On this day in economic and business history…
The fifth month of 1911 is often remembered for the landmark dissolution of the legendary Standard Oil Trust, a judgment which put forth a standard of “reasonableness” in assessing the size and competitive efforts of massive companies. What’s often forgotten is that Standard Oil was not the only trust in the government’s crosshairs during the 1911 session. On May 29, 1911 — just before its annual recess — the Supreme Court dissolved the American Tobacco Trust, using the same standard of reasonableness it had set weeks earlier against Standard Oil.
American Tobacco was founded in 1890 by James B. Duke, who pioneered the use of mechanical cigarette-rollers and thus gained a level of control over his industry similar to that of oil-industry counterpart John D. Rockefeller. Duke already controlled roughly 40% of the cigarette industry by the time he founded American Tobacco, and his control only grew as the trust absorbed hundreds of smaller competing firms. This made it a logical choice to become one of the Dow Jones Industrial Average‘s 12 founding stocks, alongside several other notable trusts of the late 1890s. Despite the rapid growth of the tobacco industry following Duke’s use of machine rollers, American Tobacco held onto its market lead right up to its dissolution: Two decades after its founding, the company still controlled between 75% and 80% of the tobacco industry, compared to Standard Oil’s 65% share of the oil market on the eve of its breakup.
The dissolution presented similar problems to those of Standard Oil. Both companies controlled a wide range of vertically integrated operations owned by a large number of shareholders. However, where Standard Oil had geographical segments to consider, American Tobacco’s breakup was more a question of branding and organizational separation, because much of the tobacco industry was (and continues to be) based in Virginia and nearby Southern states.
At the time of the breakup, the American Tobacco Trust controlled or held significant interests in 65 subsidiary companies in the United States, as well as two British companies. These interests were eventually separated into 14 different tobacco companies, of which four became an American tobacco oligopoly to replace the monopoly: R. J. Reynolds (now Reynolds American, Inc. (NYSE:RAI)), Liggett and Myers (now Vector Group Ltd (NYSE:VGR) ), Lorillard Inc. (NYSE:LO), and a diminished American Tobacco.
Despite this setback, American Tobacco’s market position and prestige were still meaningful enough to bring it back to the Dow in 1925. It remained on the index until 1985, when it was replaced by a fast-rising tobacco competitor that had always been just out of its grasp: Altria Group Inc (NYSE:MO), then still known as Philip Morris. The remnants of American Tobacco’s original business (after diversification and rebranding) were sold in 1994 to British American Tobacco PLC (ADR) (NYSEAMEX:BTI), once American Tobacco’s joint international partnership at the turn of the century.
The birth of a giant
The world’s largest company (that you’ll never be able to invest in) celebrates May 29, 1933 as its birthday, although the company itself was only formally created in 1988. How can this be? Perhaps it’s best to let Saudi Aramco tell its own story:
[The] beginning, in Saudi Arabia, was in 1933. That’s when the Saudi government signed a concession agreement with the Standard Oil Company of California, predecessor of today’s Chevron Corporation (NYSE:CVX) , opening up a large part of the young desert country for hydrocarbon exploration. In March 1938, following three years of frustrating drilling, the first commercially viable oil field was discovered at Dhahran. The kingdom and the company never looked back, in time joining the ranks of the world’s greatest producers and exporters of oil and natural gas liquids.