Pesticide Prince

Dennis Albaugh made his money by seeing opportunity where others saw only challenge.

Dennis Albaugh's first attempt at entrepreneurial capitalism wasn't auspicious. It was 1979. He'd spent his $2,000 in savings and had mortgaged his house to buy a used truck and 1,500 gallons of weed killer, which he was driving from Des Moines to a customer in Aberdeen, S.D. There was a leak in the truck. All he had left when he got there was an empty truck and a very angry customer.

But Albaugh, now 57 and chief executive of Albaugh Inc., was willing to wager that fate would not punish him a second time. He begged the customer for another three days, went back to Des Moines, rented a different truck and convinced his supplier to give him more weed killer on credit. He made the delivery again and stayed in business.

That's been a theme for Albaugh ever since: Where others have seen challenge or peril, he's seen opportunity. "He doesn't allow typical emotions that cloud our lives to affect his thought process," says Spencer Vance, president of Albaugh Inc., which had an estimated $120 million in operating income (earnings before interest, taxes and depreciation) on $800 million in sales last year selling pesticides. "You don't ever see weakness or fear out of Dennis."

Albaugh, whose stake in his privately held company is worth perhaps $1.2 billion, was raised on a farm in Ankeny, Iowa. When his older brother went into the family business, Dennis knew it wouldn't support them both. So he got a two-year agriculture business degree from Des Moines Area Community College. He spent seven years selling fertilizers, chemicals and seeds for a cooperative, then became a salesman for Thompson Hayward, pushing crop chemicals across Illinois, Nebraska and central Iowa. The company asked him to move to Birmingham, Ala., but Albaugh said no. Instead, he started his own company and spent the next few years buying and selling a weed killer from Helena Chemical, competing with Helena's own sales force for meager margins.

The product, 2,4-D, was old, introduced in 1947. By the 1970s the market was filled with competitors, and companies were de-emphasizing the chemical in favor of newer offerings. Helena had been blending 2,4-D at a factory in Des Moines but sold the factory to another company that converted it to make another product. Albaugh took out a Small Business Administration loan for $100,000, bought Helena's mixing tanks and pumps and moved them to Ankeny.

As a 2,4-D formulator Albaugh scraped through the 1980s. In 1990 one of his competitors, Agrolinz, wanted to sell its factory in St. Joseph, Mo. The price was $750,000. Albaugh didn't have the money to buy it, and no bank would lend him money to do so.

But he bought it anyway. He raised cash by liquidating the inventory, which was given to him ahead of the deal's closing. Within a year his sales had increased from $10 million to $26 million. He closed the factory in Ankeny. Today 2,4-D is Albaugh's second-strongest product line.

To make 2,4-D at the St. Joseph factory, Albaugh bought 2,4-Dichlorophenoxyacetic acid from an Australian firm, an Argentinean one and Dow Chemical . In 1994 he wanted a better supply deal from Dow. When he couldn't get it, he vowed to make the acid himself. He bought equipment and started making it before Dow offered a better deal. Albaugh folded the erstwhile acid-making equipment into other operations.

But that deal was small beans compared with Albaugh's 1995 fight to acquire Atanor, his Argentinean supplier. As Albaugh added products like the herbicide trifluralin to his lineup, he saw that his biggest sellers were made by Atanor. Albaugh figured he could run Atanor more efficiently by operating its factories year-round and shipping more of its products to the U.S. during the Argentinean winter. But Atanor was four times Albaugh's size, a publicly traded company with $200 million in sales. Moreover, Argentina was in the throes of recession, experiencing investor flight, high unemployment and a bank liquidity crisis.

Albaugh approached 25 banks that wanted no part of his gamble. He raised the first $20 million in the U.S. by pledging Albaugh Inc. Then, after months of searching, he met a banker down the street from Atanor who knew the company well and wanted more of its banking business. The banker, a former farm boy himself, drummed up $30 million from three banks, and Albaugh borrowed the last $10 million as mezzanine financing with a steep rate upwards of 20%. In 1996 he bought 51% of Atanor for $60 million.

But Albaugh didn't want to answer to minority shareholders, so he then went about buying the rest of the shares, borrowing another $60 million to do so. He eventually delisted Atanor in 2004. "I don't have partners because then I have to check with somebody else," he says.

Argentina's economy collapsed in 2002; the peso lost 70% of its value. Some of the banks that had bankrolled Albaugh needed their money back quickly. Some larger manufacturers pulled back from Argentina. Albaugh's response: He took out a loan in the U.S. to repay a South American bank willing to forgive $4 million in debt in return for quick repayment. And Albaugh bought more assets in Argentina--including a glyphosate factory in 1999 for $22 million, using $10 million in cash and $12 million worth of products from Atanor.

Glyphosate, the active ingredient in Monsanto 's hit herbicide Roundup, was going off patent the next year. For decades farmers had been spraying Roundup on the ground before planting, killing all leafy weeds in its path with a chemical that conveniently broke down in the soil, so it wouldn't poison crops planted later. But the landscape for glyphosate was changing. In 1996 Monsanto began selling seeds genetically modified to survive Roundup. Farmers could spray plants grown from those seeds, and that represented a whole new opportunity.

With glyphosate going off patent in September 2000, generic manufacturers were anxious to strike a deal. In the U.S. generic companies can sell off-patent products immediately, but they have to compensate the company that originally registered the chemical with the Environmental Protection Agency--Monsanto in this case--for the data showing the product's safety and efficacy.

Albaugh had an advantage because Atanor had a recipe for glyphosate. With its newly purchased factory it could put that secret sauce to use. So when Albaugh met with Monsanto to negotiate its compensation payment for the certification data, he had some leverage.

Albaugh told Monsanto that, if need be, he would import glyphosate from Argentina, which could push the U.S. price of glyphosate down. "One thing I never do is threaten," deadpans Albaugh. "It's just not my style."

A Monsanto spokeswoman said employees couldn't recall the specifics of the negotiation but that Albaugh's sourcing wouldn't have affected negotiations. Terms of the deal they struck remain secret, but most of Atanor's glyphosate stayed in Argentina.

Glyphosate was a wild success, beyond Albaugh's expectations. It's the bestselling agrochemical in the world, with an estimated market of $3 billion. It appears that Monsanto has clung to two-thirds of the business, cutting prices reluctantly and thus leaving a price umbrella for the first discounters. When Albaugh started selling glyphosate in the U.S. within months after the patent expired, farmers were paying close to $40 a gallon. Now they pay $10. Albaugh has made up for shrinking margins with rising volume and claims to be the second-biggest glyphosate producer in the U.S.

Albaugh has continued to make scary-looking bets. In the past four years he spent $55 million on three sugar mills and 11,000 acres of sugar cane in Argentina. Their owners had been losing money, and sugar prices had been depressed for years, but Albaugh wanted the mills for an alcohol they produce that is used to make 2,4-D. Last year, after Hurricane Katrina knocked out sugar crops and refineries, world sugar prices more than doubled to 19 cents per pound.

This year Atanor will begin selling glyphosate in agricultural powerhouse Brazil, but it took it 11 long years to get necessary approvals from the government. Albaugh is still wrestling with a $10 million investment in Mexico, where he's having troubles getting farmers to pay their bills. Another problem: Scientists have identified 12 glyphosate-resistant weeds. But in an irony Albaugh can appreciate, Monsanto has suggested some farmers use other herbicides, including 2,4-D, in concert with glyphosate to combat resistance.

These days Albaugh, who says he'll sell his company "at some point," spends most of his year in Florida, a state with no personal income tax. When back in Ankeny, he commutes to work by golf cart, driving from his 10,000-square-foot Tuscan-inspired villa to Albaugh's world headquarters, across a 19-hole golf course he built. ("You always need a playoff hole," he explains.)

In Ankeny, a suburb of Des Moines surrounded by farmland, Albaugh is bankrolling a 1,031-acre development that will have 3,555 homes. A risky bet as the housing market crumbles? Not to this guy.

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