When Brown-Forman stockholders gathered in July at the whiskey giant’s Georgian Revival headquarters west of downtown, the outcome of a crucial vote — re-electing 12 directors to the governing board — was anything but a surprise.
This has been the founding Brown family’s company for nearly 150 years. Six of the directors were Browns, including board Chairman George Garvin Brown IV — a great-great grandson of the founder — and the rest were unquestionably family loyalists.
Stockholders outside the family knew what Brown-Forman has disclosed for years in an annual statement soliciting their votes: 13 individual Browns and family groups hold 67% of all the voting shares in “a variety of family trusts and entities, with multiple family members often sharing voting control and investment power.”
Much less has been known about the scope of those entities, leaving more than 5,600 other stockholders in the dark about exactly how the Browns divvy up nearly $6 billion in shares among a core group of relatives.
But now, documents filed by the Browns with the Securities and Exchange Commission detail how complex their ownership has grown since the pharmaceuticals salesman George Garvin Brown founded the company in 1870. They shed light on how the Browns have deployed extensive trust accounts, business partnerships, and other legal vehicles to pass down Brown-Forman stock through six generations. That’s an exceptional legacy in American business: Just 12% of family-owned companies survive into the third generation, and a slim 3% survive to the fourth and beyond.
The documents also point to a network of boutique consulting firms and other white-shoe professionals advising the city’s wealthiest families on everything from investments to taxes and charitable giving, hiring housekeepers and gardeners — even organizing vacation travel and family gatherings. Paid tens of thousands of dollars a year in fees, the firms are the backbone of a larger, multibillion-dollar economy serving the area’s uber-rich.
George Garvin BrownIV, a great-great grandson of the young pharmaceuticals salesman who started Brown-Forman in 1870, stepped onto a dais at the whiskey giant’s annual stockholders meeting today, and told an amusing story about a subject that might otherwise have been deadly dull: brand loyalty.
It was 9:30 a.m., and several hundred stockholders had assembled in a conference room at the white-collanaded headquarters on Dixie Highway west of downtown. On a classically muggy Louisville summer morning, this was a dressy crowd. Many of the men wore dark suits, crisp white shirts, and boarding school repp ties. Women wore tailored dresses, or smart skirts paired with jackets, and an occasional pearl necklace. People were tan and slim and — in the case of the many Browns there — very, very rich.
This was a business event, but it felt as much like a family reunion, too — because, after all, a core group of Browns control the company through an equity stake worth well north of $6 billion. Garvin Brown, who is 47 and lives mostly in London, was running the meeting as chairman of the board. Seated nearby in Chippendale-style chairs facing the audience were the other 11 directors up for re-election.
This is the story Brown told. He was on a flight from London to Warsaw for a meeting with the Brown-Forman team responsible for the company’s growing business in Poland. Brown had lucked out, scoring one of his favorite seats — aisle, in a roomy exit row — with two empty ones between him and the window. Then a British man, one of the many harried road warriors aboard, arrived to take the window seat. He asked for a Jack Daniel’s, Brown-Forman’s most profitable brand, when the flight attendant rolled the snack cart down the aisle. Here, Brown’s ears perked up.
But the airline was all out. Would the Brit settle for another brand of whiskey, the attendant asked, perhaps a Johnnie Walker? Nope, he replied, and asked for a glass of champagne instead. As Brown pointed out to the audience, here was a man so loyal to Jack Daniel’s, he’d sooner drink airline champagne than just any other whiskey.
That’s how Brown eased the stockholders into a more formal presentation by CEO Paul Varga, who deployed many bar charts and fever graphs showing return on shareholder equity over one year, five years, and 20 years — important stuff, to be sure, but not quite as compelling as Brown’s literally on-the-fly market research.
FORD today shifted senior leadership in Europe and South America, and promoted an executive to the nascent Ford Smart Mobility LLC subsidiary. The changes come as the European market has been further challenged by Britain’s decision this month to leave the E.U., at a time when the economy is already threatened by a possible recession.
Neil Schloss, 57, was named CFO at the mobility unit, in addition to his current position as Ford vice president and treasurer.
The leadership changes started with the retirement of one of the automaker’s more senior female executives, Barb Samardzich, 57, vice president and COO of Ford of Europe, effective Oct. 1. The company said her retirement is voluntary.
Her retirement spurred a cascade of other changes:
Lyle Watters, 51, succeeds Armstrong, and was elected a corporate officer
Samardzich, during her 26-year Ford career, was responsible for the design, engineering and development of several key Ford and Lincoln vehicles, including the 2005 model Mustang.
Ford announced the mobility subsidiary in March amid growing competition with other automakers and Silicon Valley in development of driverless cars and other technology innovations that are challenging Detroit’s primacy in the auto world. Underscoring its importance, Ford said Jim Hackett, former Steelcase vice chairman and CEO, was leaving the company’s board of directors to chair the new subsidiary.
Separately today, Ford also highlighted the towing capacity of its 2017 F-Series Super Duty trucks, starting with high-strength, military-grade, aluminum alloy and high-strength steel that helps cut weight by up to 350 pounds.
The F-450 Super Duty SuperCrew 4×4 now features a maximum gooseneck tow rating of 32,500 lbs., 1,290 lbs. more than its nearest competitor, a regular cab two-door pickup. Maximum fifth-wheel towing has been boosted to 27,500 lbs., 2,500 lbs. better than the nearest competitor (press release). In Louisville, the Kentucky Truck Plant employs about 5,100 workers, producing F-250 and F-550 Super Duty pickups, plus Expeditions, and Lincoln Navigators.
HUMANA and proposed acquirer Aetna have reportedly offered to divest regional plans covering roughly 350,000 members, and have received bids from smaller Medicare rivals WellCare Health and Centene, as the two insurance giants scramble to win Department of Justice approval for their $37 billion tie-up.
Analysts say the DOJ’s antitrust unit may not see the sales alone as enough to maintain competition. “The question is not can you find a buyer for the plans,” said FBR Capital Markets analyst Steven Harper, “but will the government approve the buyer?” (CNBC).
The 350,000 members Humana and Aetna are reportedly willing to shed are a tiny fraction of the 60 million members the two would have if their deal went through. But its prospects grew more uncertain when word leaked July 7 that the DOJ had called in executives at both companies to explain why it wouldn’t be anticompetitive.
Humana, started in Louisville in 1961, has more than 21.3 million members and does business in all 50 states. It has approximately 50,000 employees, including about 12,500 in Louisville. Last year’s revenues were $54 billion.
UPS said it announce second-quarter results July 29 at about 7:45 a.m. ET, followed by a conference call at 8:30 with CEO David Abney, CFO Richard Peretz and Wall Street analysts. The call will be open to the public on a listen-only basis, via a live webcast (press release).
In other news, a Fresh Thyme Farmers Market — the city’s second — will be an anchor tenant in the planned Bardstown Pavilion commercial center in Fern Creek, a $35 million-$40 million project under review by metro planners (Courier-Journal). Fresh Thyme opened its first store in April on Shelbyville Road in St. Matthews in a former Liquor Barn store. The Fern Creek outlet would be one of 60 stores the Chicago-based chain plans by 2019.
In NuLu, construction on the proposed $37 million AC Hotel at the corner of Shelby and Market streets could start in October or November of this year (Insider Louisville).
Those 10 companies tracked by Boulevard joined U.S. stocks clawing their way back from two consecutive days of steep losses, following Britain’s stunning vote last week to quit the European Union. The Dow Jones Industrial Average closed moments ago at 17,410 — up 1.6%; the broader S&P 500 index jumped 1.8% to 2,036 points, and the Nasdaq climbed 2.1% to 4692.
“This is going to take a long time to play out and I think the initial shock is being a little reversed right now,” Doug Cote, chief market strategist at Voya Investment Management told CNBC. “This is not 2008. It’s more like 2011.” (Read the latest Brexit developments in Britain’s Guardian.)
In Louisville, virtually all of Boulevard’s top 10 rose by the time markets closed at 4 p.m. They included Kindred, which got pounded yesterday, falling 7%. The closing prices:
Those gains came even as Ford said itexpects the double-whammy of any softer post-Brexit industry and a weaker British sterling “would have an adverse impact on our operations in the long term,” a Ford spokesman told financial news site The Street. Ford also said it would issue revised 2016 guidance during its second-quarter earnings call July 28 (The Street). Ford shares have now tumbled nearly 8% since Britain’s surprise vote to leave the European Union — nearly twice as much as the broader S&P 500 index.
In its most recent annual report, in February, Ford warned about the impact of a possible Brexit, saying it “could cause financial and capital markets within and outside Europe to constrict, thereby negatively impacting our ability to finance our business, and also could cause a substantial dip in consumer confidence and spending that could negatively impact sales of vehicles.”
Last year, the U.K. was Ford’s single-biggest market after the U.S., accounting for 8% of the automaker’s $149.6 billion in sales:
Brown-Forman chief executive Paul Varga‘s fiscal 2016 pay was down from $11 million the year before and $12.3 million two years prior, the company disclosed in its annual shareholders proxy report.
Compensation for the other four highest-paid executives was mixed vs. the year before, according to the report, which the Louisville whiskey distilling giant filed with the Securities and Exchange Commission late this afternoon.
The figures appear on Page 40, and cover the year ended April 30. In addition to Varga, they include CFO Jane Morreau; Mark McCallum, president of the marquee Jack Daniel’s brand; Jill Jones, executive vice president over North America and Latin America regions, and General Counsel Matthew Hamel.
Chairman George Garvin Brown IV got paid non-equity incentive compensation of $531,787 plus a small salary of $38,750. (“Non-equity incentive compensation” sounds like a cash bonus, but for some reason, Brown-Forman doesn’t use that term.)
In fiscal 2015, Brown’s non-equity incentive pay was much less: $281,845, according to last year’s proxy report. But that year he was still working as an executive vice president in addition to his chairman’s duties. For his EVP work, he was paid $320,427. He left that job a year ago today.
The company also said it incurred $18,359 for certain expenses associated with Brown’s living abroad, and other employee benefits provided to him. The proxy report doesn’t say where Brown, 47, was living at the time. (London, it appears, based on this Globe and Mail story last year.)
The Browns are firmly in charge
The Brown family controls Brown-Forman through their enormous stock portfolio, preserved through multiple generations — at least four — that followed George Garvin Brown, a pharmaceuticals salesman who started the company in Louisville in 1870. At current market prices, the family’s holdings are worth at least $6 billion — but in reality, much more.
The holdings are divided between the company’s two classes of stock: “A” shares, which carry voting rights, and non-voting “B” shares. Both classes trade on public markets, although for different prices. The family owns at least 67% of the A shares, according to the proxy report.
Chairman Brown and his brother, Campbell Brown — who’s also a senior executive at the company — hold one of the family’s single-biggest stakes: 6.8 million class A shares, through an entity called the G. Garvin Brown III Family Group. At today’s closing price of $105.48, those shares are worth $718 million.
Campbell, 48, has been president and managing director of Old Forester, the company’s founding bourbon brand, since 2015.
Keeping business in the family
Another big stockholder is Laura Lee Brown, who with her husband Steve Wilson, founded the trendy 21c Museum Hotel chain in Louisville. She owns 2.2 million class A shares outright, worth $233 million at current prices.
In the proxy report, Brown-Forman said it did business with the couple, as it has in previous years. It includes developing historic Whiskey Row on Main Street into a complex of new lofts, retail and restaurant space to be called 111 Whiskey Row. The company paid $900,000 to a company controlled by the couple: Brown Wilson Development, according to the proxy report.
Brown-Forman also paid the couple $267,395 for rooms, meals and other entertainment at their 21c hotel and its Proof on Main restaurant. It also paid them another $250,440 for leases on parking spaces in a garage they own adjoining Brown-Forman’s downtown offices.
Unraveling founding family’s wealth
Valuing the Brown family’s total stock holdings is difficult. Individual members own shares outright. They also have partial, beneficial ownership through family partnerships and legal entities. Because they overlap with other family members, it’s hard to assign a value to them.
However, counting each share just once among family members owning more than 5% of all outstanding shares, their combined total is about 57 million, worth $6 billion. But that only covers shares held by the single-biggest owners who, under Securities and Exchange Commission rules, are required to disclose holdings exceeding 5%. There may be other Browns sitting on multimillion-dollar positions, undisclosed because they don’t meet the 5% threshold.
And that’s only counting the class A shares. The Browns own several million non-voting B shares, too. Determining exactly how many is tricky, but tables and footnotes in the proxy report offer clues.
For example, Garvin Brown IV and his brother Campbell together own 1.3 million Class B shares outright; at today’s closing price of $97.90, they’re worth another $125 million. Adding that to their A shares, the brothers own $843 million in stock.
Sandra Frazier, who just cycled off the board of directors, owns 373,376 B shares plus 1.4 million A shares. They’re worth a total $185 million. Frazier, 44, is CEO of Tandem Public Relations in Louisville, which she founded in 2005. She’s also a member of the board of directors at Glenview Trust Co., a boutique wealth management company that serves 500 of the richest families in the area.
Her first cousin, Laura Frazier, joined the Brown-Forman board when Sandra left. Laura owns 239,829 B shares and 225,433 A shares. Combined, they’re worth $47.3 million. In addition to being a director, Laura, 58, owns Bittners, the high end furniture and decorating company in NuLu.
KINDRED‘s just-announced 52-bed rehab hospital planned for southern California will be built by a private investment company, which will then lease it to the joint venture run by Kindred and local partner Palomar Health. Expected to open in 2019, the facility will be built on Palomar’s existing 56-acre campus in Escondido in San Diego County, 103 miles south of Los Angeles. Kindred didn’t detail the construction cost in its late-afternoon announcement yesterday. Escondido has just 149,000 residents, but the county ‘s total population is 3.1 million.
Palomar wants to relocate its existing inpatient rehabilitation program run by Kindred since 2000 at an older Palomar building in downtown Escondido. Palomar’s campus already includes an 11-story, 740,000-square-foot hospital opened in 2012; it has 288 private single-patient rooms, 44 emergency and trauma rooms, and 11 operating rooms (San Diego Union-Tribune). The new facility will be Kindred’s 20th rehab hospital nationwide. The Louisville company also has 95 transitional-care hospitals and 90 nursing centers. Palomar was launched in 1933 by two women — a nurse and a dietician — who used their own money to buy an egg and poultry plant downtown and converted it into a 13-bed hospital.
In Louisville, meanwhile, Kindred is planning a four-story, 114-room nursing home near the Old Brownsboro Crossing development at Chamberlain Lane. That follows the company’s disclosure two weeks ago that it’s closing its nursing and rehabilitation center near Bashford Manor, with 110 residents and 153 employees (Courier-Journal).
TACO BELL rival Chipotle’s once high-flying shares fell again, closing at $390.31 moments ago, the second consecutive day near three-year lows after a bearish Deutsche Bank report Monday. The stock’s weakness is the latest sign the Mexican food chain is still recovering from a devastating E. Coli outbreak last year; shares had reached an all-time high of $748 last August.
Analyst Brett Levy said Chipotle’s profit margin potential is now highly uncertain as sales continue to decline, and some customers “may be lost for good.” The analyst cut his price target to $340 (KDVR). The Denver-based chain was felled by two E. coli outbreaks starting in late October, forcing the company to shutter all its stores for a day to retrain employees. Chipotle shares have plunged 39% since the first outbreak emerged vs. a 17% gain by Taco Bell parent Yum. The CDC declared the outbreak over in February (CNBC). More about Yum.
AMAZON: A new report may have settled a long-standing question: How many different products does Amazon sell? Answer: 12.2 million on its own. Throw in marketplace sellers, and the number soars to nearly 354 million — enough to supply one different gift to each of the U.S.’s 319 million residents. Both figures exclude books, media, wine, and services, according to the 360pi study (Chain Store Age).
Kansas City, Kan., has emerged as a likely location for one of Amazon’s newest distribution centers, sparking speculation same-day delivery service won’t be far behind; it’s already available in Louisville and 26 other markets. The retailer is already working on a 822,104-square-foot center 37 miles southwest of Kansas City in Egerton, and plans to begin staffing there early next month for the busy third-quarter shipping season (Kansas City Business Journal). Amazon has two centers in the Louisville area with 6,000 employees, and another three elsewhere in Kentucky.
In other news, urban life blog Broken Sidewalk has new drawings of the recently announced six-story, 128-room Cambria Hotel proposed for the former Connection nightclub site on the corner of Market Street and Floyd Street in NuLu.
On Wall Street, U.S. stocks opened higher as traders eyed the end of a two-day Federal Reserve Open Market Committee meeting at 2 p.m. (Google Finance).
News about business and culture in Louisville, Ky.