Hulman board overhaul may signal strategy shift, even IPO

The Feb. 17 announcement that Terre Haute-based Hulman & Co. was expanding its board of directors from four to eight members could simply mean the company is looking for guidance from a broadened brain trust.

But when a 160-year-old privately held company, which counts the Indianapolis Motor Speedway and IndyCar Series as its holdings, adds three board members with no Hulman-George family ties for the first time in as long as almost anyone can remember, it could also be a signal the company is at a significant crossroads.

“It’s hard to believe this was done on a whim,” said Dan Dalton, professor of management and dean emeritus at Indiana University’s Kelley School of Business.

Dalton said the “textbook reason” for adding members to a company’s board is “to garner some specific expertise.”

“It’s very possible this company could be looking for expertise in marketing or strategic planning,” Dalton said.

But there are other distinct possibilities, he added.

“Another possibility is that, at some point, they’re contemplating taking all or part of this company public,” Dalton said. “It’s quite possible this is a signal that there could be more changes coming. There could be more changes to the board, there could be changes to management. It might signal that there’s a retirement coming, or this could be a function of estate planning.”

Hulman & Co. officials, as usual, are mum.

The family-owned company shocked the racing world by announcing that Tony George is being reinstated to its board.

Hulman & Co. oversees the Speedway and IndyCar series, and also manufactures Clabber Girl Baking Powder and has interests in banking and real estate. Its board previously had been composed of Mari Hulman George—Tony’s mother—and Tony’s three sisters: Nancy L. George, M. Josephine George and Katherine M. George-Conforti.

Tony George had resigned his board position in mid-2009 after other board members demanded he be fired as leader of Hulman & Co. and the Speedway.

Replacing George as Hulman & Co. CEO was Curt Brighton, a longtime employee. Replacing him as IMS CEO was Jeff Belskus, formerly the chief financial officer. Last March, the board hired former Pro Bull Riders circuit CEO Randy Bernard to be CEO of the IndyCar Series.

While motorsports followers focused on Tony George’s reinstatement after his two-year hiatus, business observers were just as intrigued by the additions of three well-known local executives—Andre B. Lacy, Michael L. Smith and Jerry W. Throgmartin.

All of them have served as high-ranking officials for thriving businesses, and they have notable experiences with publicly traded companies, corporate governance and fiscal oversight.

“That trio brings serious experience to the table,” said Steve Strammello, managing executive of risk consulting in the local office of accounting firm Crowe Horwath LLP. “Certainly, this is an indication of a maturity process of the company’s governance structure.”

Lacy, who serves as chairman of the family-owned Lacy Diversified Industries Ltd., also is a former chairman and CEO of FinishMaster Inc., a publicly traded Indianapolis company acquired in January by Uni-Select Inc. for $172 million.

Smith is a former chief financial officer of Anthem Inc. (now WellPoint Inc.) and guided the health insurer through its $2.1 billion initial public offering in 2001—the biggest Indiana IPO ever. Smith also served as CEO of Mayflower Group before its 1995 sale.

Throgmartin was chairman of the family-controlled appliance retailer HHGregg when it went public in 2007. He now serves as the company’s executive chairman.

All three men have considerable experience on corporate and not-for-profit boards.

Strammello doesn’t expect the trio to be involved in day-to-day management of Hulman & Co., or its holdings, but neither does he expect them to be passive board members, merely showing up for quarterly meetings.

“I would expect all three of these new members to be engaged and take this appointment very seriously,” Strammello said. “They have considerable experience on other boards, and they’ve shown a commitment in those appointments to be engaged.”

Belskus and Bernard said they feel no threat by the new appointments and are eager to hear their insights.

“I was hired to do one thing,” Bernard said. “To help IndyCar grow. I’m not sure what, if any, impact [new board members] will have. I look forward to working with them.”

Bernard said he was given assurances that his job status is stable.

Mari Hulman George and her four children declined to comment for this article, but Belskus said conversations to expand the board have been ongoing for a year.

“This is about company positioning and quality associations,” Belskus said.

Bernard said he met “a couple” of the new board members one month ago, but declined to specify which ones or what was discussed.

While Belskus said he has had contact with Tony George since his reinstatement, and things between the two remain “professional and cordial,” Bernard said he has had no contact with the man he replaced.

Playing mediator

Sources close to the series said Mari Hulman George has been angling to get her son back on the board since he had a falling-out with his three sisters in 2009 over motorsports-related expenditures, and the new board members were installed in part to play mediator among family members.

“Anybody who lives in Indianapolis knows there’s been some governance issues at Hulman & Co. and the Indianapolis Motor Speedway and my supposition is they want to address those,” said Lacy, the only one of the new board members who agreed to discuss his appointment.

Lacy, who has attended every Indianapolis 500 since 1948 and has served on the board of the 500 Festival for 12 years, thinks the addition helps the company in several ways. Chief among those is oversight.

“I believe everybody needs a boss,” Lacy said. “I have sought that at LDI. A board of directors is a boss. And every CEO needs a boss.”

Lacy pointed out that though LDI is privately held, it has a majority of independent, outside board members.

Corporate governance experts, however, worry that the new board members could be caught in a tug-of-war as Hulman-George family members try to curry favor with them in an attempt to gain board control.

Going public

Perhaps the hardest scenario to imagine is Hulman & Co. or one of its holdings going public. The family has been intensely private about its businesses, and an initial public offering would require the company to divulge salaries, revenue, expenses and profitability, among other things, in Securities and Exchange Commission filings.

“In some ways, [Hulman & Co.] going public would seem outrageous, but the addition of these board members is an interesting sign,” said Mark Foster, chief investment officer at Kirr Marbach & Co. in Columbus. “Stock buyers would want independent directors and a broad-based group to lead the company. To be listed on most stock exchanges, you have to have independent, outside directors.”

Bob Shortle, CEO and head of the mergers-and-acquisition practice at Periculum Capital Co. LLC, an Indianapolis-based investment banking firm, said the board additions “lean like a company thinking of going public.”

“Look at who they named to this board,” Shortle said. “This isn’t just a random combination of good businessmen. This move indicates a strong level of experience to the public side.”

Observers said that, if the company merely wanted guidance, it could have hired consultants. Unlike board members, they wouldn’t have an official role in making decisions.

“Board members signify a much longer-term commitment,” Shortle said. “You can’t ignore the fact that they’ve brought in board members with a very senior-level experience with a fair bit of knowledge of running a public company.”

But why would Hulman & Co. want to have all or part of its enterprise go public? There are, Shortle and Foster said, several very good reasons.

Selling out?

There’s a possibility that one or more of the Hulman-George family members want to sell their stake in the business.

“In a private company, if I want to cash out, how do I get my money out?” Shortle asked rhetorically. “How do you decide worth? If it’s a public company, the company’s worth whatever the market says the stock is worth. Going public creates liquidity for shareholders—family members—that they don’t currently have.”

In previous interviews, Belskus, who serves as the board’s spokesman, has unequivocally slammed the door on the possibility of the Hulman-George family’s selling all or parts of the company.

When asked on Feb. 23, Belskus said, “it’s very unlikely.”

After a pause, he added, “Nothing like that is being discussed or contemplated.

“If there is a desire of any of the shareholders to cash out, it’s nothing that I know of.”

Estate planning

There’s another possibility. Family members might want to sell some of their holdings, or stage an IPO, to generate millions of dollars they’d need for estate taxes after matriarch Mari Hulman George’s death.

“All this could be a function of estate planning,” said Ken Skarbeck, president and managing partner of Indianapolis-based Aldebaran Capital LLC. “It could be a way to seek counsel or to arrange for a generational change in ownership.”

Mari Hulman George, 76, has been matriarch since she took over as chairwoman from her mother in 1988. Business observers wonder if Mari’s children have the financial wherewithal to cover what is likely to be a hefty estate tax bill that would be involved in inheriting her interest when she dies.

The Hulman-George family wouldn’t be the first to face this hurdle. The Robbie family was forced to sell the Miami Dolphins in 1993 when family patriarch Joe Robbie died and his children couldn’t afford more than $50 million in estate taxes for the team and its stake of the stadium in which the team played.

Shortle thinks the Hulman-George family could face a considerably larger estate tax given the potential value of the mammoth Speedway.

Retaining control

Going public wouldn’t necessarily mean the Hulman-George family would lose control of the company. The company could sell several classes of stock and the family could retain 70 percent or more of the ownership stake—and decision-making power—all the while raising tens of millions of dollars to invest back in the company or use for other purposes.

“They could use the stock to buy other racing enterprises and use it as a way to protect the product they own,” Shortle said.

Lacy said there has been little discussion among new board members about a specific change in direction for Hulman & Co.

So why did the three new independent board members take their positions? Lacy, an unabashed racing fan, said all the new directors are acutely aware of how much the Speedway means to the surrounding region.

“This company represents an institution that is very meaningful to this community and has been wonderfully unselfish in its operations here,” Lacy said. “I think we’d all like to think we’re giving something back and preserving something for the future of this community.”•