How did Jimmy Goldsmith build the third largest food company in Europe?
Early life of Jimmy Goldsmith
James “Jimmy” Goldsmith (1933 – 1997) was born in Paris. His father was Major Frank Goldsmith, a former British Member of Parliament, and one of the leading hoteliers in France during the interwar period.
Jimmy Goldsmith described his education at Eton as “short, sharp and unsuccessful”. He developed an interest in gambling, and at the age of 16 an accumulator win netted a payout of nearly £8,000, an immense sum at the time.
Goldsmith left Eton at the age of 17 and spent five “wasted” years engaged as a professional gambler. He eventually entered into debt, which his father cleared on the condition that he enlist in the army. Goldsmith completed his service with the rank of lieutenant in 1953.
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Goldsmith enters the pharmaceuticals business
Following his army service Goldsmith returned to France to discover that the family fortune had been depleted. He entered into business with his brother as a pharmaceutical product wholesaler, and found success marketing cortisone tablets.
Goldsmith eloped with Isabel Patino, the daughter of a Bolivian tin magnate, in 1953. His young wife died from complications due to childbirth in 1954. Goldsmith was ridden with grief, and threw himself into his work with an almost manic energy.
Goldsmith began to manufacture generic medicines such as antacids at prices that undercut the large drug producers. The business was successful and profitable, but it grew so fast that it ran into liquidity issues, forcing Goldsmith to sell out to Laboratoires Roussel in 1957.
Goldsmith later commented, “I had little business sense then, just a lot of nervous energy”. The loss of his first venture instilled in Goldsmith a fear of failure which was to subsequently motivate him. Goldsmith won the licence to market Prednisolone, an anti-inflammatory drug, in Britain.
Goldsmith partnered with Selim Zilkha (1927 – 2022) to acquire Lewis & Burrows, a 28-branch pharmaceutical chain, from Charles Clore (1904 – 1979) in 1959. Goldsmith relocated to London in order to manage the business.
Zilkha and Goldsmith next acquired the 50-strong chain of W J Harris, pram and nursery furniture specialists, in 1961. The business was renamed Mothercare. Stretched for capital, Goldsmith sold his retail holdings stake to Zilkha in order to concentrate on pharmaceuticals in 1962.
Goldsmith enters the food industry
Goldsmith introduced a range of slimming foods in France, in direct imitation of Metrecal, a product that had already enjoyed considerable success in the United States. Goldsmith acquired 20 percent of Procea, a British manufacturer of slimming foods, in 1963.
Charles Clore introduced Goldsmith to Sir Isaac Wolfson (1897 – 1991), who provided expansion capital. Goldsmith determined that the best way to make money was to develop a business based on “solid brands”. He acquired full control of Procea, as well as controlling stakes in Carson’s, a leading manufacturer of chocolate liqueurs, Carr’s, best known for water biscuits, and Holland, a leading toffee manufacturer, in 1964.
Goldsmith had identified all of the companies as mismanaged, with under-utilised brands. Carson’s was loss-making, Holland was troubled, and Carr was under pressure from larger biscuit manufacturers. Goldsmith was able to acquire the companies at depressed prices. Goldsmith would later comment:
I wanted to break into business in a big way and the only way I could do so with my limited resources was to buy up down-at-heel companies.
Goldsmith floated his interests as Cavenham Foods in 1965. The company employed 6,000 people and produced 15 percent of all toffee sold in Britain. Goldsmith intended to develop Cavenham into a food multinational along the lines of Unilever and Nestle.
Goldsmith modernised Cavenham in order to render the business profitable. He installed a professional management team, with staff poached from blue chip consumer goods companies such as Procter & Gamble, Mars and Beechams. Six factories were immediately closed in order to leave five sites, which were modernised. Less popular product lines were discontinued, with marketing and research concentrated on the highest-selling products. Non-core assets, such as the Holland of Southport paper and plastics division, were divested.
Singleton & Cole of Birmingham, a tobacco wholesaler, was acquired for £1.4 million in 1966. The business had entered into difficulties after the large supermarket chains had established their own wholesale networks. The merged business was the largest confectionery and tobacco wholesaler in Britain.
A 50 percent stake in the Singleton & Cole snuff manufacturing business was sold to Conwood Corporation of Tennessee for £800,000. Goldsmith had divested a tiny part of the business, and recouped 75 percent of the total acquisition cost.
Goldsmith’s attempt to build a wholesale giant ended in failure. The business failed to become profitable and proved a drain on capital. Singleton & Cole was sold to Palmer & Harvey for £2.4 million in 1968.
Goldsmith had rendered Cavenham profitable by 1970, following five years of “sweating blood”.
Birrell-McColl, a 420-strong newsagent chain, was acquired for £900,000 in 1971. 105 unprofitable shops were closed.
Goldsmith had a mixed relationship with the British press. In the Evening Standard he was described as having “something of the bumptious undergraduate about him”. A Daily Telegraph profile regarded him as, “a highly amusing man with a distinctively forceful style”. The Economist argued that he was “regarded as altogether too theatrical, always pulling a deal out of a hat here, a continental connection there”.
Goldsmith acquires Bovril
Goldsmith identified Bovril as another business with mismanaged and underutilised assets. He particularly liked the three “strong brand names” of Bovril, which he described as “the daddy of all health foods”, Marmite and Ambrosia. Goldsmith explained:
we think we can do more with the existing business. Bovril’s profits have not really moved since 1961. Last year they made nine percent on net tangible assets; we made 50 percent. The difference speaks for itself.
Bovril was acquired for £14.5 million in 1971 (around £500 million in 2020 prices). The move was transformational for Cavenham, and Goldsmith described it as “the most important deal of my life”.
Goldsmith commented that the Bovril directors “could find the competitive atmosphere within Cavenham somewhat uncomfortable”, and eight out of ten board members resigned following the takeover.
A 50 percent stake in the Cavenham retail operation was sold to Southland Corporation for £3.3 million in order to finance the acquisition.
Bovril had valued its dairy interests on its balance sheet at next to nothing, but Goldsmith sold them to Grand Metropolitan for £6.3 million in cash. The meat processing plants in Argentina were sold for between £1 million and £2 million. Goldsmith increased profitability by decreasing overheads and by redirecting research and development funding to support the three main brands.
Goldsmith expands his retail interests
Cavenham acquired Allied Suppliers, the fourth largest food retailer in Britain, for £92 million in January 1972. Goldsmith described the reverse takeover as “the cheekiest bid ever”.
Allied’s Lipton tea subsidiary was sold to Unilever for £18.5 million. Goldsmith had the Allied Suppliers property portfolio revalued at £55 million. 1600 freehold properties, mostly acquired with the Allied Suppliers purchase, were sold for £17.5 million in 1973. Two office buildings in the City of London were sold for a further £11.7 million. Goldsmith invested £8.75 million to modernise the Allied Suppliers estate.
The Cavenham biscuit interests, with 2,500 employees, were sold to United Biscuits for £4 million in July 1972. The business had lacked sufficient scale, with just 2.5 percent of the biscuit market.
A 50 percent stake in Grand Union, the ninth largest food retailer in the United States, was acquired for £25.5 million in 1973. According to Goldsmith the business was “large, dull and reasonably profitable”. Goldsmith announced plans to revolutionise the American supermarket industry, defined by shops which he regarded as “linear, plastic, neon-lit [and] unexciting”.
Cavenham had a market capitalization of £79.7 million by 1974, and was the third largest food and retail company in Europe, behind Nestle and Unilever.
Goldsmith constantly reassessed what was central to his business. Procea was sold to Spillers for around £1.5 million in 1975.
Goldsmith received a knighthood in 1976.
The Cavenham stake in Grand Union was increased to 80 percent in 1976.
Cavenham employed 66,000 people by 1977.
Goldsmith’s attempt to create a food multinational along the lines of Unilever ultimately ended in failure. He realised that he could never hope to dominate the food industry, but he could become a significant force in retail. Bovril was sold to Beechams for £42 million in 1980. Cavenham Confectionery was sold to its management for around £8 million in 1981.
Allied Suppliers, with 918 stores, was sold to Argyll Foods for £101 million in 1982. Argyll Foods became the fourth largest food retailer in Britain.
Goldsmith invests in timberland and gold
Goldsmith acquired Diamond International, a New York-based forests and paper company, for $661 million in 1982. It was “a company regarded by most industry experts as a heap of junk”, according to Gwen Kinkead of Fortune magazine. Goldsmith retained 1.7 million acres of timberland across New England but divested the rest of the business for $587 million.
Goldsmith commented, “in breaking up an old conglomerate, you’re not killing companies, you’re not buying them to shut them down and sell their assets. You are simply killing off the bureaucracy and letting the companies inside the conglomerate free”.
Goldsmith gained control of Crown Zellerbach of San Francisco, a forests and paper company, for $560 million in 1985. The paper interests were sold to James River Corp of Virginia for $700 million leaving Goldsmith with almost two million acres of forest land. The Diamond International and Crown Zellerbach timberland interests were merged to form Cavenham Forestry Products, the sixth largest private owner of forest land in the United States.
Goldsmith was ranked as the fifth wealthiest man in Britain in 1988, with a net worth estimated at £1 billion.
Grand Union was sold to its management for $1.2 billion in 1989.
Goldsmith sold Cavenham Forestry Products to Hanson, a London-based conglomerate, in exchange for a 49 percent stake in Newmont Mining Corp, the largest gold producer in America, in 1990. Goldsmith divested most of his stake in Newmont in 1993.
Death and assessment
Goldsmith died of pancreatic cancer in 1997. His obituary in the Financial Times characterised him as a “corporate buccaneer”. The Daily Telegraph described him as “a mercurial stockmarket predator”.