A Matter of Chemistry

In 1952, as it approached the end of its first century in business, New York's "Old Lady of Hanover Square"--W. R. Grace & Co.--appeared to be sinking into the feebleness of age. For generations, Grace Line ships had raced unchallenged along the west coast of South America, trading cargoes of coffee, cacao and sugar and piling up 90% of Grace's multimillion-dollar profits. But after World War II, as subsidized Latin American merchant marines sprang up to compete for cargoes and challenged Grace's trading supremacy, the company's profits fell from $13,000,000 in 1946 to $8,000,000 in 1952. Even more serious, Grace's economic life or death depended on the political health of half a dozen volatile Latin American countries, and the aging handful of executives who had long run the company from their rolltop desks in New York seemed content that it should be so.

Last week, as Grace issued its annual report for 1961, it was clear that the "old lady" had discovered an economic fountain of youth. On sales of $535 million, Grace last year turned a profit of $19 million--up 16% from 1960 and a whopping 138% from 1952. Secret of this remarkable rejuvenation was Grace's own chemical formula. In a single decade, Grace has transformed itself from a shipping and trading company into a worldwide chemical producer, now ranks among the top dozen U.S. chemical companies and counts on chemicals for two-thirds of its income.

Golden Guano. The imagination and energy that rebuilt Grace flows from President J. Peter Grace Jr., 48, the barrel-chested grandson of William Russell Grace, who founded the company in 1854. Founder Grace, a scrawny, 22-year-old refugee from the Irish potato famine, began as a ship's chandler to the merchantmen who were flocking to Peru for cargoes of guano, the mineral-rich bird droppings used as fertilizer. With his profits as a chandler, he outfitted his own ships, established sugar plantations, and soon had created an intricate distribution network up and down the west coast of South America.

When Peter Grace became president at 32 in 1945, he had worked for the company less than ten years. "My father," he recalls, "wanted me to be president--much to the displeasure of a lot of people. I was scared." But candid, headstrong young Grace was not so frightened that he failed to see his company needed refurbishing. To beef up Grace's diminishing core of top executives, he personally set about hiring topflight new executives from Montgomery Ward, Coca-Cola and Jersey Standard. Simultaneously, he set up a statistical study division to find ways of overhauling Grace's traditional operations and to seek out new enterprises that would reduce the company's excessive concentration in Latin America.

Off on a Spree. Within two years, Grace had decided the company must diversify--into chemicals and in a big way. Chemicals, he says, "were one of the few industries in which our entry wouldn't create an imbalance or an overcapacity." To the horror of most Grace elders, he launched the company on a $250 million spending spree, designed to buy new technical and executive skills as well as new businesses. Within the next decade, a series of eight acquisitions put Grace into sealing compounds, plastics, resin coatings, chemical catalysts, synthetic rubber, oil refining, and nuclear fuel processing. Sales to chemicals-hungry industry and agriculture leaped as Grace grew into a complex giant with 60 plants in 18 nations from Australia to Italy. Grace has also invested over $8,000,000 in Libyan oil concessions and predicts the venture will eventually account for 15% to 25% of total sales.

As it acquired profitable new lines, Grace ruthlessly lopped off marginal old ones, including its longstanding coffee producing and wholesaling business. When Grace Lines slipped into the red two years ago, Peter Grace unsentimentally sold off eight ships and slashed administrative and maintenance costs. Last year the 26-vessel line was back in the black--but Wall Street rumor continues to insist that Grace would sell it, given the right offer.

Old Grounds, New Look. With the vast expansion of Grace's operations, Latin America has produced a steadily shrinking share (39% last year) of the company's revenues. But Grace still has 23,487 employees (only 70 of them Americans) south of the Rio Grande, and West Coast Latin Americans still use Grace-made sugar, wear clothing made from Grace textiles, and fly on planes of Panagra Airways (jointly owned with Pan American). By taking an active role in the community life--but not the politics--of the nations where it operates, Grace has largely overcome the stigma of "Yankee imperialism" and is so little concerned about expropriation that it plans to spend $5,000,000 this year expanding its Latin American operations. Even in its traditional stamping ground, however, the company's new look is evident. Already Grace has chemical plants producing in six Latin countries plus Trinidad and Puerto Rico; and so far as the future is concerned, says Vice President John Duncan, "chemical development is a top priority objective in Latin America."

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