The Complex Case of Floyd Odlum
From skimmed milk to whole milk to no milk.
This is a piece about Floyd Odlum, a once-upon-a-time famous investor who made his fortune doing distressed deals during the Great Depression. But I want to start with a reflection on my process and the challenges of diving into a story. Here’s why.
I had read some twenty articles about Odlum, and his life seemed straightforward: a young lawyer from Colorado made his way to New York to become a dealmaker in utilities, one of the growth industries of the 1920s. He started an investment fund on the side, raised cash in 1929, and avoided the carnage. Through Atlas Corp., his publicly-listed investment trust, he masterfully acquired other trusts at steep discounts to their undervalued portfolios. By the time that Graham and Dodd published Security Analysis in 1934, Odlum had closed 22 transactions and amassed assets of $150 million. Once wealthy and famous, he married his second wife, racing pilot Jacqueline Cochran, served in the government during WWII, and retired to an estate in Palm Springs where he did deals by the pool and was visited by Eisenhower from time to time.
This story and its lessons seemed so clean. Stand back during the bubble, swing for the fences when opportunity presents itself, case closed.
I knew that Odlum’s records were kept in the Eisenhower Presidential Library. What I did not know until this week was that someone had combed through them all and put together a voluminous draft of a biography. After reading the outline, I reached out to the author, David Clarke, bought a copy of his unpublished work for $19.95, and dug in.
But then I stopped myself. This was supposed to be a short piece. Something that I could churn out on a weekly basis with a moderate amount of research. Reading an unfinished 700-page biography would blow up my schedule — and for what?
However, I quickly realized that the neat little narrative about Odlum’s life was wrong. I had no choice but to at least skim the work if I wanted to learn the real lessons of his life.
Odlum didn’t cash out before the crash. His utility stocks just didn’t decline as much and made a brief comeback, allowing him to redeploy the capital. It seems he never bothered to correct the origin story of his prescience which was repeated by one paper after another.
He made his early capital trading in utility stocks while being employed at one of the largest utility holding companies and running their foreign M&A efforts. While there is no evidence, and insider trading was not illegal at that time, Clarke suspects that this information edge played a significant role in Odlum’s early success.
Also, taking over investment trusts required convincing the board and key shareholders who often had no interest in selling. And it seems that Odlum was willing to bribe directors to get the deals done.
Around the end of WWII, Odlum made his last successful distressed investments, in oil and defense defense contractors, before departing from his circle of competence. Large bets on an airline, uranium mining, and a motorcycle manufacturer turned into sinkholes for capital in which he kept doubling down. His fortune started to dwindle.
His personal life was rife with tragedy as both of his sons died before him: one of alcoholism, the other of suicide after a string of failed deals and enterprises. In the end, Odlum’s wealth had been lost and spent. He and his wife, famous pilot Jackie Cochran, had to leave their beautiful ranch and live out retirement in a modest home.
Research can be both the most fun and the most frustrating aspect of my work. There is always more information waiting to be uncovered - and sometimes there is a major twist waiting that upends the entire piece. You can draw all the wrong lessons from sitting on a lawn chair, watching the rabbit poke its ears out. But descending deeper into the rabbit hole is costly. It is an investment of time that could be spent on writing, editing, marketing, and researching the next story. How much is enough? I don’t have a good answer yet.
That said, Odlum’s life is a rich and forgotten story that is worth examining. I also recorded a conversation with David Clarke to talk about his unpublished biography. I will share that in a separate post.
I will be quoting from various articles unless I explicitly note that the source was the biography.
Odlum was born 1892 in Union City, Michigan the youngest son of a Methodist minister. The family moved to Colorado and Odlum attended law school at the University of Colorado, graduating in 1914. He worked his way through college with a variety of jobs including digging ditches and riding ostriches against racing horses “for 25 cents a ride." The ostriches, he recalled, “could beat a racehorse if they would run straight, but they wouldn't.” A yearbook comment read that he “manages to get the running of everything to which a stipend is attached.”
With his law degree in hand, it was time to ditch the ostriches and Odlum took a job at Utah Power and Light in Salt Lake City. In 1917, he was recruited by prestigious New York law firm Simpson, Thatcher, and Bartlett, legal counsel to the powerful utility holding company Electric Bond and Share Co. (EBASCO, a company created by General Electric and J.P. Morgan). Odlum became the protégé of EBASCO’s head Sidney Zollicoffer Mitchell who took a "father's interest" in the young lawyer. Odlum stayed until 1930 and traveled extensively in England and Central America to work on acquisitions.
He also became friendly with another Simpson lawyer named George Howard who was later tapped to head another utility holding company called United Corp. In 1923, Odlum, Howard and their wives pooled $39,000 to form an investment company with the auspicious name The United States Company. Odlum continued to work at EBASCO until 1931 and his biographer believed it “safe to assume” that the pool benefited from Odlum’s intimate knowledge of the world of utilities and transactions. The company’s assets grew rapidly through both new investors and portfolio appreciation.
Odlum eventually reincorporated the pool as Atlas Utilities Corporation and by 1929, assets stood at $6 million. That summer, Odlum issued $9 million worth of stock. The official narrative is that Odlum sold half of his stock portfolio and, together with the newly raised cash, sat on a war chest prepared for the market’s regime change.
Odlum eventually reincorporated the pool as Atlas Utilities Corporation and by 1929, after a $3 million fundraise, assets stood at $6 million. That summer, Odlum issued another $9 million worth of stock. The official narrative is that he sold half of his stock portfolio and, together with the newly raised cash, sat on a war chest prepared for the market’s regime change.
However, Clarke noted that Odlum provided a different account during SEC testimony about his acquisitions. Atlas’s portfolio of primarily utility stocks (including EBASCO and its subsidiaries) suffered a decline of some 21 per cent but regained its pre-crash level with the spring rally of 1930. It seems that Odlum was happy to leave this favorable origin story uncorrected.
The career trade: discounts on top of discounts
Let’s review the conditions that allowed Odlum to make his career-defining trade. Law school had opened the doors to an entirely new world and networks of accomplished professionals. He had gained experience in structuring transactions, found important mentors and allies, and learned how to use capital markets to his advantage. Now he faced the opportunity of a lifetime.
After the crash, the stocks of investment companies were decimated. According to George Spritzer, the valuation of the median investment trust declined from a 47 percent premium to a 25 percent discount! This was the birth of Odlum the “special situation” investor. Rather than deploying his capital into undervalued stocks, he sought control of other investment trusts trading at steep discounts to their undervalued portfolios. He later compared it to "rolling a snowball" because the assets of the acquired trust could be liquidated and redeployed into the next acquisition. It was discounts upon discounts for Odlum.
At this point, Odlum left his corporate job to focus all his attention on Atlas. From 1930–33, he gained control of 22 investment trusts, as cheaply as 60 cents on the dollar. This earned him the nickname “fifty cent Odlum” from Goldman’s Sidney Weinberg (whose Goldman Sachs Trading Company Atlas acquired) as well as the less favorable moniker “octopus of the depression.” Atlas became the largest investment trust with $150 million in assets.
It is worth noting that liquidations were not always possible. In 1937, Odlum complained "any quantity of selling in a thin market, such as we have recently been experiencing, destroys the very values which one is trying to preserve.”
Per the biography: “In a typical acquisition, Atlas would buy shares with cash until it had effective control, and then propose a merger or share exchange in which it would use its own shares as currency to complete the acquisition. Most of the shareholders of the target would become shareholders of Atlas.” Jim Grant noted in a presentation on Odlum (and the biography confirmed this in more detail) that Odlum secretly paid directors to “enlist their help in getting minority shareholders to sell.”
A key factor in the profitability of these transactions was that Atlas frequently traded at a premium to its assets. Exchanging its own highly valued shares for the undervalued shares of the target captured an attractive valuation spread for Atlas.
Per the biography, Atlas’s net assets posted a gain of 230 per cent between April 1930, when its acquisition program began, and December 1936, when it started to simplify its corporate structure and the opportunity to acquire trusts had ended. By comparison, the Dow Jones Industrial Average declined by 35 per cent.
It is also worth pointing out that Odlum’s wealth was tied up in Atlas stock and that his income was limited. After being paid $300,000 for his services in 1933, he was subsequently paid an annual salary of $100,000. This was a very attractive salary (around $2 million adjusted for inflation), but it pales in comparison to the fortunes earned by asset managers today.
Special situations investing
The trust’s size presented a problem because Odlum did not believe he could beat the market by holding companies for the long term. In 1940, he tried to spin off his excess capital, everything above the $25 million he used for special situations, by merging it with aircraft maker Curtiss-Wright. While that deal failed, it was clear that Odlum searched for very specific situations in which he had an edge: “Once the job is done, we've got to move on. We can't be a holding company."
His strategy was to "acquire holdings in enterprises fundamentally sound that have met with difficulties which seem capable of solution." Once the company improved "from a skimmed milk to whole milk condition,” he sold. He explained that he disposed of nine out of 10 inbound ideas within 10 minutes as "not fitting the pattern."
He could get quite hands-on, such as with distressed utility Utilities Power and Light Corp. whose stock he acquired with the portfolio of the Goldman Sachs Trading Corp. After further research, he bought the company’s debentures which were trading at 30 cents on the dollar. Odlum believed the company could restructure by selling off valuable properties abroad. He “practically shouted from the housetops that sale of the English properties would be the salvation of the company” and helped arrange the sale (but was subsequently sued over the commission he received).
Odlum was an outsider to the establishment and cultivated the image of a shrewd yet down-to-earth investor, advising people to use “plain horse sense.” While consolidating the investment industry, he maintained an office in Jersey City and claimed he didn’t look at the ticker tape for weeks.
"I don't look at stock quotations from day to day. And by the same token, I can't tell you what the national income at the moment is or the gross national product. In fact, I don't give a damn. I want to know simply whether it's going up or down."
With the passage of the Public Utility Holding Company in 1935, ownership of utilities became much more regulated. Odlum had already dropped Utilities from the Atlas name and focused on other sectors, including retail, aviation and defense, manufacturing, and media.
In 1935, Odlum acquired control of bankrupt movie studio RKO and in 1936 he married his second wife, famous pilot Jackie Cochran. This is a good thread about her if you are interested. The couple became friendly with movie stars, President Eisenhower, pilots like Amelia Earhardt and Chuck Yeager. The years that followed can be viewed as a transition period and turning point in Odlum’s life.
During WWII, Odlum served in the Office of Production Management instead of being the custodian for assets seized from foreign governments, the job he had petitioned for. Odlum’s mission to integrate smaller companies into the military supply chain was difficult and he was heavily criticized. It seems that for the first time in his life, Odlum failed at a job. He started suffering from debilitating rheumatoid arthritis that left him bedridden for months. He left government service and increasingly spent his time at the Cochran-Odlum Ranch in Palm Springs where he could direct deals from a heated pool.
Around this time, the quality of his investment decisions started to deteriorate. There were still successes: Odlum sold RKO to Howard Hughes in 1948 at a $17 million profit. And at the end of the war, Odlum acquired oil companies below the value of their reserves. Finally, in 1947, he acquired aircraft maker Consolidated Vultee, which became Convair, for $10 million. With a new bomber contract under its wings, Odlum sold the company to General Dynamics for $20 million.
However, he started to depart from his investment philosophy of special situations and going against the crowd. He made three disastrous investments in which he kept doubling: the struggling Indian Motorcycle brand, Northeast Airlines, and uranium mining.
Per the biography: “the investment in Indian was the first investment on which Atlas ever lost a significant amount of money. Second, Atlas made the loss much worse than it otherwise would have been by throwing good money after bad – behavior that is surprising to observe in Floyd Odlum, but behavior that nonetheless would eventually play an important role in Atlas’ downfall.”
Odlum was optimistic about the motorcycle manufacturer’s turnaround and kept buying shares and lined up a merger partner. But he was wrong. According to Clarke, at a time when Atlas’s total assets were less than $75 million, more than $13 million had been invested in the struggling company. By the time Odlum retired in 1960, the investment was worth less than $1 million.
Northeast Airlines was a special situation in that it was an airline created by railroads. When the government refused to grant it further routes, the railroads were motivated sellers and Odlum swooped in. The company had some initial success with new Boston-New York and New York-Florida corridors. However, eventually it found itself with a delivery of obsolete propeller planes when its competitors entered the jet age. Atlas sold its oil and gas properties for $17.5 million to fund the airline’s mounting losses. Plain horse sense had apparently left the building.
The last of Odlum’s failed bets was uranium. Odlum believed that “uranium is the oil of tomorrow, and tomorrow isn't very far away.” He acquired a string of claims and smaller mining companies expecting significant defense and civilian demand. To understand the extent of his enthusiasm about the prospects of nuclear technology, you can watch him on a 1951 talkshow about “nuclear powered airplanes.” However, government price support for uranium ended, production increased, and civilian demand didn’t reach his lofty expectations. According to Clarke, “the investment in uranium was the prime cause for the value of Atlas being largely wiped out by the time Odum retired in the Spring of 1960.”
According to Clark, Atlas ceased being a registered investment company after Odlum’s retirement and instead focused entirely on its mining operations. While civilian demand eventually emerged in the form of nuclear power plants, the company was buried by environmental liabilities and declared bankruptcy in 1998.
As mentioned, Odlum’s net worth was tied up in Atlas stock. The final reason for his vanishing wealth was that his family’s lifestyle exceeded his salary. According to Clark, Odlum kept a personal ledger in which he tracked his personal assets and debts. In a hair raising example of mental gymnastics, he tracked money provided to Jackie as assets. Money that was spent on her passion for aviation and lifestyle didn’t seem to lower his net worth in this made-up reality. More money was spent on vanity projects and failed enterprises by his sons
By 1960, Hughes had run the RKO studio into the ground and Odlum the shell company with its significant tax losses. Odlum expected to use those for his profitable uranium operation. With this transaction Hughes became a large shareholder in Atlas. Based on Odlum’s unpublished memoir Clarke posits that Odlum was negotiating to become Hughes’ business manager and resigned from all positions at Atlas in 1960.
Another possibility is that Odlum, then 68 years old, was forced out of the company after years of deteriorating performance. However, Odlum never went to work for Hughes and was left without an income and with his remaining assets encumbered by mounting debts. Eventually, the heavily mortgaged ranch was turned into a residential development. Odlum and Cochran moved into a smaller home across the street.
I am still wrestling with what Odlum’s story truly means. On the one hand, there is a lesson about his ability to take advantage of a unique period of distress in markets. Many other investors could see that investment trusts were trading at attractive discounts. But Odlum alone took advantage of the opportunity at scale. And throughout the Great Depression he proved to be a savvy distressed investor.
His personal overhead may have been the key factor in his fall. His salary did not cover his family’s expenses, meaning that Atlas stock had to perform. And it is not difficult to imagine that someone who lived through the 1920s and 1930s had no confidence in the overall market delivering attractive future returns. Odlum had to keep doing deals, even when the opportunity set disappeared.
Odlum started his career with a clear edge and took advantage of market conditions. In the end, he became the patsy for uranium prospectors and plowed his capital into projects without downside protection. Maybe Odlum truly believed that uranium was the oil of tomorrow. Or maybe he chose to believe because he could feel his good fortune slip through his fingers. The only way out was another big win. But trying to force a bad hand is something that his younger self would never have done.
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