Glen Taylor’s Golden Egg

Glen Taylor’s Golden Egg

The printing business billionaire and Timberwovlves owner also holds 14,000 acres of farmland—and a sizeable investment in Rembrandt Enterprises, an egg production company that's grown 30 percent since its founding. What's the appeal of such a mature, low-margin business?

Glen Taylor considers himself a farmer.

Though better known locally as a billionaire who built a multinational printing company and as the owner of the Minnesota Timberwolves and Lynx pro basketball teams, the easygoing and soft-spoken Taylor says, “I have no problem getting on a tractor or going to town and talking to farmers, talking the language.” He grew up on a diversified farm with chickens, milk cows, pigs, and crops in Comfrey, Minnesota, during the 1940s and ’50s.

Lately, farming has become a lucrative side business for Taylor. Particularly his newest agriculture venture—egg production.

It may seem like a curious direction for one of Minnesota’s best-known businesspeople to take. But it does connect with Taylor’s career and history. While serving as a Republican senator in the Minnesota Legislature from 1980 to 1990, Taylor witnessed firsthand the need for rural development. “I was asked so many times to go out to the smaller communities in the state and talk to them about how might they bring more business to their community,” he recalls. “They had seen these small communities go down, smaller and smaller, and the suburbs grow, grow, grow.”

Motivated by both the idea of revitalizing rural communities through business and his ongoing investment in farmland, Taylor began developing partnerships with farm families several decades ago. His most recent, Rembrandt Enterprises, has become the third-largest egg producer in the United States, growing at a clip of about 30 percent per year from 2001 to 2008, both in terms of annual average revenues and chicken numbers. This spring, it doubled in size through a major acquisition.

How has the company succeeded in such a tight-margin industry? By thinking outside the shell.

Laying the Egg

As a kid, Taylor raised his own chickens. Even now, on an almost daily basis, he collects eggs from about 30 birds housed at his hobby farm just outside Mankato and shares them with employees at Taylor Corporation, his Mankato-headquartered printing company and the foundation of his fortune.

“I loved my upbringing,” he says. “I loved that idea of ownership, having your own land.” In that sense, Taylor finds it easy to walk in the steel-toed boots of the farmers he has chosen to partner with.

Taylor began purchasing farmland as in investment in the 1970s. He now owns 14,000 acres in northwestern Iowa and south-central Minnesota. “You buy 160 acres at a time, sometimes less, sometimes a little bit more,” he says. “So you can see, I’ve done that about 80 times.” It has been a lucrative investment, but one that requires both patience and risk taking. “Prices on farmland go up and down,” Taylor says. “You have to be willing to jump in when prices are low.” Over the years, Taylor has formed partnerships with six families who now farm his land.

One day in 1997, while purchasing land at an Iowa auction, Taylor was approached by Mike Gidley, a local farmer. “I was interested only in farmland that I could cultivate, but this farm that I had just acquired also had a considerable amount of pastureland for cows,” Taylor recalls. “Mike, whom I didn’t know, was there, and he came up to me afterwards and said, ‘Would you consider selling me the pastureland?’ We made the deal right there out in the cold. I gave him, like, 10 years to pay for it.”

A few years later, Taylor ran into Gidley at the Linn Grove, Iowa, grain elevator. Gidley soon introduced him to Darrel and David Rettig, a father-and-son team with an egg production facility in Ridgeway, Missouri. Planning to create a similar facility in Iowa, the Rettigs hoped to use some of Taylor’s land; they also were looking for an investor.

Taylor learned that the Rettigs’ business went beyond chickens laying eggs. The facility they had in mind for Iowa would be a highly automated one; and rather than collecting and packaging the eggs, it would break eggs and sell them as “egg products” in liquid form. Unlike shell eggs, a business that has grown little in the past few years and sells mostly to supermarkets, egg products offer more opportunities. The markets for egg products are primarily restaurants—“most restaurants are not back there breaking eggs,” David Rettig says—and food-product manufacturers. About two-thirds of the roughly 209 million eggs produced in the U.S. are consumed as shell eggs; the remaining one-third is consumed in food products, such as mayonnaise, pasta, premium ice creams, and bakery items.

The Rettigs offered Taylor guaranteed rent in return for his investment. But Taylor didn’t want to be just a landlord. He wanted to participate in their operation. “I’m not interested in just getting into real estate and saying, ‘Well, I can get 6 percent on my money.’ I like the give and take” of business, Taylor says. “If it goes well, you are rewarded quite handsomely. And if it goes bad, you take the risk with everybody.”

Having agreed to Taylor’s terms, the Rettigs set out to develop a vertically integrated egg operation on 160 acres of Taylor-owned land near Rembrandt, a tiny hamlet in northwestern Iowa.

Though better known as the state where the tall corn grows, Iowa also is the nation’s egg-laying capital, and by a wide margin. According to the U.S. Department of Agriculture (USDA), Iowa had almost 53 million laying hens as of December 31, 2008. Ohio was second with nearly 27 million, and Minnesota ranked tenth with about 9.6 million. Iowa became the top egg-producing state in large part because of its access to feed—it’s one of the top two corn- and soybean-growing states (Illinois is the other). Being an ag- and livestock-friendly state that is mostly rural, odor and waste issues aren’t as big a concern in Iowa as they are in more urban states. This makes it easier for larger agricultural facilities to get approved in Iowa than in some other states.

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The egg-laying operation the Rettigs had in mind was very large. But Taylor had even bigger plans.

In Production

The deal with the Rettigs gave Taylor an approximately 90 percent interest in Rembrandt Enterprises, the company running the operation. The Rettigs and another investor, Bill Kozitza, own the rest. David Rettig is the company’s CEO. Taylor estimates his total investment in the Rembrandt facility at somewhere between $70 million and $100 million.

In the fall of 2000, to get the egg operation up and running, the partners started a facility where they could raise pullets (chickens less than a year old) a couple of miles down the road from what would become the egg operation. The following spring, they began construction on the chicken houses for their mature layers and on the egg production facility. During the 90-week build-out in 2001, Rembrandt Enterprises expanded to 10 on-site chicken houses; it now has 16, housing 5.4 million chickens. In the fall of 2001, the company began collecting its first eggs; the following autumn, it brought its first egg-breaking machine on line.

Rembrandt’s egg-breaking facility is a mostly automated one, though human beings still play key roles in the process. The eggs enter the processing plant via a conveyor belt that runs under the chicken house cages. They then go through a cleaning facility somewhat reminiscent of a small car wash, with tiny brushes scrubbing the eggs clean. The conveyor belt next transports the eggs to a candling area, where workers look for broken and dirty eggs with the aid of special lights. Eggs that are still dirty are sent back through the washer; broken eggs are rejected and sold for animal feed.

Eggs that pass the visual inspection advance to the breaking machine. Here automated pincers pick them up, triggering a knife that slices each egg in half. The whites drop down for collection while the more viscous yolks remain in the pincer. (Some customers request either white- or yolk-only liquid.) One breaking machine can process 170,000 eggs per hour.

The 4 million–plus eggs that the Rembrandt facility collects daily are processed and pasteurized the day they are laid. The company’s pullets enter the chicken houses only after they’ve been vaccinated over a two- to three-day period. (No “outside” chickens enter the facilities.) Technicians monitoring ambient temperature, water quality, and air quality enter the houses only after showering and donning a fresh set of company-provided clothing.

On the whole, says USDA agricultural economist David Harvey, egg production is “a fairly low-margin business.” Prices did skyrocket to just over $1.60 per dozen of grade-A large eggs on the New York market in March 2008, Harvey says. But by February 2009, those prices had retreated to $1 per dozen. Egg prices can undergo large seasonal price swings. In 2008, they oscillated between $1.04 and $1.62. The remainder of this year, the USDA expects New York wholesale prices between $1.11 and $1.17.

Rembrandt’s 2008 revenues hit more than $125 million. During the 2007–08 commodities boom, the margin for egg products ranged between 5 and 20 cents per pound, David Rettig says. This year, he expects revenues to drop closer to $100 million.

Even so, the Rettigs and Taylor have been seeking to increase their production—and exploring new opportunities.

The Price of More Eggs

The Rembrandt facility was fully operational in 2004. As the company expanded its chicken numbers, it added two more breaking machines. In 2006, Rembrandt Enterprises contracted to run the Rettigs’ egg-laying operation in Ridgeway, Missouri, adding another 1.4 million chickens, for a total of about 6.8 million layers under its management.

In 2007, Taylor and his partners also began to consider a new opportunity: supplying dried eggs. Adding driers would allow Rembrandt to sell to companies that supply food ingredients to baking companies and makers of egg noodles, mayonnaise, sauces, and candy. It also would open up the food service market, where customers include distributors to hospitals, schools, and prisons.

Rembrandt Enterprises first considered converting its Iowa facility into a 100 percent drying operation and building another for liquid eggs. “But then the opportunity came along to purchase a competitor who, in a lot of respects, had facilities very similar to ours,” Taylor says.

That competitor was Golden Oval, a member-owned co-op that both produces eggs and processes them into liquid. Based in Renville (about 30 miles south of Willmar), Golden Oval has production and processing facilities in Minnesota and Iowa, with additional processing and distribution operations in Missouri, California, and Alabama.

“It worked out that if we were going to build, we probably couldn’t have built anything better than what they had built,” Taylor notes. “And they were for sale.” The acquisition closed March 30. The estimated purchase price: $123.75 million.

The combined company will have roughly 665 employees, 405 from Golden Oval and 260 from Rembrandt. “We can keep most of their employees because they are separate facilities,” Taylor says. The deal also gives Rembrandt an additional 2 million chickens at Golden Oval’s Renville facility and 5.5 million at its Thompson, Iowa, facility, bringing Rembrandt’s total to 14.3 million.

The purchase will make Rembrandt Enterprises the third-largest egg producer in the United States. According to Egg Industry Insider’s latest rankings (as of December 31, 2008), Cal-Maine Foods in Mississippi ranked number one, with 28.5 million chickens; Indiana-based Rose Acres was second with 21.6 million chickens; Sparboe Farms, based in Litchfield, Minnesota, was fourth with 12 million layers. Rembrandt is the only company in the top four to focus entirely on egg products rather than shell eggs.

To build Rembrandt Enterprises, including the Golden Oval acquisition, Taylor did something he doesn’t like to do—take on debt. Although he declined to specify how much, it was well under the 60 percent debt-to-asset level he has never exceeded. “We will probably take a couple of years to digest this acquisition and make sure that everything is going really well,” says Taylor, who adds that “we’re going to get the customers lined up, we’re going to get the contracts lined up, and make sure we can really deliver on this before we move ahead.”

While technology has changed and the industry has become more vertically integrated, the liquid- and dried-egg businesses were well established before World War II. The market is primarily domestic. In 2008, the U.S. exported the equivalent of 206 million dozen eggs—about 2.7 percent of the total market. Slightly less than half of that was exported as egg products. Japan and the European Union alone accounted for 72 percent of the 2008 exports of U.S. egg products.

Overall, the export market hasn’t changed much in the past decade. Still, Taylor sees potential there, “particularly due to our ability to dry eggs and ship them.” Drying eggs extends shelf life from weeks to months. What’s more, he notes, “about 80 percent of an egg is liquid. If we take the liquid out, we can ship it much cheaper.” Rembrandt has experimented with shipping dried eggs to South America and Europe. Exports account for 4 to 5 percent of Rembrandt’s business; Taylor hopes to increase that to 10 to 15 percent.

In an economic downturn, eggs are a steady business to be in. “Eggs are fairly inelastic—that is, you have to really change prices before you change demand,” says Donald Bell, a poultry specialist with the University of California, Riverside. “Eggs have always been a good buy compared with other foods.”

And Glen Taylor is a good business partner to have. His mentorship and the resources he brings through Taylor Corporation’s administrative departments have allowed David Rettig to focus entirely on egg production. “I had dreams of 2 million birds when I started with Glen,” Rettig says. “When we started, I couldn’t have prophesied all this.”