Summary and Review of Everybody Wins!: A Life in Free Enterprise by Gordon Cain

This summary and review of the book, Everybody Wins!: A Life in Free Enterprise, was prepared by Kathryn London while a Marketing student in the College of Business at Southeastern Louisiana University.



Executive Summary

Everybody Wins!: A Life in Free Enterprise is the autobiographical story of Gordon Cain, a chemical engineer who well past the average working age, at 70 years old, had a massive effect on the industry by restructuring assets through leveraged buy outs (LBOs). A leveraged buy out is a term used to describe a purchase in which a large amount (usually over eighty percent) of the purchase is borrowed.

Gordon Cain was a Louisiana born chemical engineer who graduated from Louisiana State University in 1933. After gaining significant management experience fighting in WWII and earning the Purple Heart, began working for numerous chemical and electric companies. Then, in the 1980’s Cain completed his first leveraged buy out, one of many that would transform unsuccessful companies into dynamic businesses. These companies include Sterling Chemicals, Cain Chemicals, Vista Chemicals, Fiber Industries, and The Arcadian Group.

The most impressive aspect of Cain’s remarkable tale is not the success Cain created for himself, but the way in which he helped create great gains and opportunities for many others. He felt that a business will run with much more success if employees are deeply invested in the company. Because of this belief he made sure his employees received an employee stock ownership plan (ESOP) and a profit sharing plan. When his businesses did well the employees were set to make great profits in relation to this success.

Cain conducted five LBOs during the 1980s in which he made large sums for himself, the institutional investors involved, over 100 key managers and around 5,000 employees. These employees benefited handsomely from their stock participation. His largest deal took place in 1989. During this time Cain Chemical increased 44 times in value in the time period of 9 months between the time in which Cain created the company and when the company was bought out by Occidental Chemicals. Though Cain was at first unsure about letting Occidental buy the company, in the end he went through with it because it was apparent how beneficial the buy would be to everyone involved.

One large factor that helped make Cain’s vision a reality was debt finance. In the early 1980’s Cain had very little venture capital, not enough to compete for control. But at this time high-risk, high return “junk” bonds were beginning to come into play. Cain used these bonds to finance his leveraged buy outs.

Once the 1980’s were over, Cain quickly grew tired of the leveraged buy out process. He did decide to invest in other interests including an airline business and the Mary Cain Foundation for charity. Cain felt that he owes a large part of his success in treating others, especially his employees fairly and decently.



The Ten Things Managers Need to Know from Everybody Wins!: A Life in Free Enterprise

1. Hang Loose and don’t sweat the small stuff. Stay positive.

2. If cuts must be made, keep a sound vision that can help encourage those still employed.

3. Sometimes it’s easier to negotiate a small deal than a big deal. This is because you can usually negotiate with a motivated empowered seller.

4. Have a keen sense of the cycles of the industry. Anticipate problems before they occur.

5. Take time to make smart decisions with consideration to others on our team.

6. Its always good to have the advice of an intelligent competent attorney that you have the right chemistry with.

7. Business restructuring can sometimes be beneficial for everyone.

8. Employees that are invested in the company do better work.

9. It is unnecessary to be cut-throat or ruthless.

10. There is nothing wrong with debt or leverage.



Full Summary of Everybody Wins!: A Life in Free Enterprise by Gordon Cain

Why Cain Wrote This Book

Gordon Cain decided to write the book for multiple reasons. One reason was that it was important for him to change some common misconceptions regarding business. Cain feels that business is not only a young person’s game in which ordinary rules no longer apply. Cain feels that a person can actually achieve their business goals and accomplish great things at almost any age. And the rules of business do still apply. The book details a interesting look into the business world and the politics and principles that take part.

Another reason that Cain wrote the book was for his 3 grandchildren. Each of his grandchildren was born in the 1980’s at a time when Cain achieved many of his successes. During this time, successful business leaders were seen and depicted by those on the outside as being greedy and without moral decency. Knowing how curious he had been about his own grandfather, and not wanting his grandchildren to only hear one side of the story, he wanted to share with his grandchildren his side of the market responsible for his many successes. In his story, he proves there is nothing wrong with leverage or “junk bonds” and it is possible to succeed without being ruthless and benefit everyone involved.

The Unexpected Path to Entrepreneurship

Beginnings

Gordon Cain was born on May 31, 1912 in Baton Rouge, Louisiana. Born from the first generation of college graduates, Cain described his father as a man of honor and integrity. Unfortunately his father may have had too much faith in others and often entered into unsuccessful ventures. During his childhood Cain was exposed to the large amounts of damage caused by the boll weevil. Living in an area dominated by the cotton industry, this insect all but destroyed the cotton crops in the Louisiana area. Those areas in which the land was poor never did recover. Cain’s family, which was originally made up of cotton farmers had to convert their fields into pasture and raise cattle instead. Cain started from humble beginnings. During his childhood his family moved many times from Baton Rouge to a small town outside of Baton Rouge and then back to Baton Rouge again. Shortly after Cain entered into kindergarten his father received a job opportunity in the town of Calhoun in northern Louisiana.



Cain described the small town of Calhoun as a young boy’s heaven where there was much for him as a child to do. Most of the town was made up of farmers and their families. As he entered school there he found that all eleven grades were in a single building. It was during this time in Calhoun that his family was hit by the influenza epidemic of 1918. He and his brother ended up recovering from the illness but sadly his mother passed away in January of 1919.

Soon after his mothers passing, his father remarried a new woman by the name of Ruth. When Cain became ill with the flu again the following year it was decided that he would go and live with Ruth’s family a few miles away. This new family consisted of Ruth’s parents Grandma and Grandpa Finklea and Ruth’s older sister Mae. Though he spent time with a new stepmother and in different households, Cain described all of his parents and surrogate parents as “loving, kind people”. He felt that he was very fortunate.

After graduating from high school it was undecided as to where Cain would attend college. In the past it was always anticipated that he would attend Louisiana State University. But, with the current financial situation in is family, Cain did not expect this to pan out. Then, unexpectedly, he was given a job as a clerk in the local Missouri Pacific office. This job ended up paying such a large amount that he was able to take a year off of school to get the money together and then attend.

At LSU, Cain joined the ROTC program and during his junior and senior years he was invited to the ROTC camp in Maryland. He majored in chemical engineering which he found to be a quite demanding curriculum. He feels that quality teachers helped him with this. His 4 years in college were described as being filled with study and work and some play, but definitely not the fun filled years described by some college graduates.

Choice and Chance

After graduating in 1933, Cain struggled with the task of finding a job during the great depression. During this time the unemployment rate was around 25 percent. In the end Cain made a deal with another man and traded his fellowship at the University for a job with a utility company, The Louisiana Power and Light Company. This job was not as enjoyable as he would have liked but paid more than some other job at this time. With this position he was able to pay off his college debts. After two years with the utility company he learned of and applied for a job at Freeport Sulphur in Texas which he found to be much more enjoyable and allowed for much travel.

After working for Freeport he moved on to a job for Merck and Company in New Jersey. Despite this job, Cain left his engineering position to put his training from ROTC and the Reserves into good use. In 1942 as a member of the US army Cain was sent to Panama as an officer. During this time he learned a great deal about managing others and taking command. After some time in Panama it was decided that he and his troops would be transferred to a base in Alabama called Camp Rucker where they would be trained to start a battalion to fight elsewhere. In determination to protect his troops from further danger, Cain set out to train them to the best of his abilities. This training he found has two parts, to teach his men al of the necessary skills, and to help them develop the physical and mental toughness to get them through no matter what. After leaving Alabama they were sent to Hawaii where Cain was upgraded to Commander. Eventually, they were sent to the islands of Japan where he earned the bronze star for helping another soldier in battle and the Purple Heart after becoming injured himself.

After returning to civilian life, Cain decided to work for Freeport Sulphur which led for a job opportunity to work in postwar Germany for the Department of Commerce. From there he went to work for JH Whitney in Pasadena, CA. This job in California was helping the office after they had made a few bad investments. He ended up taking over part of the company to make it profitable. This effort was at first successful but his resources were not enough to gain decent enough profits. This may have been his first taste of entrepreneurship. After being forced to give up and cash in, Cain decided to try and look for work in the corporate world.

Eventually he began working for a petrochemical company called Petro-Tex. He also got married around this time. With the Petro-Tex Corporation, Cain was virtually running things but did not have the title of head of operations. So, in 1959 he decided to go and attend a 13 management program by the Harvard Business School. After this Cain was given an actually head position at Conoco Oil Company. At Conoco Cain spent 6 years learning everything about the business he would later buy. After Conoco Cain’s wife Lucia passed away and he began staying busy with helping people he knew with troubled businesses. Cain would manage these businesses and make them into better enterprises. This went on for about 10 years until Cain went on to move to Texas and remarried.



First Steps to Independence

Cain became very comfortable being his own boss and began spending time trying to find a chemical company to buy out. It was actually during his regular Saturday morning golf game that he found the company he wanted. His golfing buddy John had worked with him at Conoco and was currently running the Conoco chemical business for DuPont. Cain had a feeling that DuPont might be willing to sell this part of the business as it did not fit with any other part of the plant. Cain was correct in this assumption.

It was a step by step process to the get the idea started. First thing was to get financial management help from EF Hutton, a financial brokerage firm. Next, they added managers of Conoco’s chemical business to the team. Then they had meetings set up with the right people from DuPont and began negotiations. It was during this process that Cain determined it is always good for have a quality lawyer. It is important that the chemistry with your lawyer be right and he must know your position on every possible issue.

Financing was another big issue in this process. They determined banks would only lend them 65 percent of the purchase price. To get the best possible return they wanted to try to keep the equity to 10 percent. This means that they would need to raise 25 percent of subordinated debt. At first they had difficulty finding financial help from one of the three major companies. The Teacher’s Retirement Fund of New York did not understand the chemical side of the venture to invest. Prudential finally came through and got them what they needed after separating the business into two parts the first being detergents and the second being plastics and PVC materials. Unfortunately the negotiations were put on hold when Cain had to have surgery to repair a blockage in his heart. He kept in touch with his associates at this time by phone.

The closing for the buy occurred in 1984 with a purchase price of 507 million dollars. The new title of the company was Vista Chemical. The financial performance improved greatly after the buy and many of the key players were considering cashing out. They considered the venture to being a gamble won and they did not want to risk their earnings by going further. In the end it was decided that Vista go public. At this time stock was selling for 5.1 times the initial price. So, Cain decided to sell his share and resign as chairperson. He realized he had more interest in doing LBOs than being a chairman. He used the 5 million dollars he made to do more LBOs.

The 39 initial employees also had much to gain from Vista Chemical. Cain wanted to include an employee stock ownership plan (ESOP) which is a trust authorized by federal law to buy stock for the interest of the employees. This interest in ESOPs came from Cain’s belief that if employees have more stake in the company success is much more likely. Vista employees collected about 1.1 million shares with a value of over 60 million dollars.

First Junk Bonds

After Vista, Cain bought out the Monsanto Texas City plant which he renamed Sterling Chemicals. This would be Cain’s first experience with Junk Bonds. Through his experience with Vista Cain felt confident that he could conduct a major LBO without the aid of an investment banker with the help of people from the Chase Manhattan Bank and Prudential. Unfortunately soon after the venture began, Prudential backed out. This may have seemed disastrous at the time but ended up for the best in the long run. With Prudential out, they needed to start talking to investment bankers. They found a fit in Morgan Stanley which proposed the sale of high yield “junk bonds” for them publicly. A 200 million dollar bid for the company was accepted and to get the money together, Morgan Stanley sold the 8 million of preferred stock to 3 institutions.

The closing of the Monsanto plant occurred on August 1, 1986. By this time Cain had some definite views on the way that he wanted his company run. He wanted to have maximum ownership of the employees. In addition to the ESOP plan offered, they also had a profit sharing plan that would prove beneficial. By 1988 there had been an increase in demand and they were averaging 6 to 7 times the 40 million dollar rate they had forecast. They paid a premium to buy back the last of subordinate debt and repaid mostly all of the bank debt. They then had the funds to pay 80 million dollars in dividends and then later 100 million dollars in dividends.

After this Cain went on to form Cain Chemical with an ethylene plant in Corpus Christi as well as similar plants in Chocolate Bayou, LA, Orange, TX, Victoria, TX, and Bay City, TX. At Cain Chemical it was proven just how beneficial it was to have employees mutually invested in the well-being of the company. At a time when there was a seven week outage and production needed to continue at the Corpus Christi plant, workers at the Chocolate Bayou facility came in uninvited and unpaid to help with the work. In the first full quarter in 1987 earnings before taxes, depreciation and amortization were 50 percent more than they had forecast. The big payoff came in 1988 when they had made at least twice as much as they had forecast for that year. It was at this time that they received word that Occidental Chemicals wanted to pay between 800 million dollars and 850 million dollars for the equity. In the end, they settled for 1.2 billion dollars in cash.

This sale of equity meant that each share of stock that initially sold for 1 dollar was now worth 44 dollars at closing. The management and employees owned 44 percent of the equity and divided about equally among the ESOP, the 77 managers that received stock options, and the key people who bought stock. These employees had already collected 24,000 dollars as part of the profit sharing program. Employees were able to pay off mortgages, send children to college, and take vacations. To show their appreciation for everything that Cain had done for them, a full page ad appeared in the Wall Street Journal a few weeks later basically saying “Thanks” from all 1,337 employees.

The Human Face of Free Enterprise

After this Cain went on to do more LBOs including Fiber Industries and Arcadian Fertilizer Company. After the 1980’s his interest in LBOs somewhat diminished and he spent more time on other interests. These interests included an airline company and a charitable foundation called The Mary Cain Foundation in the name of his second wife. In the end Cain feels that the free enterprise system is not the dog-eat-dog, every man for himself, world it may appear. He feels that taking good interest in motivated employees is beneficial to any business. You cannot have motivated and invested employees unless they are treated fairly.

Other things that make a business a success are managers with a professional manner. New better managers think of themselves as team players and consultants. Cain also feels that the economy could afford to grow faster with conventional and economic growth. Venture capital would play a large role in this, as well as high income individuals. Some things that he feels impede growth are the excessive regulations and legal liabilities that are overburdening enterprises.

Cain ends the book by stating how extremely grateful he is for accomplishing so much in one lifetime. He feels that it is astonishing how much a person can achieve with a lot of luck and the help of others along the way. In the book it was very obvious that Cain benefited from a great deal of luck and used the help given to him from others efficiently.


Personal Insights

Why I think:

· The author is one of the most brilliant people around…, because:

The most interesting thing I discovered from reading Gordon Cain’s book is his ability to stay positive in almost every situation. It really appears that Gordon Cain has not a bad thing to say about any situation he came upon or any person he encountered. In Gordon Cain’s life it seems he had nothing but great family members, great teachers, great bosses. Situations continually seemed to work themselves out in the book. I do feel that this is in part to Cain probably being a very lucky individual but I also feel that he has the ability to see the positive in every situation and because of this, positive things come to him.

· If I were the author of the book, I would have done these three things differently:

1. I would maybe have written more about the negative side of things to make the book seem more realistic and down-to-earth. Not everyone wants to hear about how everything always went right.

2. I would have discussed in more detail the big events in Cain’s personal life in the second half of the book. Once he began talking about the LBOs he only casually and quickly mentioned events like having grandchildren.

3. I would not have spent as much time going into the chemical details of each plant he took part in. The chemical makeup of his product made was a bit dry and confusing.

· Reading this book made me think differently about the topic in these ways:

1. I now understand in detail what a “junk bond” is and how it can be used.

2. I now understand the concept of leveraged buy outs and can see the appeal of doing one.

3. I now see how important beneficial it is to treat your employees right and to make sure they are invested in the success of the business.

· I’ll apply what I’ve learned in this book in my career by:

1. I will stay positive and not sweat the small things in the hopes that good things will come to me as well.

2. If I ever own my own business, I will make sure that my employees will benefit as well to any success the business may have in the hopes that this will motivate them as well.

3. I will be sure to keep an eye out for any opportunity to take something that is not doing well and benefit from turning it into a success.

· Here is a sampling of what others have said about the book and its author:

A customer review at Amazon.com states: “I had the pleasure and blessing financially to work for two all two short years for Gordon Cain, back in the 1980s. The man was both a gentleman and a genius. The title of the book sums up how he lived his fascinating life. As Gordon gracefully recounts his story, he leaves the business reader with wisdom of great value.”

Robert Bradley, Jr. at Thefreemanonline.org states: “Cain’s story offers much useful insight and experience about business restructuring, management philosophy, and public policy. Cain’s revisionism casts fourth-and-long business restructuring in new light. Debt financing is shown to have a human face after all. And thanks in part to Cain’s new competitive standard; America’s chemical/petrochemical industry remains a world leader today. Everybody Wins! is thus a powerful antidote to many poisonous myths about capitalism.”



Bibliography

Bradley, Robert L. (1997 November 1) Everybody Wins! A Life in Free Enterprise The Freeman Online. Retrieved April 24, 2010.

http://www.thefreemanonline.org/book-reviews/book-review-everybody-wins-a-life-in-free-enterprise-by-Gordon-Cain/

Horn, David J. (2006 August 17) Everybody Wins! A Life in Free Enterprise: Customer Review, Amazon.com. Retrieved April 24, 2010.

http://www.amazon.com/review/R1OFMH2RIJUKU3



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Contact Info: To contact the author of this “Summary and Review of Everybody Wins!: A Life in Free Enterprise,” please email Kathryn.London@selu.edu.

David C. Wyld (dwyld@selu.edu) is the Robert Maurin Professor of Management at Southeastern Louisiana University in Hammond, Louisiana. He is a management consultant, researcher/writer, and executive educator. His blog, Wyld About Business, can be viewed at http://wyld-business.blogspot.com/.

Originally published
Summary and Review of Everybody Wins!: A Life in Free Enterprise by Gordon Cain


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