Bid for Beatrice Unit May Lead to Top U.S. Black-Owned Firm

A little-known investment firm founded just four years ago is suddenly poised to become far-and-away the nation’s largest black-owned business with plans to purchase a controlling interest in Beatrice Cos.’ international foods division.

The firm, TLC Group LP of New York, along with the New York investment banking firm of Drexel Burnham Lambert, announced plans Sunday to buy the Beatrice division for $985 million.

The acquisition by TLC, a privately held New York investment firm founded in 1983 by former Wall Street lawyer Reginald F. Lewis, would continue TLC’s meteoric rise in the risky but sometimes highly profitable field of corporate buyouts. The announcement also sparked discussion about the dearth of black-led takeovers at a time of merger mania on Wall Street.

“It’s important because it suggests that blacks are now able to participate in leveraged buyouts on a very large scale,” said Andrew Brimmer, a former Federal Reserve governor who now runs his own consulting firm in Washington. “That’s the kind of joint-venture activity that blacks will have to engaged in if they make a quantum leap in business ownership.”

Lewis was said to be traveling in Europe and unavailable for comment. But others, including Lewis’ business associates, suggest that the Beatrice deal is more a reflection of Lewis’ investment banking experience and business savvy than any groundswell of new interest on the part of black investors in the leveraged buyouts of multinational firms.

“I think it’s a natural transition for someone who has done well with his investments,” said Jean S. Fugett Jr., a Baltimore attorney, who is Lewis’ half-brother. But he said he doesn’t foresee a rush of other black investors to the field.

Brimmer estimates that of the total $5.27 trillion in sales by all U.S. businesses last year, just $16.6 billion in sales came from black-owned operations.

And most of the big black-owned companies are concentrated in a handful of fields--mostly auto dealerships, food and beverage companies, construction, the media and cosmetics, according to a survey of the nation’s 100 largest black-owned businesses compiled by Black Enterprise magazine in June.

Although Beatrice International Foods Co. is a food and beverage company, it dwarfs any other black-owned company in the United States. It manufactures dairy products, snacks, processed meats and beverages and comprises 64 companies in 31 countries. It reported $2.5 billion in sales last year. That sum nearly equals the $3 billion in combined sales generated by the nation’s 100 largest black businesses.

TLC, which stands for “The Lewis Co.,” will own 55% of the business. Drexel Burnham Lambert Inc., a New York investment house that is providing financing for the leveraged buyout, will own most of the balance.

“We were attracted to Beatrice International by its management,” Lewis said in a prepared statement issued Monday. “The people in this company have done a fine job.”

TLC will probably hold on to the core of Beatrice’s international business in Europe but will probably sell the company’s Latin American and Australian operations, said Everett Grant, vice president of TLC.

TLC has already agreed to sell Beatrice Foods Canada Ltd. to Onex Corp., a Toronto-based investment concern, for about $225 million in a leveraged buyout.

Such transactions are financed with debt that is repaid with the target company’s cash flow or the sale of its assets.

TLC first made its mark two years ago with a highly profitable buyout of McCall’s Pattern Co.

Starting with a $1 million equity investment raised mostly from Lewis’ relatives, the fledgling company purchased New York-based McCall Pattern Co. in 1984 and steered the 113-year-old company through two of its most successful years ever before selling it to John Crowther Group, a British textile company, for almost $90 million.

McCall’s operating earnings rose to $14 million in 1986 from a previous peak of $6.5 million, and its earnings per share nearly tripled from 1984 to 1986.

TLC was founded in 1983 by Lewis, a 44-year-old Harvard Law School graduate from Baltimore, after he worked as a corporate attorney at the Wall Street law firm of Paul, Weiss, Rifkind, Wharton & Garrison.

TLC acquired and later sold interests in several relatively small broadcasting properties before undertaking the leveraged buyout of McCall Pattern.

During the two years TLC owned the company, Lewis became actively involved in its management, paring costs and holding the line on retail prices in an effort to boost profit, Grant said.

TOP 10 BLACK-OWNED BUSINESSES

Chief Company Location executive 1. Johnson Publishing Chicago John H. Johnson 2. Motown Industries Los Angeles Berry Gordy 3. H.J. Russell & Co. Atlanta Herman J. Russell 4. Philadelphia Coca-Cola Philadelphia J. Bruce Llewellyn Bottling 5. Soft Sheen Products Chicago Edward G. Gardner 6. TLC Group New York Reginald F. Lewis 7. Systems Management Norfolk, Va. Herman E. Valentine American Corp. 8. Thacker Organization Decatur,Ga. Floyd O. Thacker 9. Lawson National Chicago Daniel C. Lawson Distributing 10. Porterfield Wilson Detroit Porterfield Wilson

Type of ’86 business sales* Staff 1. Publishing, broadcast- 173.5 1,828 ing, cosmetics 2. Entertainment 152.4 237 3. Construction, 132.0 600 communications 4. Soft drink bottler 110.0 875 5. Hair-care products 85.0 850 6. Acquisitions, sewing 63.0 605 products, publications 7. Computer systems 62.0 560 integration 8. Construction, 57.2 211 engineering 9. Assembly, services 52.1 72 for transit vehicles 10. Auto sales, service 49.7 84

* in millions of dollars

Source: Black Enterprise magazine