CORPORATIONS: Money in the Box

A fascinating rhythm blared last week from Chicago’s Seeburg Corp., the world’s biggest jukebox maker. Three years ago Seeburg gave mankind the 200-selection machine. This year the sound in Seeburg’s gaudy new juke is stereophonic. To the jukebox industry, the new sound is only a little newer than the two young men who call the tune for Seeburg: President Delbert W. Coleman and Board Chairman Herbert J. Siegel. The corporation (fiscal 1958 sales: about $25 million) makes not only jukeboxes but most of Western Union’s facsimile equipment, plus key electronic components for the Nike and Sidewinder missiles. Two years ago, at the ripe ages of 31 and 28, Coleman and Siegel got control of Seeburg with a display of financial virtuosity worthy of Cash McCall.

Northwest Passage. Siegel and Coleman joined forces in Philadelphia while Siegel (a Lehigh journalism graduate) was commuting to a small job with a Manhattan TV film firm, and Coleman (Harvard, ’48) was attending the University of Pennsylvania law school. They bought a stake in a soft drink company, swapped their interest for a Cleveland chemical company, whose earnings they doubled in ten months. Then in 1955 they spotted Pittsburgh’s ailing Fort Pitt beer company, and took it over with all the eclat of two cub scouts finding the Northwest Passage.

Fort Pitt had once been Pennsylvania’s top brewer, but a strike had laid it low. Its big asset to Coleman and Siegel was a $1,800,000 loss that could be offset against profits if merged with a profitable company. With $1,500,000 in bank loans, they merged two profitable overcoat companies (owned by Siegel’s family) with Fort Pitt, and wound up with control of Fort Pitt.

To take advantage of the tax losses, they began looking for another company with healthy earnings, decided on the family-owned Seeburg Corp., which had annual pretax earnings averaging $2,000,000. The family wanted to sell for $8,000,000 in cash, $2,000,000 in five-year notes. All but $3,300,000, could be covered by Seeburg’s liquid assets—but how to raise that? Despite a tight money squeeze, they succeeded in borrowing it, partly from the Seeburgs themselves.

Do-lt-Ourselves. With the company.

Coleman and Siegel also got heavy debts at high interest rates. To climb out, Coleman negotiated a swap with the See-burgs of $1,200,000 in cash for the $2,000,000 owed in notes, borrowed another $700,000 from them. Siegel raised more from Philadelphia’s Donner Foundation and the New York Water Corp. In addition, they sold off their Fort Pitt clothing and beer business for $3,000,000 plus a hefty beer royalty from the new brewery owners. With Seeburg’s cash position in shape, they were able to pay off their bank debts for the original Fort Pitt deal —and buy Eastern Electric Inc.’s electrical cigarette vending machine business.

Last month the great Monopoly game ended. Coleman and Siegel retired nearly all their high interest debts by negotiating with Chicago’s First National Bank a single $3,150,000 loan that runs for five years at 5%. “For two years we’d been putting our fingers in the dike, first here, then there,” says Siegel. “What a relief.”

Each of the Monopoly players now personally owns about 15% (168,000 shares) of Seeburg’s outstanding stock, and together their families control perhaps 45%. Coleman and Siegel have already given Seeburg hearty shots in the arm by introducing stereo jukeboxes, getting into the profitable cigarette vending business, giving new financial backing to Seeburg dealers. In the 1958 fiscal year ending this month, they expect Seeburg to earn only about 50¢ a share, owing mainly to the cost of scrapping unprofitable old products. Next year, with enough stereo orders already to run at full production well beyond the current quarter, they expect Seeburg to triple earnings.