Funeral Home Chains Vie For Supremacy, Survival Takeover Attempt Reveals Animosity, Rivalry Between Two Industry Giants
Only in the funeral home industry - or perhaps the pro wrestling arena - could someone like Ray L. Loewen reasonably claim the role of Mr. Nice Guy.
The founder, chairman and chief executive of Loewen Group - the world’s second-biggest funeral home chain, based here in the Vancouver suburbs - boasts that when he took command of his family’s mortuary in rural Manitoba 35 years ago, he immediately fired his two brothers. Last year, a Mississippi jury, outraged at what was described as his company’s campaign to drive a fifth-generation undertaker out of business, ordered Loewen Group to pay the local man hundreds of millions of dollars.
But now it is Loewen who is on the defensive, fending off the advances of Service Corporation International, a funeral home giant three times as large. At stake for Loewen is its independence. At stake for SCI, is unchallenged leadership in making the American way of death as coolly efficient as the marketing of fast food.
SCI’s $3.1-billion takeover bid for Loewen, initiated on Sept. 17, caps a long, predatory struggle between two companies intent on turning a fragmented mom-and-pop business into a centralized fount of profits.
For Robert L. Waltrip and L. William Heiligbrodt, the Texans who run SCI from ornate Houston offices stuffed with bronze cowboys and Indians, buying out Loewen and his company could, analysts say, clear the largest obstacle toward more acquisitions at more affordable prices.
But Loewen is digging his heels into the moist earth under the pine, apple and plum trees shading his headquarters. For him, selling out would mean giving up his dream of someday surpassing his larger rival.
Though executives on both sides say the right things about synergies and shareholder value, their clash is also intensely personal. Almost every time leaders of the two companies have met over the last decade, they parted even greater antagonists than before.
“It is clear that our competitors out of Texas do not like competition,” said a shirt-sleeved Loewen, with the booming delivery that once helped him win a seat in his province’s legislature. “They have been after us for 10 years.”
Waltrip, SCI’s chief executive, formal as always in undertaker’s navy at his own headquarters a few days later, said plenty of other competitors would remain if he acquired Loewen.
“This transaction has nothing to do with who is the sweetest and nicest personality,” he said, in the laconic manner he might use to address the hands at his 40,000-acre ranch in Colorado. “This has to do with value for our shareholders and the Loewen shareholders.”
Not that years of feuding would necessarily prevent a deal. Loewen controls about 15 percent of his company’s shares, worth nearly a half-billion dollars at SCI’s offer. Although Canadian law requires hostile bids to win 75 percent, shareholder pressure has driven the most resolute chiefs to the bargaining table. Analysts say the odds of a sale are roughly even.
“I don’t think this is the end by any means,” Susan R. Little of Raymond James & Associates said last week.
SCI executives say they will persist despite the refusal of Loewen’s board last week to even negotiate. Two years ago, they note, their hostile bid for one of Britain’s largest funeral home chains succeeded despite one family’s majority control.
The feuds, the efficiency drives - in fact, the companies themselves - have largely been invisible to everyone but investors. At the 3,310 funeral homes, crematoriums and cemeteries that SCI has assembled, and at Loewen’s 1,189 locations, mourners see the old familiar business names and premises.
Consumer advocates say that the savings generated by the companies’ purchasing power and centralized controls are seldom passed on to customers. Figures from some cities suggest that Loewen charges more for funerals than the national average of $4,624 and that SCI charges still more - findings the two companies dispute. SCI often serves wealthy neighborhoods; Loewen says it aims for competitive costs and superior quality.
In New York, state Attorney General Dennis C. Vacco is conducting an antitrust inquiry into SCI’s ownership of funeral homes, especially Jewish homes, in New York City, Marc Carey, his spokesman, said.
The company says it has no antitrust or other legal problems there.
SCI says acquisition of Loewen would meet antitrust rules with the disposal of only a few homes. But Karen Leonard, consumer representative for the Funeral and Memorial Societies of America, sees a monopoly in the making. “This would be the equivalent to Pepsi and Coca-Cola merging,” she said.
As separate as their courses have been, the companies have similar origins. Loewen, 56, assumed control of his ailing father’s funeral home in Steinbach, Manitoba, in 1961. One brother refused to get a haircut, and another was always wanting to borrow the station wagon that served as the hearse, so Loewen bid them goodbye.
A Bible college graduate, he still often adopts a high moral tone. “We aren’t the oldest profession,” Loewen said in an interview here, “but we are the most honorable.”
Waltrip, 65, began managing his family’s funeral home in Houston in 1952. He soon started buying other homes, favoring local market leaders, like New York City’s venerable Frank E. Campbell and Riverside Memorial chapels. Gradually, he learned to apply relentless efficiencies - hearse pools and even regional embalming centers - while leaving the homes’ identities intact.
“I was the first one who did this,” Waltrip said. “Mr. Loewen was way after.”
By the 1970s, SCI’s reach extended to Canada. But as Waltrip bought homes in Winnipeg, Manitoba, and later in Vancouver, Loewen was taken aback by what he saw as the Texans’ heavy-handed management.
“We determined to design a culture and a company that would be dramatically opposed to their modus operandi,” Loewen said.
Loewen and his aides court the owners of funeral homes or smaller chains, largely in rural areas, by discussing “succession planning,” not acquisitions. In their pitches, the bogyman is often a drawling executive from Houston who promises the owners that they can keep their jobs, then fires mom, pop and the kids the day after closing.
Inevitably, the two executives would find themselves at the same meetings and conventions. Waltrip often quarreled with industry groups that, he said, refused to give his company voting rights in proportion to its size and dues. Loewen decided that anyone fighting with Waltrip - “Bobbie,” he calls him, as if referring to a wayward teenager - was his friend.
By the late 1980s, SCI was staggering under the weight of other acquisitions, including coffin and insurance operations. Loewen saw his chance.
“I thought it was an opportune time to buy their Canadian properties and help them with their losses,” he recalled.
He met his counterpart in a conference room at the Denver airport. According to Waltrip, the meeting quickly ended when Waltrip named a price that provoked Loewen to indignantly leave the room.
Other encounters were worse. A few years ago, when Waltrip was visiting Vancouver, Loewen invited him aboard his 55-foot Hatteras yacht. Only minutes out, before Loewen’s select Alberta steaks had even begun sizzling, Waltrip demanded to be taken back to port. “When you’re captive on a boat and somebody insults you, you can’t get up and walk away unless you want to get your feet wet,” Waltrip said.
Last year, when Loewen spotted an executive who was leaving his company having a snack at a hotel with Waltrip’s son, an SCI manager, Loewen obtained a court order barring the executive from further contact with SCI.
Until now, the strongest resistance to SCI’s advances have come in Europe. In 1994, SCI made a hostile offer for Great Southern Group, one of Britain’s largest funeral home chains.
The SCI executives had skin as thick as the longhorn hides on Heiligbrodt’s parquet office floor.
“They said some horrible things over there,” Waltrip recalled, with a nod that gave Heiligbrodt, sitting nearby, his cue.
“They called us cowboys,” Heiligbrodt, the company president, said.
In the end, Great Southern agreed to sell, although Loewen Group tried to block the deal.
In raw growth, SCI has outdistanced Loewen, and its shares consistently beat stock market averages. But until late last year, Wall Street was more impressed by Loewen Group’s earnings growth, awarding its shares a higher earnings multiple. Last September, Loewen threw a party at headquarters to celebrate his stock’s rise to 20 times its 1987 offering price. No rival could take Loewen over at such a level.
But two months later, the Mississippi jury verdict drove the Loewen Group to the brink of bankruptcy. A lawyer representing an Ocean Springs funeral home owner laid out a tale of how Loewen tried to monopolize local markets, drive out competitors, then raise prices, sometimes marking up coffins to triple their wholesale cost.
In a case Loewen could have settled for a few million dollars, the jury delivered a $500 million judgment, including $400 million in punitive damages. The foreman described Loewen as “a rich, dumb Canadian politician who thought he could come down and pull the wool over the eyes of a good ol’ Mississippi boy.”
In the following weeks, Loewen Group’s stock fell about 20 points, losing half its value. In January, a $175 million settlement staved off bankruptcy.
But now SCI saw its chance. On Sept. 11, Heiligbrodt began leaving messages at Loewen’s office. He never heard back.
On Sept. 17, with Loewen’s stock rising on rumors, Heiligbrodt put his offer into a letter to Loewen that was released to the public.
As it plots its defenses, Loewen is taking pains to show that it can get along fine without Texan owners. It recently agreed to buy the Rose Hills cemetery and funeral home near Los Angeles, the world’s largest, for $277 million.
xxxx LOCAL CONNECTIONS Service Corporation International owns three funeral homes in Spokane: Hazen & Jaeger Funeral Home, 1306 N. Monroe. Hazen & Jaeger Funeral Home, 1306 N. Pines Road. Thornhill Valley Funeral Home, 1400 S. Pines Road. The Loewen Group has no funeral homes in the Spokane and Coeur d’Alene area.