Drug, Disincorporated

Last week Anno Domini 1929 turned in its well-interred grave. The anti-trust laws in decades past have dispersed great corporations: Standard Oil, the tobacco trust, the sugar trust. But the anti-trust laws never stopped men from taking the advice given by every U. S. dollar: e pluribus enum. The mergers of 1929 carried that advice to extremes if not to absurdity. The ghost of 1929 had last week the grim task of watching 1933 prepare to do what the anti-trust laws had never done, and saw one of the gigantic corporations which 1929 had created out of big and little ones, voluntarily and deliberately decide to disband--saw, grimmest of all, the financial community giving tacit approval to the act. A. H. Diebold, president of Drug Inc.. last week sent a letter to his 30,000 stock-holders inviting them to vote Aug. 7 on splitting up Drug Inc. into five companies. What is more he told his stockholders that Drug Inc.'s directors had come to the unanimous conclusion that the company would be better off as five independent units than as one. A business world that in 1929 would have been aghast at such a statement showed its feelings by bidding up Drug Inc. stock from 53 to 60 in the course of a few days.

In the beginning (1928) Drug Inc. was a simple two-way union between a curiously assorted couple that had one thing in common: each earned about $6,000,000 a year. The groom was Louis Kroh Liggett's United Drug Co. The business of United Drug was and is to manufacture drugs and other drug store items for sale exclusively by its own retailers, in chief 10,000-odd Rexall Drug Stores. While United Drug's original business was manufacturing not retailing, some of its Rexall dealers had from time to time decided to retire from business and Mr. Liggett's company had bought them out. Hence sprang United Drug's subsidiary. Louis K. Liggett Co., which in 1928 operated a chain of 500 drug stores in the U. S. In addition United Drug owned 75% of the stock (recently sold) of Boots, a similar drug chain in England.

The bride in this marriage was A. H. Diebold's Sterling Products, which came from a different sort of family. Sterling did no retailing hut manufactured a large assortment of patent medicines which it had bought up in the course of years. It made Cascarets, Danderine, Phillips' Milk of Magnesia, Fletcher's Castoria, Bayer's Aspirin (bought from the Alien Property Custodian in 1919), Mum, California Syrup of Figs, etc. It was evident in the beginning that the marriage between these two parties could never be complete. For Sterling would have lost much of its market if its nationally famed products had been sold only in Rexall and Liggett stores, and conversely United Drug's manufactures could not be distributed by Sterling--they were for sale exclusively by Rexall stores. Therefore the two spouses could beget no common offspring. Yet they at once proceeded to adopt children. The adoptions were made in the joint name of Drug Inc.. but were really of two kinds: 1) The groom's adoptions consisting of several drug store chains: B. & R. Drug Stores (1928), May Drug Stores (1929), Wolff Wilson Drug Co. (1929), Owl Drug Co. (1930).

2) The bride's adoptions consisting of manufacturers of national trade market articles: Life Savers, Inc. (1929), Three-in-One Oil Co. (1929), Bristol-Myers (1929). Household Products, Inc. (1930), Vick Chemical Co. (1930).

Several of the latter, however, were full grown businesses accepted into Drug Inc. on the understanding that they were to maintain private establishments of their own. For example:

P: Life Savers, originated by a chocolate manufacturer in Cleveland, did not do well till 1913 when a group headed by Edward J. Noble, a Manhattan advertising man. bought them and set them up in business in a serious way. Then their success was tremendous, and when Life Savers, Inc. was adopted into Drug Inc., Mr. Noble stayed on as president of the company, actual operating head. P: Bristol-Myers, taken in a few months later, was an old family business, maker of several estimable and well established products: Sal Hepatica, Ipana ToothPaste, Gastrogen Tablets, Ingram's Shaving Cream. The Bristols like Mr. Noble remained in charge of their company, Father William M. Bristol as chairman. Eldest Son Henry Platt Bristol as president, Second Son Lee Bristol as vice president in charge of advertising (known to all advertising men as a past president of the Association of National Advertisers), and Third Son William M. Bristol Jr. as secretary. P:Dr. Porter's Drug Store in Greensboro, N. C. gave the world two famous things. Behind its prescription counter labored a druggist named Lunsford Richardson, William Sidney Porter (nephew of Dr. Porter ) was one of his clerks. Clerk Porter soon went forth into the world and produced short-stories under the nom de plume O. Henry. The late Druggist Richardson remained behind the counter for 17 years and being a dyspeptic gentleman who with just cause abhorred ipecac (then the common remedy for colds), invented a Magic Croup Salve which he named after his brother-in-law, Dr. Joshua Vick. In time Druggist Richardson became a manufacturer and Vick's Magic Croup Salve became Vick's VapoRub. His two sons, H. Smith Richardson and Lunsford Richardson, inherited the company. By 1929 they had it earning $3,700,000 a year and they stayed with it when it went to Drug Inc. The theory by which Messrs. Noble of Life Savers, the Brothers Bristol of Bristol-Myers and H. Smith Richardson of Vick stayed with their companies (and joined Drug Inc.'s directorate), was that they knew best how to operate their own companies. Drug Inc. was to become an all-star team of drug manufacturers each continuing to play with all the skill that had made him a star--and mutual support was to make them better than ever. Last week's decision meant but one thing: that mutual support was no longer considered as great an asset as independence. To begin with, United Drug's chain-store profits have long since vanished , principally because of the effect of depression on Louis K. Liggett Co., now in receivership (TIME, April 10). From the standpoint of supplying cash for Drug Inc.'s dividends, one of the biggest members of the team was not supplying any support whatever. Second point was that the support had never proved to be so worthwhile or so possible as anticipated. In the matter of mouthwash how was United Drug to press its M131, Life Savers its Oradol, Vicks its Voratone, and Bristol-Myers its Analka--without competition? In the matter of toothpaste how was Bristol-Myers to press its Ipana, Sterling its Phillips' Dental Magnesia, and United Drug its Rexall Milk of Magnesia ToothPaste without competition? Third point was that the industrial future while looking less depressing than it did a few months ago, looks equally uncertain, and each skipper of the Drug Inc. flotilla wants plenty of sea room to ride out whatever weather lies ahead. For most Drug Inc. products are specialties and in such a time those in charge of each specialty want to be able to act quickly without interference. The prospective split up will not however restore the status quo ante, for things have changed during the depression. The comparative value of the companies that went into Drug Inc. can be roughly measured by the number of Drug Inc. shares issued to acquire them. The percentage of the costs of dissolution to be borne by each company is a guide to the management's opinion of present value: Percentage of Costs Estimated* Original of 1932 Percentage Demerging Earnings Sterling Products. 41% 49% 10,000,000 United Drug. . . . 34% 20% 2,575,000 D Vick Chemical. . . 13% 17% 2,900,000 Bristol-Myers . . . 7% 11% 2,200,000 Life Savers. ... 850,000

To Mr. Diebold, the tall, mild president of Drug Inc.. and his alter ego aggressive Vice President W. E. Weiss, the dissolution of the holding company means but a partial reduction of responsibility. This team will continue managing the same Sterling Products which they put into the merger five years ago. Only Mr. Liggett, of United Drug, and particularly George M. Gales, who heads its unfortunate Liggett Drug chain, can be said to leave the merger somewhat sadder than they entered it -- because United Drug alone has had a serious setback. On the other hand United Drug may conceivably make the biggest progress of any ex-member of Drug Inc., for it has followed depression down to the bottom. The millstone of real estate leases which bore down its Liggett Stores has been lifted by bankruptcy. Ergo, the happy wedding of five years is succeeded by a happy divorce.

*Estimated by Dow Jones--no separate reports published since the companies joined Drug Inc. D=Deficit.

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