Lehman Brothers Collection - Contemporary Business Archives

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Twentieth-Century Business Archives

Koch Industries, Inc. - Lehman Brothers Collection

Koch Industries, Inc.

List of Deals

There is not a great deal of information available regarding the history of Koch Industries. The company's privacy was closely guarded by its founder, Fred C. Koch. In 1928 Koch invented a new and more efficient method for the thermal cracking of crude oil, the process in which oil is heated to effect a recombination of molecules yielding higher proportions of usable compounds, especially gasoline. When he tried to market his invention, the major oil companies sued him for patent infringement. Koch took his invention to the Soviet Union, where he won a contract to build fifteen refineries for an initial fee of $5 million.

By the late 1940s Koch had begun assembling bits and pieces of business in the midwestern United States. He launched Wood River Oil & Refining in Illinois in 1940 and bought the Rock Island refinery in Oklahoma in 1947. Koch folded the remaining purchasing and gathering network into Rock Island Oil & Refining, which was incorporated in 1942. Koch concentrated on service businesses too small to interest the major oil companies and too obscure to attract much competition. Koch also recognized the need for more complete systems of oil distribution and amassed a fortune providing the equipment and expertise to meet that need. Koch firmly believed that his business was best conducted silently; therefore, Rock Island Oil & Refining had no public relations department and went out of its way to avoid doing business with the government.

By 1967 the sales for Rock Island and Koch's various subsidiaries had reached about $400 million. Sterling Varner, a top executive aide, became a shrewd purchaser of what he referred to as "junk," the bankrupt or unwanted oil and gas properties that Rock Island habitually turned into profitable acquisitions. The company was renamed Koch Industries. Koch began to diversify into a number of new areas, including petrochemicals, oil-trading services, and ownership of a refinery in St. Paul, Minnesota. In 1969 Koch Industries merged with Atlas Petroleum Limited of the Bahamas, a distributor of crude oil and petroleum products with about $100 million a year in sales.

In 1974 the company admitted to owning approximately 10,000 miles of pipeline in the midwestern United States and Canada, hundreds of tank trucks, barges, deep-water terminals, and storage facilities of every description. Through this system Koch distributed about 800,000 barrels of oil each day, some of it refined at its St. Paul refinery, some sold via the company's several hundred gas stations, but most of it transported to and from the major oil companies. Koch also participated in the rush to buy supertankers, owning a handful of the huge ships to complement its oil trading offices in eight countries. Finally, the company had begun its own program of oil exploration and drilling and also owned around 60,000 head of cattle. Sales reached more than $2 billion in 1974.

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