missouri Pacific Railroad, a holdover from the Van Sweringen empire that had lingered in bankruptcy for decades; and Webb & Knapp, a real estate firm.

The Kirby Reign Begins in 1958

In 1958, Young committed suicide. Business had taken a severe turn for the worse, and some speculated that Young was depressed over the possibility of his company's collapse. Whether or not Alleghany's condition was on Young's mind was never determined. Consequently, the publicity-shy Kirby was forced out of the shadows. He took over as chairman, president, and undisputed leader of Alleghany. The contrast between the two men could not have been more stark. While Young was a flamboyant operator, fond of speaking out in the press about almost anything, Kirby relished his role as silent partner. His style of doing business did not require much in the way of public exposure.

Under Kirby's guidance, Alleghany's fortunes reversed again, and by the end of the 1950s the company had returned to health. Kirby, unlike Young, was willing to delegate day-to-day operations to others, and the companies in the Alleghany fold responded positively to this new leadership approach. IDS started performing particularly well. With nearly $3 billion under management, IDS reported net income of $12.7 million in 1958, earning $1.4 million in dividends for Alleghany. It was quite possibly already the world's largest investment management company by that time.

In 1959, Kirby faced his first challenge for control of Alleghany. That year, Boston real estate speculator Abraham Sonnabend began picking up Alleghany stock in large chunks. He also managed to gain the support of Alleghany vice-president David Wallace, a close friend of Young's. Kirby responded by firing Wallace, which alienated Young's widow, also a major stockholder. Kirby emerged from the skirmish with his control of the company intact, but it was the first sign that his grip on Alleghany was vulnerable.

In his next proxy fight, Kirby was not as successful. In 1961, he lost control of Alleghany to the Murchison brothers, Clint Jr. and John, the sons of Young's former ally. At the heart of the struggle was a philosophical clash. The Murchisons were freewheeling businessmen in the Texas tradition, while Kirby conducted his affairs with an extreme degree of caution. The brothers managed to convince many shareholders that Kirby's conservatism was holding the company back, eventually gaining enough support to oust him from power. This proved to be a short-lived victory, however. With 35 percent of Alleghany still in hand, Kirby was able to block all of the Murchisons' attempts to overhaul the company. By 1962, they were ready to give up. John Murchison resigned as president of Alleghany and was replaced by Minneapolis businessman Bertin Gamble, to whom the brothers sold much of their Alleghany stock at a loss. Gamble had sold his controlling interest in IDS to Alleghany 13 years earlier, just before its stock began to skyrocket.

Like his associates the Murchisons, Gamble was also unable to work with Kirby, and in 1963 controlling interest in Alleghany was sold back to Kirby and his allies. Kirby now owned 43 percent of Alleghany's common stock, and another 16 percent belonged to his associated and friends. Kirby returned to the position of chairman, and longtime associate Charles Ireland was named company president. Control of the company has remained firmly in the hands of the Kirby family ever since.

In 1965, Fred Kirby II, Allan's son, was elected chairman of the IDS executive committee. Fred continued serving as executive vice-president of Alleghany, a position he had held since his father's return to power two years earlier. The company sold most of its shares of the New York Central in 1966, marking the end of its railroad-controlling era. In 1967, Alleghany won another legal battle, preventing a reorganization plan from taking place at Missouri Pacific that would have severely diluted Alleghany's holdings in that company. Later that year, the elder Kirby suffered a major stroke. Fred II and his brother, Allan Jr., were named guardians for their father, by then generally acknowledged to be one of the richest men in America, and Fred took over as chairman of Alleghany.

After years as Alleghany's principal legal tactician, Ireland left the company in 1968 to take a job at International Telephone and Telegraph Corporation, on whose board he had sat as Alleghany's representative since 1965. In 1970, Alleghany acquired Jones Motor Company, a motor carrier of modest size. This was done primarily in order to avoid being reclassified as a personal holding company by the Internal Revenue Service. Jones never performed as hoped, and it was sold off in 1982.

Diversification and Strategic Changes: 1970s-80s

Despite its legal classification, by 1974 Alleghany was for all practical purposes the family holding company of the Kirby family, who now held nearly half of the company's stock. That year, Alleghany took a major step in its attempt to transform itself into more of an asset management company. First, the legal wrangling over reorganization of the Missouri Pacific finally ended for good, with Alleghany trading in its shares for $42 million in cash and $7.2 million more in new common stock. Alleghany then purchased MSL Industries, a metals fabricating company, using cash from the Missouri Pacific deal. Alleghany's other involvements around this time included its 44 percent interest in IDS; a $15.5 million investment in Court House Square, a real estate development in Denver; and its holdings in Missouri Pacific, TI Corporation, USM, Pittston Company, and United Corporation.

Further cautious attempts to diversify peppered the remainder of the 1970s, with as many assets shed as added. Alleghany's last batch of Missouri Pacific shares was sold to Mississippi River Corporation in 1975. The following year, the company sold its Court House Square property for cash and acquired Allied Structural Steel Company. In 1979, Alleghany paid $198 million for the 45 percent of IDS it did not already own. By 1981, 95 percent of Alleghany's income was coming from the investment business. IDS had $6 billion worth of mutual funds under management and $11 billion of life insurance (hawked by the same 3,400-person sales team) in force. In September of that year, the company sold off the IDS Center building in Minneapolis to a Canadian development company for about $200 million, producing a huge capital gain. Another investment management company, New York's Gray, Seifert and Company, was acquired in 1983.

Alleghany undertook a major and more rapid shift in strategy in the mid-1980s. In January 1984, the company consummated a blockbuster deal initiated the previous summer in which IDS was sold to American Express Company for $800 million in cash and securities. When Consolidated Rail Corporation (Conrail) went up for sale, Kirby put in a bid to go back into the rail business using the proceeds for the IDS transaction. Instead, the government took Conrail public, and Alleghany's focus turned toward the title insurance business. Toward the end of 1984, Alleghany Financial Corporation was formed as a wholly owned subsidiary for acquiring insurance and other financial oriented concerns. Its most important acquisition in that area came in 1985, with the purchase of Chicago Title and Trust Company from Lincoln National Corporation for $60 million in cash and a six-year $68 million note. Two more insurance moves followed in the next two years. In 1986, the company acquired Shelby Insurance Company for $40 million. SAFECO Title Insurance Company, later renamed Security Union Title Insurance Company, was purchased by the Chicago Title subsidiary the following year. The acquisitions of Chicago Title and Security Union made Alleghany the nation's leading title insurance outfit, while Shelby gave the company entry into the property and casualty insurance arena.

Meanwhile, Alleghany shareholders approved a plan for liquidating the company in December of 1986. Under the terms of the plan, most of the company's nonfinancial holdings would be disposed of, and the surviving Alleghany Financial subsidiary would be renamed Alleghany Corporation. Shareholders would receive $41 cash and a share of new Alleghany Corporation stock for each old Alleghany share. One of the first things to go was most of the company's substantial holding in American Express, acquired in the IDS deal. Among Alleghany's other 1987 deals was the June acquisition of the steel and nonresidential construction business of Cyclops Corporation from Dixons Group plc of London. These businesses were then immediately spun off to Alleghany stockholders as a new public company, Cyclops Industries Inc.

Acquisitions Continue: Late 1980s-Early 1990s

Alleghany initiated a new round of acquisitions beginning in 1989. That year the company acquired Sacramento Savings & Loan Association and two associated companies for $150 million in cash. By the end of 1992, Sacramento Savings had total assets of $2.8 billion, and deposits of $2.6 billion. In March 1991, Chicago Title acquired Ticor Title Insurance Company, a California operation that expanded Alleghany's reach in that business. Later that year, Alleghany purchased Celite Corporation, Manville Corporation's filtration and industrial minerals business, for $144 million. Shelby Insurance Company, Alleghany's property, casualty, life, and annuity subsidiary, was sold to The Associated Group for cash at the end of 1991. For 1991, Alleghany had net income of $64 million on $1.42 billion in revenue.

Fred Kirby II stepped down as chief executive officer of Alleghany in 1992 at the age of 72. He retained his position as chairman of the board, as well as an active voice in company affairs. Kirby's hand-picked replacement as CEO was John Burns, Jr., who had been with the company since 1968 and served as president since 1977. Burns was the first CEO at Alleghany from outside the Kirby family since 1957. In the early 1990s, Alleghany increased its participation in both the insurance and minerals industries. In November 1992, the company acquired Harborlite Corporation, a producer of the volcanic material perlite. Underwriters Reinsurance Company was purchased in 1993.

Like his father, Fred Kirby II was about as secretive about business as the head of a public corporation can be. The Institutional Voting Research Service in Belmont, Massachusetts once called Alleghany "the most heavily insulated company we have ever analyzed." The company has been historically mistrustful of the press and not at all eager for publicity. In spite of these characteristics, Alleghany and the Kirby family have not been able to avoid the spotlight of controversy at times. Bitter disagreements between Fred Kirby II and his siblings have threatened the kind of unity that gives family-owned businesses the advantage of long-term planning. Several family members resented Kirby's autocratic control of the company and questioned the legitimacy of that control.

Mid-1990s and Beyond

Nevertheless, Alleghany appeared to be well managed as it made several key moves in the 1990s that strengthened its business portfolio. The company's interest in the railroad was reborn in 1994 and 1995 when it acquired a stake in Santa Fe Pacific Corporation, which was fending off a hostile takeover attempt by Union Pacific Corporation. With the support of Alleghany, Santa Fe instead merged with Burlington Northern to become one of the largest railroad networks in North America.

At the same time, change and consolidation in the title insurance industry prompted the company to restructure its Chicago Title & Trust (CT&T) unit. In June 1998, the company spun off its title insurance businesses under the holding company Chicago Title Corporation. Burns, Jr. commented on the strategy in a 1997 National Mortgage News article, claiming that the "establishment of CT&T's title insurance business as an independent company will enhance its ability to focus on operating efficiencies and strategic initiatives required to respond to a changing marketplace." Chicago Title was listed on the New York Stock Exchange and eventually merged with Fidelity National Financial Inc.

Alleghany continued to restructure its business holdings into the new century by making several significant divestitures in an attempt to shore up profits. In 2000, the firm sold its Underwriters Re Group Inc. to Swiss Re America Holding Corporation in a deal worth approximately $660 million. The company exited the financial services sector in 2001 through the $825 million sale of Alleghany Asset Management Inc. to a subsidiary of ABN AMRO North America Holding Company. The high costs related to the September 11th terrorist attacks on the United States prompted the company to take its sell-off plans one step further: the company sold Alleghany Underwriting Holdings Ltd., a company involved in the global property and casualty insurance and reinsurance business at Lloyd's of London.

During this period of streamlining, Alleghany began to look for acquisitions to that would contribute to its bottom line. As such, the company announced that it would purchase Capitol Transamerica Corporation, a profitable Wisconsin-based insurance holding company, along with Nebraska-based Platte River Insurance Company. Both deals were completed in January 2002. The company added Royal Specialty Underwriting Inc. to its arsenal in 2003.

As a diversified conglomerate, Alleghany's position was unique in that many of its subsidiaries--in very unrelated industries--held leading market positions. For example, its Minerals unit operated as world's largest producer of filter-aid grade diatomite, a silica-based mineral consisting of the fossilized remains of microscopic freshwater or marine plants. Unpredictable world economies, consolidation, the ever-changing characteristics of the insurance industry, however, promised to keep the company on its toes in the years to come. Indeed, Alleghany planned to focus on internal growth while making selective investments and purchases to bolster its financial position. With a history full of significant merger and divestiture activity, the company's future would no doubt be marked by additional changes to its operating portfolio.

Principal Subsidiaries: Alleghany Insurance Holdings LLC; Capitol Transamerica Corporation; Platte River Insurance Company; World Minerals Inc.; Celite Corporation; Harborlite Corporation; Heads & Threads International LLC; Alleghany Properties Inc.

Principal Competitors: Atlas Minerals Inc.; The Chubb Corporation; Eagle-Picher Industries Inc.

Further Reading:

• "Allan Kirby Cleared on Murchison Fraud Charge," New York Times, January 14, 1965, p. 49.
• "Alleghany Completes Purchase of Investors Diversified Services," Wall Street Journal, May 11, 1979, p. 39.
• "Alleghany Completes Sale to Swiss Re," Journal of Commerce, May 16, 2000, p. 10.
• "Alleghany Spinning off Largest Title Insurer," National Mortgage News, December 29, 1997, p. 1.
• "Biding His Time on Rails," Business Week, January 21, 1950, pp. 27-28.
• Blumstein, Michael, "The Power behind the Alleghany Deal," New York Times, July 17, 1983, p. F6.
• "The Corporate Marine," Time, January 5, 1968, p. 71.
• Cowan, Alison Leigh, "Kirby Keeps Control over Foundation," New York Times, June 6, 1991, p. D4.
• ------, "Promise into Peril: The Kirby Fight," New York Times, June 10, 1990, p. F1.
• Elliott, J. Richard, Jr., "Switch for Alleghany?," Barron's, February 4, 1957, p. 3.
• "Fred M. Kirby Succeeds Father as Alleghany Corp. Chairman," New York Times, September 15, 1967, p. 69.
• Fritz, Michael, "Chicago Corp. Woes a Red Flag for ABN AMRO in Latest Deal," Crain's Chicago Business, November 20, 2000, p. 28.
• Gores, Paul, "New York-Based Alleghany to Acquire Madison, Wis.-Based Insurance Company," Milwaukee Journal Sentinel, July 21, 2001.
• "Hands Untied," Forbes, August 15, 1964, pp. 16-17.
• Kaufman, Larry, "Alleghany Corp. A Seasoned Veteran of Railroad Battles," Journal of Commerce, October 19, 1994, p. 2B.
• "Kirby's Luck," Forbes, February 1, 1959, p. 29.
• "Kirby vs. Sonnabend," Forbes, December 1, 1959, pp. 15-16.
• "Lloyd's-Alleghany Sale Accelerates Post-September 11 Reshuffle," Lloyd's List, November 7, 2001, p. 2.
• "New Man at Alleghany," Time, December 21, 1962, p. 68.
• "$930 Buys $1,250," Business Week, April 19, 1941, pp. 67-68.
• "Practicing What Papa Preached," Forbes, March 1, 1974, pp. 60-61.
• Rudnitsky, Howard, "Polishing the Family Jewels," Forbes, December 7, 1981, pp. 77-78.
• Tannenbaum, Jeffrey A., "Alleghany Chief Kirby Transfers Post to J. Burns," Wall Street Journal, June 18, 1992, p. B3.
• "Texas on Wall Street," Time, June 16, 1961, pp. 80-84.
• "Tired of Railroading?," Business Week, November 23, 1946, pp. 80-86.
• "Winner by a Knockout," Time, July 12, 1963, p. 88.
• "Young's Empire: The Seeds He Sowed Bear Fruit," Business Week, February 14, 1959, pp. 108-16.

Source: International Directory of Company Histories, Vol.60. St. James Press, 2004.