 | The Selling of Disston & Sons
Horace Disston, now chairman of the board of directors, realized that new and energetic leadership was necessary if the firm was to survive. Jacob Disston agreed, and Henry Bain and S. Horace Disston interviewed John D. Thompson, executive vice president of Roebling Steel, for the job. Thompson became executive vice president at Disston in 1953. A year later he would become the first nonfamily member to serve as president.
One of Thompson's first acts was to place William L. Disston in charge of developing a special engine for a one-man chain saw. The new management had collectively decided that Disston had to get into the power chain-saw market or lose its competitiveness in the saw business. The difficulty in the past with making a profitable line of chain saws lay in the contract with the Kiekhaefer Company of Cedarburg, Wisconsin. Henry Disston & Sons was at the mercy of President Carl Kiekhaefer, who promised to develop an engine in the early 1940s but never lived up to his promises. It was not until 1948 that Kiekhaefer delivered the first lightweight engine so Disston could market their first one-man chain saw. But like the Disston two-man saw, the guide-rail and saw-chain design was too heavy for one person to manage without considerable strain. The Kiekhaefer engine also proved to have a defect in the fuel system. Carl Kiekhaefer denied that the problem was in the engine, alleging that the frame for the saw affected how the motor functioned. However, within the year he admitted that a defective fuel-pump diaphragm was at fault. This left Disston with only the impractical, two-man saw when the McCollough and Bland companies began producing small specialized saw engines. The saw business was in transition from manual to automated tools. The question was whether Disston could change production fast enough in this competitive atmosphere of fluctuating international prices and reduced sales.
Its first opportunity came in 1952 when Guy S. Conrad and several of Kiekhaefer's key employees resigned and were available to work at Disston. Contact was made with them, and the next year was spent establishing design parameters for a totally new lightweight one-man saw. With the design completed, the company looked for a location to place a new small-engine plant that would free them from the whims and delays of Carl Kiekhaefer
The firm borrowed $3.5 million from Philadelphia National Bank specifically for the development of a small engine, with the commitment that the profits from the venture would immediately be used to repay the loan. Guy S. Conrad was hired to recruit a workforce and oversee the development of a functioning small engine that made possible a usable one-man saw. The engine was successfully tested at Disston, and dies were developed for its production. In the spring of 1953 a symposium was held in Wisconsin for the Disston employees associated with the chain-saw division. Land was purchased in Madison, Wisconsin, and William L. Disston made plans for a new engine plant. The location guaranteed Disston that Guy S. Conrad and those who worked on design could remain on the project as full-time workers. Disston management went to Wisconsin for a groundbreaking ceremony that was attended by Madison city dignitaries to celebrate the coming of the Disston/Wisconsin venture to their town. All this was known only to the top circle of Disston men.
Carl Kiekhaefer, president of Kiekhaefer Corporation, learned of Disston's activities from his secretary, Rose Smiljanic. It seems that a number of Kiekhaefer employees were resigning and being hired by Disston. A loose-lipped secretary for one of them was telling other employees of her former boss's raise. Kiekhaefer was able to uncover enough information about the scheme to become alarmed that his business was about to suffer great financial loss.
To accomplish their own manufacture, the Disston Company decided to play their cards under the table. Very slyly and subversively, their first step was to employ the confidence of a senior vice president of our corporation.
This individual, namely Guy S. Conrad, was in our employ during the period that the new model development got under way. . . . [A] nest of refuge . . . is now taking form as the DisstonWisconsin Corporation. It is to this refuge that our former chief engineer, chief layout man, chief detailer, chief tool designer, chief tester, etc. all came to roost as they successively "resigned." . .
The net result is a conspiracy on the part of the Disston Company, who were under contract with us not to purchase engines from others; Mr. Guy S. Conrad, our own Senior Vice President; Nelson Pattern Company, who has received as a vender [sic] more than $700,000 worth of pattern business from our corporation.
The resulting conspiracy is the subject of a damage suit that may run into $2,000,000. With the magnitude of the stakes involved, the Disston Company decided to proceed very slyly and subversively to carry out the "Trojan-Horse episode." The fact that we have many loyal employees made them appear somewhat ridiculous, and much evidence has been piled up against Disston. This type of conspiracy suit has been brought to court and upheld many times in favor of the original manufacturer.
In this letter, Kiekhaefer never mentioned the twelve years of unfulfilled promises and the fact that a successful small engine for the Disston chain saw was never developed. It is unclear who at Henry Disston & Sons gave the order for the Wisconsin project, but Jacob Disston Jr. was president when the decision was made, and he would pay the price for the decision during the company's reorganization in April 1954.
In the fall of 1953 the newly hired small-engine plant manager, Guy Conrad, predicted that selling 10,000 chain saws in one year would allow Disston to break even on the project. Yet Vice President of Sales Walter Gebhart predicted that sales would be no more than 8,000 a year-and "that would be a good year." William L. Disston felt that Gebhart's predictions were similar to those made throughout his tenure with the firm-unreasonably low so that the Sales Department would look good when such estimates were exceeded. Secretary and office worker Thelma Koons remembers Disston family members discussing Gebhart's miscalculations in this matter.
While the question was still under discussion by Disston's board of directors, news came from Kiekhaefer Aeromarine Motors Incorporated that a lawsuit was being filed against Disston, charging illegal employment of former Kiekhaefer executives. The previous Acetogen Corporation settlement made Disston management wary of another court action. The pending lawsuit, the pessimism of the sales department, and the record of continuous financial loss caused new CEO John Thompson to announce the discontinuation of the Madison project.
This position was supported by members of the Disston family, who believed that enough money had been spent on a lengthy experiment that had lasted years and cost the company millions of dollars with no financial reward in sight. However, most of them were unaware of the clause in the agreement with Philadelphia National Bank (PNB) that called for the immediate repayment of the $3.5 million loan if the project was abandoned. The punishment for nonpayment was that the dividends normally paid stockholders would go to PNB as partial payment for the debt. All stockholders faced an uncertain financial future if the loan was not repaid. This forced every Disston family member who was living off the dividends to reconsider the sale of the company. To this day, William Disston believes that the decision to cancel the Madison project led directly to the selling of the firm.
The annual board meeting of April 1954 saw S. Horace Disston step down as chairman of the board and Jacob S. Disston Jr. assume that post. John D. Thompson became the elected president and CEO. It was the first time in the company's long history that the firm was headed by anyone outside the Disston family.
Immediately after the meeting, William L. Disston was again directed to explore the idea of a lightweight, one-man chain saw to replace the discontinued Madison project. William contacted West Bend Aluminum Company, developers of a lightweight 2'/2 HP gasoline two-cycle engine that perfectly fit the specifications for a one-man saw. The Oregon Chain Company was contacted for chains, and Disston itself developed the cutting bar. Within five months, six units had been completed and were operational. William L. Disston developed production schedules, costs, profit margins, and prices established for anticipated sales. It was at this point that he received notification that members of the family were about to sell their stock to H. K. Porter.
William L. Disston is undoubtedly correct in holding the opinion that the loan-repayment fiasco forced the crisis at Disston in 1955, but it is doubtful that this or any one event can explain why the firm was sold. After the death of Hamilton Disston in 1894, the family pulled together and paid off the firm's debt despite the severity of the crisis. In 1955 there were just too many negative forces and too little family commitment to override them. The firm had become merely a means of producing money for the family, with little of the personal appeal and pride felt by the Disstons of the nineteenth century, who "manufactured the finest saws in the world." How could a firm with declining profits and old machinery, no new product beyond the beet knife, and diminishing interest on the part of the family owners face up to the reconstructed industries of Japan and Germany? If not this crisis, then the next would have had similar results. The issue was the lack of Disston family commitment to operate the firm.
Disston & Sons became vulnerable to a man like Samuel Mellon Evans when PNB demanded repayment of its loan at a time when the firm had little available cash-and made it clear to Thompson that, unless the loan was repaid in 1955, the bank would petition the courts to discontinue the payment of dividends to stockholders. This was not welcome news for the family.
Newspapers speculated that Henry Disston & Sons was about to be sold by the family. Offers were made by American Hardware Corporation of New Britain, Connecticut, the Frankford Arsenal, the U.S. government, and H. K. Porter Company of Pittsburgh. The government denied the rumored takeover bids, but nevertheless the stories persisted. William Leeds Disston tried to get American Hardware interested but met with strong resistance from Jacob Disston Jr. and Henry Bain. Only Porter's bid was brought before the Disston stockholders for consideration.
John D. Thompson opened talks with C. R. Dobson, a representative of H. K. Porter owner Samuel Mellon Evans. After a twenty-minute conversation with Evans on the phone, Thompson remarked to Dobson, "I don't like your boss. What kind of a man is he?" Dobson replied, "He's a son-of-a-bitch, but he pays well." This set the tone for future dealings between Evans and Disston workers. Jacob Disston and Henry Bain supported Thompson in his negotiations with Evans, but William L. Disston opposed the deal because it undervalued what the firm was worth and in his judgment amounted to a steal. Nevertheless, the strength of the proposal was that family members would receive a tax advantage and would continue to be paid their dividends.
American Hardware was disappointed that the Disston family had already made overtures to H. K. Porter without considering its offer, and believed it had not been given a fair hearing by the Disston management. American appealed to Billings and Spencer of Hartford, Connecticut, a nearby business associate, to help them be heard. Billings and Spencer, through previous dealings with Disston, owned 2,600 of Disston's 95,229 stock shares. The firm sent Roland J. Ahern to Philadelphia to stop the deal. Ahern went to court and applied for a temporary injunction to stop the sale to H. K. Porter on the grounds that Disston stockholders who were not members of the family were being "railroaded" into the deal. A hearing was set for November 13, 1955, in the courtroom of judge John W. Lord, who was to decide if Disston's board of directors were acting "in their best business judgment when they decided to sell to the Porter Co." Ahern testified that "their decision may be in their best judgment but I think they could have gotten a better offer. It almost looks as if the deal is being railroaded through."
Lewis S. Stevens, the Disston company's counsel, asked Ahern "if he was prepared to prove fraud in the transaction" because "the rest of his argument was purely one of protesting judgment." Stevens said the company and the stockholders "might be jeopardized to the extent of approximately $1 million if a permanent injunction were issued. With no proof of fraud available-or even possible, since fraud was not the issue-judge Lord agreed with Ahern about the price but ruled in favor of the sale.
The suit forced the Disston management to declare its financial status publicly. It was not a pretty picture. The firm reported a loss of $300,000 from January to November 1955 and a $5 million loss in 1954. Disston's total assets were reported at $17 million, with a debt of $4 million. Simple mathematics told the world that the firm was worth more than the projected $10 million offer by H. K. Porter.
Yet the firm sold, because the president of H. K. Porter, Thomas Mellon Evans himself, sought out Disston & Sons, made the offer, determined how the transaction could be expedited to benefit the Disston Trust.
“A Place to Live and Work” by Harry Silcox, Pages 169 to 173 |