Homespun Houchens grows with simplicity

A small-town Kentucky company is one of the largest employee-owned firms.

BOWLING GREEN, Ky. (AP) — From a humble start decades ago when its founder sold groceries from a rural Kentucky shed, Houchens Industries Inc. has blossomed into a far-flung company with a fondness for dealmaking — perhaps more than ever since cashing in on the sale of its cigarette subsidiary.

It’s been a heady year for Houchens, highlighted by deals with a British tobacco giant and a U.S. banking company. Yet the employee-owned Houchens, based in this southern Kentucky college town, clings to homespun principles and a more leisurely pace far removed from the corporate fast lane.

“It’s a little bit more laid back than what you might think a larger company would be,” said Jimmie Gipson, the grandfatherly CEO of Houchens, known simply as “Jimmie” around the office.

Houchens has emerged as one of the nation’s largest companies operating as 100 percent employee owned. It approached $2 billion in revenue in 2006, up from $200 million in net revenue in 1994, before a series of acquisitions. Houchens declines to reveal its expected earnings for this year and beyond.

The company managed to keep a low profile even as it grew. Even its headquarters, a plain brick building with modest furnishings and decor, is out of character for a company of Houchens’ size, said Bill Davis, chairman of the economics department at Western Kentucky University in Bowling Green.

The company traces its beginnings to 1917, when company founder Ervin Houchens opened his first store at the age of 19 in a 12-foot by 20-foot shed in rural southern Kentucky. Over the decades, the company has built a network of more than 400 stores under such banners as Food Giant, IGA, Piggly Wiggly and Mad Butcher.

Thanks to a series of acquisitions in recent years, Houchens has spread into insurance, construction, manufacturing and other enterprises.

Houchens gained attention earlier this year with the $1.9 billion sale of its Commonwealth Brands subsidiary — the fourth-largest cigarette producer in the United States — to the British company Imperial Tobacco Group PLC.

Houchens acquired Commonwealth Brands in 2001, and the maker of discount brands was “a great moneymaker,” Gipson said. But ultimately, the spread of smoking bans and higher cigarette taxes forced his hand, he said.

The Commonwealth Brands sale marked the only time Houchens has sold off one of its acquisitions. That, in turn, has created new opportunities.

The company reinvested some of the Commonwealth Brands proceeds by agreeing recently to buy Hilliard Lyons, a brokerage and financial services firm employing more than 1,000 at over 70 offices in 12 states.

The purchase price in the deal with Pittsburgh-based PNC Financial Services Group Inc. wasn’t disclosed, but PNC said it expects to report an after-tax gain of about $50 million as a result of the deal, expected to close in the first quarter of 2008.

Gipson, who started with Houchens as an accountant in 1965, said the Hilliard Lyons deal reflected Houchens’ underlying philosophy — to acquire well-run companies, retain the top-level managers and give them plenty of latitude to run daily operations.

“Hopefully, there are no directives coming from here,” Gipson said. “That’s our goal.”

Houchens also looks for companies and managers willing to embrace the employee-owned philosophy.

The company is owned by an employee stock ownership plan, or ESOP, which acts as a kind of retirement benefit plan. Under the arrangement, Houchens contributes money the plan uses to pay down debt and buy stock in the company. As the debt is paid down, employees receive shares in the company. They don’t pay taxes on those shares until cashing them out when retiring or leaving the company. That stock reverts back to the company once the employee leaves.

The arrangement gives Houchens employees input in the company. They select members of its board of directors and vote on the sale of any substantial assets — like the Commonwealth Brands deal.

There are other advantages for ESOPs besides tax benefits, including a work force that tends to be more closely connected to the company’s operations, said Corey Rosen, executive director of the National Center for Employee Ownership, a nonprofit organization based in Oakland, Calif.

“This is not some magic pixie dust that makes every company better, or every employee wealthier,” Rosen said. “But in general, the companies do better and employees do better.”

Long-tenured employees at Houchens stand to leave with princely distribution payments when retiring.

“I’ll be living the life I’ve never lived before,” said Joyce Willoughby, 64, who has worked for Houchens since 1961 and is weighing whether to retire next year.

Once she retires, Willoughby has promised her family a Hawaiian vacation. She also plans to set up college funds for her seven grandchildren and one great-grandchild. She’ll have plenty left for investments.

Lois Penders Upton, 67, has been a Houchens employee for 40 years.

She remembers the day years ago when Houchens executives floated the idea that employees purchase the company, which founder Ervin Houchens had sold off five years earlier. She was skeptical at first, she said, but had confidence in Gipson and other executives and followed their lead.

Employees bought the company in 1988, and within a few years the acquisition loan had been paid off.

“Never could I have dreamed that it would be like we are today,” Upton said.