The Humble Origins of World-Changing Businesses

On this day in economic and financial history...

Every great company starts with a great idea, but establishing the company itself is necessary to make that idea commercially viable. That's why, several years after the famous drink's invention, Atlanta businessman Asa G. Candler incorporated Coca-Cola (NYSE: KO  ) in Atlanta on Jan. 29, 1892.

Candler had taken full control of the Coke name and trademarks a year earlier by buying out its early stakeholders. These stakeholders had acquired Coke from from John Pemberton, an Atlanta pharmacist who had invented the fizzy brown soft drink in 1886 and had sold it in a local pharmacy until his death in 1888. In total, Candler spent $2,300 to get a hold of the business, which, at about $57,000 in present-day value, is cheaper than the cost of opening a single fast-food franchise -- not to mention vastly more profitable. Within three years, Coke became a national product, and by the end of the 19th century Coke had already pioneered the basic soft-drink industry model that's still used today. There were Coke coupons, Coke advertisements, and Coke-branded products, as well as rapid mass-bottling plants and the efficient distribution networks to reach the broadest possible market. However, Coke's best days were still ahead of it.

Coke under Candler was a reluctant adopter of bottling, but by 1916 the need for a distinctive branding style was vital to fend off a wave of copycat beverages. That year, Coke unveiled the iconic contour bottle, designed to be unique enough to recognize by touch in the dark. By this point, Coke had begun its international expansion, but Candler also had political ambitions, and he stepped down in 1916 to become the mayor of Atlanta. Three years later, Candler and his family sold the company's principal assets to a team of investors for $25 million, earning more than a 1 million percent return on the original $2,300 purchase price.

Coke went public shortly after Candler sold with a public market cap of $30 million between common and nonvoting preferred shares. At the time of its offering, Coke was earning roughly $9 million in pre-tax income on sales of about 19 million gallons of syrup. From the IPO to Coke's first iconic Christmas ads in 1931, investors enjoyed a 1,000% total gain. From 1931 to 2011, investors enjoyed gains of a further 2.1 million percent, making it one of the single best stocks to have owned for the long term in modern history. Coke also happens to be the current Dow Jones Industrial Average (DJINDICES: ^DJI  ) component with the longest intermission between membership periods. Originally added in 1932, Coke was replaced in 1935 but returned in 1987 -- a 52-year absence that deprived the index of a tremendous amount of potential growth.

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Get ready for the boom
The Nasdaq Composite is well-known for one of the most incredible (and unsustainable) bull runs of any index in history. On Jan. 29, 1999, that bull run reached its midpoint when the Nasdaq closed above 2,500 points for the first time. At the time, the Nasdaq was just finishing its best monthly gain in 24 years, driven higher by news of extremely strong GDP growth for 1998's fourth quarter. The Dow followed a similar pattern, rising 0.8% compared to the Nasdaq's 1.2% to finish at 9,359 points for the day.

It had taken the Nasdaq a bit longer than two years to double from 1,250, reached in early October of 1996, but the next double would be the big one. In just more than 13 months, the Nasdaq skyrocketed to its all-time high of more than 5,000 points, as IPO after IPO of flimsy Internet companies doubled (or more) through 1999 and into the first three months of 2000. The Nasdaq closed its 14th year since reaching 2,500 with a gain of 26%, but today the tech-heavy index remains 37% below its all-time highs.

The birth of the auto industry
On Jan. 29, 1886, Carl Benz applied for a German patent for a "vehicle powered by a gas engine," a three-wheeled open carriage with a four-stroke engine driving the rear wheels. Known as the Benz Patent-Motorwagen, this working machine is generally regarded as the first automobile, which makes its patent filing the automobile's official birth certificate. It looked flimsy, and its power output was about equal to that of a small lawnmower, but this car helped to change the world.

Two years after the filiing, Benz's wife Bertha took their sons on the first-ever long-distance automobile ride through several German towns. The Patent-Motorwagen stood up to a 112-mile journey with some minor repairs, in the process establishing the first fueling station in history (when the trio stopped at a pharmacy for petroleum ether) and the first brake linings in history (out of shoe leather nailed to the brake blocks). This historic ride gave Benz the publicity necessary to successfully grow into its modern form of Mercedes-Benz, Daimler's (NASDAQOTH: DDAIF  ) most important auto brand.

More than a century later, the global auto industry has grown into a massive component of the world economy. More than 60 million cars were produced around the world in 2012, supporting millions of jobs and trillions of dollars in total related revenue. It might well have begun with some other inventor, but Carl Benz was in the right place at the right time with the right idea. Thanks to him, Jan. 29 is the day we celebrate the birth of the auto industry.

Labor vs. the feds
President Andrew Jackson's tenure is notable for two key economic events. He is the only president to have overseen a period of debt-free federal government, and he is also popularly known as the president who killed the central bank of the United States. On Jan. 29, 1834, Jackson added "strike-buster" to his resume by becoming the first president to put down a labor uprising with federal forces.

That day, construction workers on the Chesapeake and Ohio Canal were rioting over how terrible their jobs were. (If you had to work long hours for low pay, digging a deep ditch with little more than a hand shovel and a pickaxe, then you might riot, too.) The canal project had been a long-standing boondoggle due to the rocky terrain between the Chesapeake Bay and the Ohio River Valley, to say nothing of the landowners in the canal's proposed path. But that didn't stop legislators from attempting the project with immigrant and slave labor. Federal backing of the canal project prompted Jackson to send federal troops to quell the riot on Jan. 29, which set a precedent that would last well into the 20th century; a number of labor movements were put down with federal or state forces over the following century. But this alone would be the Chesapeake and Ohio Canal's legacy: It was abandoned in 1850, having reached no farther than western Maryland.

Admit it: Tobacco is bad for you
For decades, tobacco executives denied that their product was dangerous despite decades of warnings from a wide range of official sources. On Jan. 29, 1998, the wall the industry had built against government questioning and public concern finally broke open when RJR Nabisco CEO Steven Goldstone admitted to the House Commerce Committee that nicotine was addictive and posed health risks. Industry executives had recently gained immunity from further lawsuits and prosecutions with the Tobacco Master Settlement Agreement, a colossal $368 billion judgment that would be paid out over 25 years to most of the American states for health claims. With this cloak of immunity protecting them, industry execs felt free enough to admit that they were not peddling healthful products.

Goldstone's testimony marked a turning point in the tobacco industry's battle against the government. With its cards on the table, the industry seemed weak, but Congress could not agree to push through the original Agreement as written. RJR wound up pulling out of the Agreement as Congress dithered, which forced the government to accept a lesser settlement toward the end of 1998. The settlement prompted a wave of industry restructuring and rebranding. RJR's tobacco operations became Reynolds American (NYSE: RAI  ) , industry leader Altria (NYSE: MO  ) changed its name and spun off much of its operations, and Loews separated out Lorillard as an independent public company after a multiyear process of stake reduction. Since that time, these three companies have thrived on the markets: In the 15 years following Goldstone's admission, Altria is up 777%, Reynolds American has grown 1,250%, and Lorillard has doubled since going public in 2008.

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