Michael Smurfit: This business life

Two months after Michael Smurfit was born, on August 7th, 1936, his father John Jefferson Smurfit set up shop as a tailor.

Born a Protestant in Sunderland, John Jefferson was married to Ann Magee, a Catholic from Belfast. Magee's family had a stake in a small box factory in Dublin. As the business wasn't going well, a priest asked Smurfit's father to take it over as by then he was doing well with a chain of tailors in England.

It was still precarious and Smurfit recalls his father fighting to stay afloat. “I think you have to be able to understand poverty to be able to control riches,” Smurfit says. “We were not in poverty, we were poor. When you become successful or wealthy you have to remember it is the pennies that count.”

“It is just a habit of a lifetime,” he adds. “When I go out for my jog, I don’t leave the TV on. I switch the TV off . . . that is the way I am, all my life.”

Smurfit experienced the Blitz in the second World War and remembers huddling in a shelter to avoid bombs, when his family lived near Liverpool.

His earliest memories are “crying uncontrollably” when his baby sister Ann died of convulsions during the war.

As his father became more involved in the box business, he moved his family to Dublin.

Smurfit was a boarder in Clongowes Wood College in Co Kildare. He had few friends, but he was captain of the cricket team. At 15, Smurfit's father told him he was not going to university. It was time to make him a businessman. "I don't think I would have achieved anything like I achieved if I had come up a different way," Smurfit says. "The drive and the enthusiasm and the ability were there without university."

At 20, Smurfit on a whim decided to apply for a visa to work in Canada. An X-ray before he left revealed he had tuberculosis. Without that diagnosis he would have died. Doubly lucky, just he was confined to a sanatorium, a cure for TB was found.

Smurfit discovered the meaning of death, watching people die in the sanatorium. “That gives you a big realisation that this is for real life. Enjoy every moment like it’s your last.”

Corporate raider
During his nine months cooped up, Smurfit read Investors Chronicle and the Financial Times voraciously. Tales of Jim Slater, a renowned corporate raider, entranced him. When he came out, he rejoined the family business.

“I was 15 stone, I had three chins, my hair had half fallen out and I had a big stomach,” Smurfit remembers. He regained his fitness but, unlike his siblings, he did not slip out the hall window of the family home to go to dances.

“I was the one who played by the rules. I had a very inward personality for most of my young life. I was extremely shy,” Smurfit says. “Even now I am not, I like my own company.”

Smurfit's father sent him to work in Continental Can in America. It was the world's largest maker of cans, but it also produced a lot of paper. Smurfit stayed in a YMCA near Portland, Connecticut. He had little money and he remembers using chewing gum to block the holes in his room to avoid prying eyes.

Culturally America was an eye-opener. Smurfit once got on a bus to see Al Hirt, an American jazz trumpeter, in the Roosevelt Hotel's Blue Room in New Orleans.

“The bus was full at the front and it was empty at the back so I went down the back and fell asleep,” Smurfit recalls. “The next thing I was hauled off because it was a ‘nigger seat’. I didn’t know what the hell a ‘nigger seat’ was.”

"Then I realised I was in Mobile, Alabama, and I saw the signs 'whites only' and 'coloured only'. They hauled me off and put me in jail. That is how it was. I saw it and I touched it. It made me cringe. I couldn't understand it." Smurfit says the experience later made him determined to treat all his employees equally.

Seeing American production techniques was another revelation. Paper and packaging in Ireland and Britain was still in the dark ages by comparison. Smurfit learned the new techniques but his father was not ready to let him apply them to the family business, which by 1964 had floated on the stock exchange.

Smurfit decided to go to England and set up his own company, where he could apply his new ideas. Soon he was thriving. Free trade between Ireland and Britain was on the cards, and Smurfit finally convinced his father that the family business had to change in order to survive.

“He saw that I had right stuff to take over the company and he said that he had run out of puff,” Smurfit said. “If we don’t get mass we are going to be buried by England . . . that is how we started with takeovers.”

Smurfit became a deal-maker extraordinaire. From the late 1960s through to the 1970s, he bought and bought, each time ripping out costs and pushing up profitability.

In 1970 Smurfit acquired the venerable Hely Group, doubling the size of Smurfit.

A team formed around Smurfit ,including his brothers Dermot and Alan, his late brother Jeff and outsider, accountant Howard Kilroy.

“I realised ‘my God, we can run all these businesses, diverse businesses’. We knew about cash flow. We knew about stocks,” Smurfit said. He introduced quarterly reviews to watch costs closely.

In his book a friend of Smurfit says he believes that “anger” was one of his driving forces as a young man.

“I didn’t have any anger,” Smurfit says. “I was annoyed with myself for not being more outgoing and not having lived a young life. I started to live my life later on. I had no girlfriend until I met Norma [his first wife]. I was very much a loner. I never asked a girl out, I was ashamed to.”

Gradually, Smurfit honed his understanding, first developed in the sanatorium, of how to use a rival’s balance sheet to his advantage. “You learn on the job. Nobody ever in my industry at that time ever looked at working capital and sales – key ingredients in a successful takeover.”

As the Jefferson Smurfit Group (JSG) entered the 1980s and 1990s, Smurfit had become big in Ireland and Britain, but more importantly, his company had its sights on America and emerging markets.

Smurfit was in the big time, but it could be dangerous. Robert Maxwell, the newspaper tycoon later exposed as a fraudster, approached him to do deals several times.

“Trust is a very important thing when you go into a partnership. When you are across the table from someone like Maxwell, you know he’s a wrong one, you just know it. In every generation you are always going to have scandals. Greed is there and as long as people think they can get away with something some people will try it. What you have to try to do is try to read into the character of people that you invest in.”

By 1984, the company’s jubilee year, JSG was making a profit of £50million .

The following year Forbes magazine named JSG as the number one company in the world ranked by earnings growth. Smurfit was now doing well by world standards, but he was about to go one better.

In 1985, Smurfit was approached by Morgan Stanley to form a joint venture to buy Container Corporation of America (CCA). The business had a price tag of $1 billion. Smurfit however only needed to put up a fraction of that to do the deal – $10 million in cash and $50 million in preferred stock.

CCA had grown fat and Smurfit twigged that it had huge piles of spare parts, worth between $150 million and $200 million. This wasn’t being factored into the price.

He also realised Smurfit’s systems could strip out costs. In the first year he took out $250 million of costs, making the business dramatically more profitable.

“With the CCA deal, the opportunities were unbelievable. Every time I kicked a stone there was a gold mine underneath it or a diamond mine,” Smurfit recalls.

Within 3½ years, JSG returned $1 billion in cash to its shareholders and still owned over 50 per cent of the CCA business.

$35 million fee
A last-minute hitch made the company even more money. With the deal about to close, Morgan Stanley explained over dinner in Dublin it was going to charge the company a fee of $35 million.

“I sat in the Berkeley Court and I nearly threw the table at them. I said you what! F**king, guys!” Smurfit says. “Howard [Kilroy] took me aside and he said ‘It’s in the contract.’ I said ‘I didn’t know that!’ He said, ‘Well it is.’ ‘Well, they’re not going back with my money, I’ll get something’!”

Smurfit returned to the table and said he would pay the fee but only if Smurfit was given an option to buy all of CCA’s non-American assets at book value. The investment bankers agreed.

“So we took an option on all other countries and eventually bought every one of them.

"In Venezuela we paid $19 million and they had $29 million in the bank!"

"Under GAAP [accountancy rules], cash didn't count! Hello! Goodbye! It was the same in Europe. We had money stuck in the bank that didn't count. We were buying them with their own money.

“Morgan Stanley were furious, of course. They gave up probably another $250million on that. I said ‘you know guys, if you hadn’t have been so greedy, I would never have thought of it’.”

Ultimately, for just $10 million in cash up front, the Smurfit Group obtained assets worth billions.

How much did the company ultimately make? “Well, what did I create?” Smurfit asks. “About €6 billion with dividends and everything, maybe seven [over his career]. Take your pick of a number, that billion deal was maybe three.”

By 1996 Smurfit was spending a seventh of his year in an aircraft. His life, he says, was “perpetual motion”.

Was it ever too much? “It never occurred to me to operate in any other way than hands on.”

In the 1990s, Smurfit was focused on China and Asia. He had factories employing thousands of people there and a packaging solution centre in Hong Kong with clients like Nike, Microsoft and Wal-Mart.

Innovation, too, was important and JSG invested more and more in research and development to build better products to stay in front.

In 1998, Smurfit pulled off another mega-deal by merging with the Stone Container Organisation in America. Smurfit had eyed the company for some time.

“Stone Container was one that I saw was very weak because they had over-expanded and had bad results,” he says. He turned up the heat by competing hard against it.

“Finally it was possible to merge with them which we did very successfully to create what was then by far the largest paper and packaging company in the world,” Smurfit says.

“It was always about manoeuvring, about being one step ahead of the posse, doing things that nobody else was doing. Think outside the box.”

In 2002 Smurfit retired as chief executive to become chairman of JSG. He was replaced by Gary McGann.

In 2005 JSG was merged with Kappa Packaging to form Smurfit Kappa (which Smurfit describes, see panel, as the high point of his business career). In 2007 the company refloated on the stock market without Smurfit on its board.

Smurfit was still a shareholder but now his involvement was as an investor. As he recounts how he did it all, Smurfit is an engaging storyteller.

Who has impressed him in business?

"Really impressed me? I would say Tony Ryan would be way up there. The late Tony Ryan, I am very fond of him. I thought he was very, very clever. I used to meet with [Tony] O'Reilly a fair bit, reasonably early on in his career. He was very sharp, a very quick brain. [Jimmy] Goldsmith would be up there, he would be really up there."

“Then there was this guy who really impressed me, he was a good guy, called Michael Smurfit!”

Smurfit laughs and gets up from his chair. “Now I am going to serve you a drink,” he says. “We’ll talk over dinner.”

Brian O'Driscoll
Over a drink, the conversation broadens out. Smurfit says how much he admires Brian O'Driscoll who recently retired from the Irish rugby team.

He mentions he just back from visiting his friend Dermot Desmond, on the island of Canouan in the Grenadines, where the Dublin-born financier has just built a new luxury resort. "It is wonderful," Smurfit says, "He is planning to invest $600 million there."

On a table nearby Smurfit has an array of photographs including of Prince Rainier and Prince Albert of Monaco, Tiger Woods and the queen of England. A fading photo stands out – a pretty woman standing in the streets of Belfast in perhaps the 1930s.

“That’s my mother,” Smurfit explains, and pauses. He is thinking about her. He turns to the laid-out dinner table and gestures me to my seat where the interview can continue.

First course is pasta Arrabbiata, served with white wine. The second is simple chicken and chips, served with red wine. Smurfit serves his red wine from an elegant decanter. His guest wine is also excellent.

Over dinner Smurfit explains what he tried to do in business. “Smurfits never set out to be the biggest of anything. We set out to be the best,” he says. “That was always the thing. Better margins, better control of working capital, better esprit de corps, unique culture, family values yet large.”

What does Smurfit believe are the key lessons for young entrepreneurs? “The first thing is if you don’t play the game . . . ”

Smurfit tells a joke about a man complaining to God about his friends all winning the lottery.

“And the Lord says ‘buy a ticket, buy a ticket’; in other words if you don’t play the game, you can’t win the game. Fail if you will, dozens of times, it doesn’t matter, get up and try again.”

“What is going to make Ireland out of its current situation? A spate of new entrepreneurs have to arrive on the scene to replace the ageing Dermot Desmonds and the Denis O’Briens and the Michael Smurfits. There are 10 at my age, maybe a hundred of them, but we need a thousand guys for the next wave of entrepreneurs in the country to be successful.”

“That is what will bring out the success of the country,” Smurfit adds. “There are so many more pluses about the country than there was way back in the Sixties and Seventies and indeed in the Eighties and Nineties.

Smurfit has given many Irish business leaders their first breaks. Has he ever required help?

“There hasn’t been many times that I needed anybody to help me,” he recalls. “I was always lucky enough and successful enough not to.

“Except for the last few years – the last few years were horrendous. I had a really rough time when I built that new boat - huh!”

Smurfit says he was stuck paying for a new super-yacht in the middle of the recent financial crisis which wiped out other investments or made them hard to sell. He got out of this by eventually selling the boat on, but it was a big drain.

As a result, he was unable to buy more shares in Smurfit Kappa when it hit its lows before recovering to €17 a share today.

“When it went down to €1, somebody said, ‘why didn’t you buy some more shares?’ I had no cash. I had poured money into this new boat. I am an ex-billionaire,” Smurfit says, “I am not dying. I am not making excuses.”

Smurfit Kappa has a turnover of more than €7 billion today and Smurfit is proud of its success under its new board and management.

He lists half a dozen venerated paper and packaging companies which no longer exist today.

“The only one surviving name that exists today is Smurfit. They didn’t have the staying power.”

There are rumours that Gary McGann, the chief executive of Smurfit Kappa, is preparing to retire. Smurfit's son Tony, group chief operations officer, and Ian Curley, chief financial officer, are both tipped as potential successors. What does Smurfit think?

“I have no influence on that decision. It is a matter for the board and the nominations committee,” Smurfit says. “I am proud of Tony and his achievements. He has the ability as, in my experience, operations is the most important and hardest skill set to master.”

In two years, Michael Smurfit is 80. He has chartered a cruise ship to take his family and friends from Mumbai to Athens.

Smurfit is looking forward to the journey, but is also sad when he thinks about it. "I have lost so many of my friends. They have popped off. David Austin, Jim Malloy, Paddy Wright [Smurfit executives]. Three of the most important people in my life all gone," he recalls.

“My yacht is going to come across the Atlantic and I will come from Athens with my girlfriend and some other friends back to Monaco in time for the grand prix,” he says. There Smurfit will be met by his old friend Prince Albert of Monaco and his wife Charlene.

Birthday celebration
Smurfit's birthday celebration will take him across the Arabian Ocean up into the Suez Canal. It is a route almost 7,000 kilometres long. It's an amazing journey, but not as far as Smurfit has travelled since his early days in the box factory.

It is now past 10.30pm. Smurfit’s decanter is near empty. His guest is into his second bottle. Was there anything you could not put in the book, Michael? “Turn off the tape,” Smurfit says.

Smurfit tells a story that could only have happened to him. It would close his publisher if repeated without more evidence than memory. In the story Smurfit does the right thing. Values learned in a much leaner Ireland stand to him.

“Sadly the lawyers took that one out!” Smurfit laughs.

He walks me to the lift after the meal. Down into the lobby and then out into the breeze of the mistral and the glittering lights of Monaco.

Was Michael Smurfit Ireland’s greatest businessman of the last century?

It is a debate for students of the UCD Business School named after him and other business schools. There are certainly very few like him, or even close.

A Life Worth Living is published by Oak Tree Press, price €24.95, available from good bookshops and from oaktreepress.com