In 1933, a precedent was set for paying whisky as a dividend on common stock. As I have discussed in an earlier blog, entitled The Famous Whiskey Dividend, companies can invent creative ways to pay out dividends. In fact, when the going gets tough, the tough go drinking.Another oddball dividend story last seen in Living La Vida Cocoa: Warren Buffett, Berkshire Hathaway and the Chocolate Wars (BRK.A; BRK.B; CBY; KFT; HSY):
After Prohibition was repealed in 1933, National Distillers Products Corporation distributed a dividend of one case of whiskey for each five shares that were owned. This pulled out the stops with paying dividends. Twenty years later, Park & Tilford provided a more sobering saga.
PUMP AND DUMP
Originally founded in 1840, Park & Tilford had a long history of being a family-owned operation run by the Schulte’s. For decades, the company produced a broad line of whiskey and related products until it formally incorporated in 1923 in order to list on the NYSE.
In 1943, in the middle of World War II, whiskey was scarce. Most companies that produced whiskey had their factories diverted to manufacturing more important goods – in the opinion of some folks – making whisky a hot product to the public. Since Park & Tilford owned a drug store in New York and went public during prohibition; the company diversified into cosmetics, perfumes and other drug sundries. Though Prohibition had been repealed in 1933, the diversion of resources to the production of war materiel had some people worried that Prohibition was being reintroduced de facto if not de jure.
On December 15, 1943, D.A. Schulte, the President of Park & Tilford announced that the company was contemplating a distribution of whiskey to its shareholders. The announcement by Schulte had its effect. Based on these rumors, the stock advanced roughly 40 points over the next five months, as new shareholders tried to get access to scarce whisky to sell on the black market. This advance was an aggressive move in any market....MORE
...*Copied out of the 1988 Annual Report for our November 2007 post "How Buffett Made a Killing in Chocolate, And Warren's Letters to Shareholders":
Warren on arbitrage:
Some offbeat opportunities occasionally arise in the
arbitrage field. I participated in one of these when I was
24 and working in New York for Graham-Newman Corp.
Rockwood & Co., a Brooklyn based chocolate products
company of limited profitability, had adopted LIFO
inventory valuation in 1941 when cocoa was selling for
50 cents per pound.In 1954 a temporary shortage of cocoa caused the price to
soar to over 60 cents. Consequently Rockwood wished to
unload its valuable inventory - quickly, before the price
dropped. But if the cocoa had simply been sold off, the
company would have owed close to a 50% tax on the proceeds.
The 1954 Tax Code came to the rescue. It contained
an arcane provision that eliminated the tax otherwise due
on LIFO profits if inventory was distributed to shareholders
as part of a plan reducing the scope of a corporation’s business.
Rockwood decided to terminate one of its businesses, the sale
of cocoa butter, and said 13 million pounds of its cocoa bean
inventory was attributable to that activity. Accordingly, the
company offered to repurchase its stock in exchange for the
cocoa beans it no longer needed, paying 80 pounds of beans
for each share.
For several weeks I busily bought shares, sold beans, and
made periodic stops at Schroeder Trust to exchange stock
certificates for warehouse receipts. The profits were good
and my only expense was subway tokens.
The architect of Rockwood’s restructuring was an unknown,
but brilliant Chicagoan, Jay Pritzker, then 32. If you’re
familiar with Jay’s subsequent record, you won’t be surprised to
hear the action worked out rather well for Rockwood’s continuing
shareholders also. From shortly before the tender until shortly
after it, Rockwood stock appreciated from 15 to 100, even though
the company was experiencing large operating losses. Sometimes
there is more to stock valuation than price-earnings ratios.This story is from the 1988 Letter to Shareholders of Berkshire Hathaway. I have Warren on dead trees (WODT) but BRK has put the letters online,if you would like to read of his other adventures.
