Collapse, Consolidation, and Accidental Greatness

On this day in economic and business history ...

On April 14, 2000, all but the most hopeless optimists probably sensed that the era of endless dot-com gains was finally over. That day, a four-day streak of losses became a five-day market rout as investors reacted to unexpected growth in consumer prices by selling off en masse.

The Dow Jones Industrial Average lost 616.23 points -- a 5.7% plunge -- narrowly avoiding a 700-point drop but nevertheless setting what was then an all-time record for losses in terms of points. The losses became so bad so quickly during the day's trading that circuit breakers tripped at the New York Stock Exchange, leading us to wonder how much worse the drop might have been without this protection. The once red-hot Nasdaq Composite collapsed, losing more than 9% in its largest one-day drop on record, capping a week that had shaved off a full quarter of its value. Over the course of the week, investors in American stocks lost $2 trillion in total wealth.

As is often the case at the beginning of a serious bear market, some traders and pundits found it hard to believe that the crash was closer to its beginning than to its end. Brian Finnerty of C.E. Unterberg Towbin told CNN, "They're selling the good with the bad because they can ... and that's irrational, but that's also when a bottom is formed." Bill Meehan of Cantor Fitzgerald said: "I think you'll see healthier and broader advances in the market. Now is the time for optimism."

They were, of course, very wrong. The stock slide continued for more than two years, reducing the Dow's value by nearly 30% more and absolutely destroying the Nasdaq, which collapsed another 66% before finding its real bottom. The Dow eventually recovered, but the Nasdaq never did -- its April 14, 2000, closing value of 3,321.17 remains higher than any closing value reached in the subsequent decade.

A patented breakfast product
Kellogg can trace its origins to 1894, when Dr. John Harvey Kellogg and Will Keith Kellogg invented corn flakes by accident. That invention gained legal legitimacy on April 14, 1896, when the U.S. Patent Office granted Dr. Kellogg a patent for the new "flaked cereal." For several years, the two brothers tried to market the product together under the banner of the Sanitas Nut Food Company, which defended the corn-flake patent vigorously against imitators.

Dr. Kellogg formed Sanitas -- possibly named after the Battle Creek Sanitarium in Michigan, where corn flakes were invented -- in 1899 and brought brother Will on to help manage the business, which would sell the cereal through mail order. A number of copycats sprang up, so numerous that more than 40 factories were thought to be operating near the Battle Creek Sanitarium making similar breakfast cereals by 1902. In 1903, the Kelloggs sued one of the largest copycats, the Voigt Milling Company and its subsidiary Voigt Cereal.

The lawsuit failed, but it taught Will Kellogg a valuable lesson regarding the power of branding in a largely commoditized market. Sanitas, owned by Dr. Kellogg, has since vanished, but the Battle Creek Toasted Corn Flake Company, founded in 1906 and operated by Will Kellogg, became a huge success through advertising. In its first year of operation, the company eventually to be known as Kellogg had spent $90,000 on advertising. By 1912, it was spending a million dollars on ads.

Great friction arose between the two brothers, however. Will Kellogg often used his name, or simply "Kellogg's," to advertise the cereals, which undermined Dr. Kellogg's request that his name not be used for promotional purposes, as it might damage his reputation as a physician. A complicated series of corporate events took place between 1908 and 1910 that resulted in a lawsuit between a rebranded Sanitas and Will Kellogg's cereal company over the use of the Kellogg name. The outcome was decided in Will Kellogg's favor with a licensing agreement, but Dr. Kellogg was not satisfied. He would file suit again in 1920 for the same reasons, and it would be rejected largely on the basis of the earlier licensing agreement.

Will Kellogg gained exclusive use of the Kellogg name to market cereal, and the Kellogg Toasted Corn Flake Company was cleared for success on the back of a bold marketing strategy. Sanitas, Dr. Kellogg's cereal company, would soon vanish, as would many copycats that failed to make marketing a cornerstone of their competitive strategy.

British leadership for Middle Eastern oil exploration
The Anglo-Persian Oil Company was established on April 14, 1909, following the discovery of oil in modern-day Iran in 1908. Eight years of work and more than 500,000 British pounds had been sunk into exploring the Iranian desert before a gusher spouted into the sky, narrowly averting the total financial failure of William D'Arcy and the Burmah Oil Company. The formerly wealthy D'Arcy and the diminished Burmah Oil negotiated with many other parties for months over the best way to pursue their find, leading at last to the creation of Anglo-Persian Oil nearly a full year after the gusher had been tapped.

Created with an initial capitalization of 2 million British pounds (equal to about $250 million today), Anglo-Persian Oil quickly turned into a popular stock on the London markets. It became both a key supplier of the British Navy and majority-owned by the British government in 1914, thanks in large part to the modernization efforts of future Prime Minister Winston Churchill, who commanded the Navy at that time.

The British government held a majority of the company's shares until 1967. By the end of World War I, Anglo-Persian was earning 2.65 million British pounds of profit per year (equal to $305 million in present value) on more than 1.1 million tons of Iranian oil production. Production doubled in only two years, but the glut of oil kept prices depressed, and Anglo-Persian didn't approach a doubling of its postwar profits until 1927.

By the time the British government lost its controlling interest, Anglo-Persian had undergone two name changes, one of which you know better than the other. It became Anglo-Iranian Oil in 1935 after a contentious renegotiation of terms with a new regime that had renamed the country, and it changed again to British Petroleum in 1954, after a 1951 military coup led to a brief nationalization of its assets.

At the time of nationalization it operated a fleet 140 oil tankers, but these ships proved unnecessary once the company lost access to Iranian fields. BP returned to Iran in 1954 with a multinational agreement that granted it a 40% stake in Iranian oil production, the profits of which would be split 50/50 with the Iranian government. This pact would last until the country's 1979 Islamic Revolution, at which point all foreign oil assets were seized and BP found itself shut out of the country for which it was originally created.

Today, BP is a far-flung multinational oil company, with operations in more than 80 countries that produce about 3.3 million barrels of oil equivalent per day. However, had it never lost its early control of Iran's oil production, BP would probably be much larger, even without its global operations -- the Iranian national oil company produces about 6.4 million barrels of oil per day.

Consolidation takes wing
Delta Air Lines proposed a $3.1 billion acquisition of Northwest Airlines on April 14, 2008. The long-awaited deal, proposed during a time of great stress for the airline industry, would combine the nation's third-largest and fifth-largest carriers into the world's largest airlines, with nine primary hubs serving more than 390 airports in 67 countries. Together, Delta and Northwest were projected to earn $35 billion in annual revenue while flying more than 800 airplanes.

By the fall of 2008, all regulatory and shareholder hurdles had been passed, and the new Delta began operating as a single carrier by the end of 2009. The two carriers' integration, however, has been far from flawless. Efforts were under way well into 2011 to unify contracts, repaint airplanes, combine processes, and merge computer systems -- some of which dated to the 1960s. Delta executive Peter Wilander offered The New York Times a brilliant and pithy Biblical comparison: "It's like Noah's ark out here ... we had two of everything."

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