Should black businesses be sold to whites? Sure - if the price is right. How else can black entrepreneurs raise the capital to finance expansions and acquisitions? - Cover Story

Black Enterprise, Nov, 1993 by Alfred A. Edmond, Jr.

Depending on who you talk to, it was either the deal - or the disaster - of the year for black business. In a one-for-one stock swap valued at $67 million, Johnson Products Co. Inc., the legendary Chicago-based hair care products company known for its Ultra Sheen and Gentle Treatment brands, became a wholly owned subsidiary of IVAX Corp., a Miami-based holding company for several cosmetics and pharmaceutical firms. To the executives of these companies, the transaction, approved by Johnson Products shareholders on August 31, was a true win-win deal.

"IVAX has an international distribution network that will help us increase both sales and profits," says Johnson Products chairman and CEO Joan B. Johnson, who controlled more than 58% of the stock in Johnson Products before the merger. "Another advantage is that we'll now manufacture and distribute IVAX's Flori Roberts cosmetics line, which is targeted to black women. This deal creates synergies for marketing opportunities with our hair care products."

IVAX chairman and CEO Dr. Phillip Frost concurs, "Johnson Products complements several of the businesses that IVAX is pursuing. IVAX is committed to the markets served by Johnson Products." (Both companies are traded on the American Stock Exchange.)

However, outsiders only saw a $46-million black-owned company with 39-year-old roots in Chicago being swallowed up by a $451-million, white-owned conglomerate. Chicago's black community leaders were appalled at the thought of Johnson Products falling into white hands. "A lot of community leaders felt betrayed because we would have liked to check the resources in our own community first," declares Mark Allen, president of the Black Leadership Development Institute, a local nonprofit leadership training group.

It didn't help that, a month after the merger was announced, news surfaced that board members of Indecorp, the holding company of Independence Bank of Chicago and Drexel National Bank, were considering selling the black financial institutions to white-owned South Shore Bank. By then, Operation PUSH national executive director Janette C. Wilson was calling for a boycott of IVAX. "We object to the purchase and sale of Johnson Products to white-owned IVAX," Wilson protested at the close of the civil rights organization's 1993 convention, "because of the wreckage the potential acquisition would leave in our community in terms of loss of jobs and to the decreased commitment to our economic empowerment." Wilson later stated that the statements were her personal opinion and that PUSH has taken no position on the merger.

A Question Of Commitment

Meanwhile, no one has been more vehemently against IVAX acquiring Johnson Products than the hair care company's founder, George E. Johnson. Johnson gave up controlling interest in the company to his former wife, Joan, as part of a 1989 divorce settlement. "You can't tell me anything that can justify what is happening," says Johnson, who dismisses the idea that Johnson Products' commitment to the black community can be maintained under the IVAX umbrella, even though the company and its jobs are to remain in Chicago. "From the time that the deal is consummated, money made at Johnson Products will no longer remain in the black community. Whenever we were profitable, the company, the employees and the community benefited from those profits. That now ceases to be. It's that simple."

Or is it? Many observers thought it hypocritical of George Johnson to protest the Johnson Products/IVAX merger. As chairman of Indecorp, Johnson led discussions about the sale of Chicago's two largest black banks to a white institution. in August, Johnson signed a letter of intent for the purchase of Indecorp by a black investor group led by William T. Johnson, chairman of Detroit-based OmniBanc.

However, Johnson defends the idea of selling to South Shore Bank because of its track record financing the building of low-income housing in Chicago. "It's not a black-white thing," he says. "It's a question of commitment to our communities."

Mergers & Acquisitions: A Love/hate Relationship

The sale of Johnson Products to IVAX challenges our understanding of economic empowerment Are blacks who sell their businesses to whites savvy entrepreneurs or sell-outs? African-American response to this question has been as varied as the companies that have been the objects of such deals.

For example, when the late Reginald F. Lewis sold McCall Pattern Co. to John Crowther Group of Britain in a deal valued at $90 million in the summer of 1987,the deal was universally celebrated. Lewis, who led the $23-million buyout of McCall in 1983 with a personal stake of $1 million, realized a personal profit of $50 million on the sale. Only months later, Lewis' TLC Group brilliantly leveraged that capital into the deal of a lifetime: the $985-million acquisition of Beatrice International Foods. At the time of the sale, McCall was a $63-million company, ranked No. 6 on the BLACK ENTERPRISE 100s. The deal led to the creation of the nation's largest black-owned company, TLC Beatrice International Holdings, the only $1-billion-plus company controlled by African-Americans. The two deals established Lewis (who died at age 50 of brain cancer in January) as an entrepreneurial role model for blacks. (Jean S. Fugett Jr., Lewis' brother, is now CEO of TLC Beatrice.)