Broadening the Rails

Ben W. Heineman, the pleasant, pensive chairman and chief executive of the Chicago & North Western Railway, has a talent for the unexpected. Such as making money on commuters: the C. & N.W., with a profit of $2,000,000 from its Chicago short-haul service last year, is one of the few U.S. railroads that earned money on that kind of traffic. Or accomplishing unlikely mergers: in a recent move that caught Wall Street by surprise, Heineman announced that for cash and stock exchanges totaling $367 million, the C. & N.W. was acquiring Essex Wire Corp. (annual sales: $375 million), a Fort Wayne, Ind. firm that makes wire, cable, switches and auto parts in 54 U.S. and Canadian plants. The railroad seems to be getting a bargain. Essex itself last week announced that it was acquiring Stevens Manufacturing Co. and Boyne Products, Inc., both of them small manufacturers of control devices.

Nonseasonal Pattern. Heineman's aim, like that of other progressive railroaders, is to diversify away from an essentially cyclical and undependable base. "We want to offset the weaknesses of the railroad," he says, "with the strength of other companies. In many respects, they're close to the consumer, while the railroad is not. And they operate on a nonseasonal pattern." Last winter, for instance, the normally profitable C. & N.W. suffered so much from wind and weather that it reported a $ 1,400,000 first-quarter loss on rail operations. But as the result of an earlier acquisition, the consolidated balance looked better. Velsicol Chemical Corp. and smaller Michigan Chemical Corp., acquired by the C. & N.W. two years ago for $90 million, reported quarterly earnings of $5,300,000 on sales of $21.6 million. With this help, C. & N.W. overall profits for the first quarter were $2,700,000.

Once Heineman has formally absorbed Essex Wire, he intends to run it and its acquisitions the way he runs Velsicol--not very tightly. "They don't know anything about the chemical business," says Velsicol President Norman E. Hathaway, 47. "And we don't know anything about the railroad business." Reinforced by the C. & N.W.'s prestige and borrowing power, Hathaway is largely left to manage the chemical operation in his own fashion.

Profit, Not Bigness. So far Hathaway, who came to Velsicol two years ago, has outperformed his leader. When he arrived, Velsicol already had superior research facilities and a broad line of agricultural and industrial chemicals and resins. But it was family-owned and vertically run, suffered from sluggish marketing. Hathaway horizontalized operations; he split the company into three domestic and two international divisions and set higher sales targets. "We're reaching for $100 million," he says, "but $200 million in sales is proper for a structure of this size, and $800 million is about maximum. Our objective is not to be the biggest chemical company, just the most profitable."

Hathaway's rising profits will continue to drop into the C. & N.W. pocket, where Heineman will undoubtedly put them to further use. "I have every expectation," says he, "that we will expand." Not the least promising expansion area is that old cyclical railroad business itself. The C. & N.W. already has ICC permission to merge with the smaller Chicago Great Western, and Heineman is dickering to include the Milwaukee Road and the Rock Island in his increasingly profitable network.

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