On this day in economic and financial history...
The government fights back
Smoking and Health, a landmark report by the Surgeon General's Advisory Committee, was first published on Jan. 11, 1964. While this was not the first time a government official had spoken out on the negative health effects of smoking, the report quickly became one of the most influential public statements in the smoking debate in an age when smoking was widespread and socially accepted.
The report was almost entirely focused on the adverse effects of smoking, and it intensified the debate over how best to handle the tobacco industry. Some commenters pointed out that the hazards of smoking were already common knowledge. Los Angeles Times medical editor Harry Nelson wrote that "as early as 1954, the Public Health Cancer Association declared that 'there is sufficient evidence available of a relationship between smoking and lung cancer to justify advising the public to stop smoking cigarettes.'" However, this did not lessen the impact of the Surgeon General's report, nor did it dissuade the tobacco industry from fighting back: New York Times writer Jack Gould noted that tobacco companies planned to increase their TV advertising over 1963's level of $135 million (or 8% of total TV ad revenues) to compensate for a potential loss of public favor.
A detailed New York Times report on the industry's sales came out the Monday after Smoking and Health was published, showing that despite some simmering discontent, tobacco was a flourishing business. Here are some of its key findings for 1963:
- The tobacco industry made $8 billion in sales.
- 70 million Americans bought 523 billion cigarettes (and 7.1 billion cigars).
- Americans bought 69.5 million pounds of smoking tobacco, 64.8 million pounds of chewing tobacco, and 32.5 million pounds of snuff.
- 750,000 farm families tended more than 1.2 million acres of tobacco.
- Tobacco manufacturers employed more than 96,000 people earning $379 million in wages.
- More than $200 million was spent on advertising to generate $650 million in profit.
The tobacco industry was not blind to the negative publicity. American Tobacco, which had been one of the founding members of the Dow Jones Industrial Average (DJINDICES:^DJI) in 1896 and was on the index in 1964 as well, had unveiled a new brand a week prior to the Surgeon General's report. This brand was the first to openly display information on its tar and nicotine contents after the FTC actually stopped an earlier industry effort that was found to be unevenly applied. American Tobacco eventually became Fortune Brands, which divested its tobacco holdings and is now split into two companies, of which Beam (UNKNOWN:BEAM.DL) is closer in spirit (no pun intended) to its original form.
Two years after the report's publication, the U.S. began forcing tobacco manufacturers to add warning labels to their packaging. By 1971, cigarette advertising was banned from the airwaves. Smoking use has been declining ever since -- from more than 40% of the population in 1965 to just 19% in 2011. That hasn't stopped major tobacco manufacturers, many of which diversified spectacularly throughout the latter half of the 20th century. Former Dow component (and American Tobacco's replacement on the index) Altria (NYSE:MO), although much diminished after spinning off Kraft (now Mondelez (NASDAQ:MDLZ) ) and Philip Morris (NYSE:PM), has still managed to grow at an average rate of 20% a year for the past three decades.
The pineapple is closely bound to the Hawaiian Islands, but it did not originate there. The distinctive fruit was originally cultivated in South America -- in Paraguay and Brazil -- and was eventually introduced to the Old World by Christopher Columbus. It was not until Jan. 11, 1813 that the first pineapple crop was planted in Hawaii.
This first planting would later provide James Drummond Dole with a reason to establish the Hawaiian Pineapple Company on the islands in 1901. Dole, as you might have guessed, eventually lent his name to Dole Food (NYSE: DOLE) -- formed by the combination of Hawaiian Pineapple and Castle & Cooke in 1991 -- which is now the largest producer of fruits and vegetables in the world. Dole and Hawaiian Pineapple were integral in the push for the United States' annexation of Hawaii, without which the company would have been forced to pay crippling import tariffs. Hawaii as we know it today might not exist if not for that first pineapple planting in 1813.
Saving Wilford Brimley
On Jan. 11, 1922, the world's first insulin injection was administered to a dying diabetic patient in the Toronto General Hospital. The patient, Leonard Thompson, did not die, but he did suffer an allergic reaction to the impure insulin. The second injection, 12 days later, was completely successful. One of humanity's pernicious plagues had finally been turned back.
Charles Best and Frederick Banting, along with J.J.R. Macleod and James Collip, worked on this medical breakthrough, and two of them (Banting and Macleod) won the Nobel Prize the following year. Before their win, the team collaborated with Eli Lilly (NYSE:LLY) to create purer insulin in mass quantities, and Lilly remains one of the leading pharmaceutical companies for diabetic treatments to this day.
In 2011, the global diabetes-care market was worth $51 billion, with Novo Nordisk (NYSE:NVO) leading the sector with a 27% market share. More importantly, millions of lives have been saved by this discovery, which is something that can't be measured solely in financial terms.
A deal that will live in infamy
Bank of America (NYSE:BAC) provided a necessary bailout for floundering mortgage-lender Countrywide Financial on Jan. 11, 2008. The $4 billion deal "present[ed] a rare opportunity for Bank of America to add what we believe is the best domestic mortgage platform at an attractive price," according to then-CEO Kenneth Lewis. However, the deal represented a substantial discount over the 16% stake Bank of America had taken in Countrywide just five months earlier for $2 billion. Countrywide had only recently reported a third-quarter loss of $1.2 billion -- its first in 25 years.
Countrywide has continued to be a drag on Bank of America's performance ever since the deal closed. Billions of dollars have been lost to the tanking mortgage business since then, and Bank of America has been forced to pay approximately $45 billion in Countrywide-related legal settlements within the first five years after announcing its deal. When the costs of your acquisition's bad behavior are at least 11 times greater than the costs of the actual acquisition, you know you've made a really bad deal.