2024-01-01
Now that the new year has started, I aim to be more active on Substack, but that is no guarantee i wont put pressure on me posing stuff that in my opinion is just mediocre or does not have an impact for me or the reader.I'll kick off the year with a post on Thomas Mellon Evans, one of the earliest corporate raiders.
Every piece I write in this blog post will be centered around the book 'The White Sharks of Wall Street' by Diana B. Henriques. My goal is to create write-ups about the lives and lessons of the individuals I encounter in the books I read.
Thomas Mellon Evans (1910) grew up in Pittsburgh, Pennsylvania. After the passing of his parents, he moved in with his aunt, Mary Jarnagin Rodman, and her partner, who owned a chemical plant. Thanks to their connection with the famous Mellon family, Tom secured a job at Gulf Oil through his friend Will Mellon.
From the outset, Thomas knew he didn't aspire to climb the corporate ladder at Gulf; he aimed to forge his own path. His friends nicknamed him 'Net Quick' Evans due to his penchant for theoretically calculating a company's Quick assets so Cash, accounts receivable and marketable security and comparing them to its valuation, identifying potential acquisition candidates. This passion emerged when he was just 21.
H. K. Porter, a company specializing in steam-powered switching locomotives, faced challenges as the demand shifted towards electric or diesel-fueled locomotives. Thomas Evans desired to acquire Porter, but lacking the necessary funds, he devised a plan. Post the 1929 crash, lending standards eased, and Thomas borrowed a substantial sum using Will Mellon's stock as collateral, paying him 3 percent interest. He invested the loan proceeds in Gulf Oil stock, reaping profits as the stock surged. With the profits, he purchased 100 Porter bonds for $10,000 when they were trading at 10 cents on the dollar.
Upon the resolution of bankruptcy in 1939, bondholders transitioned into stockholders, and their outstanding dues were settled in stock. Thanks to his holdings, Evans amassed enough stock to become the company's president at the age of 28.
Evans initiated selling PPE extensively, and aiming for more diversification. With the outbreak of the Second World War, he secured contracts for producing naval artillery shells at significantly lower costs than his competitors. After years of escalating revenue, he acquired the Mount Vernon Car Manufacturing Company for $2.7 million, which boasted a corporate bank account holding $3.5 million, essentially acquiring the company for free.
These were remarkable deals, prompting one to question why others hadn't seized such opportunities. A factor was the prevailing times. The impact of the depression instilled caution among financiers, making them wary of financing transactions with debt.
Post-World War 2, the company encountered turmoil, with pre-tax profits amounting to only about 2 percent of revenue. Evans, recognizing that now Porter his own company would be one of his potential aquisition targets.
I'll be dividing the write-up into several parts to extract as many lessons as possible...
Thanks,
Finn