$50k Becomes Billions

Hello! This is Deep Pockets #14.

Back in 2010, right around the release of the movie “The Social Network,” (which stars Armie Hammer), I was driving by the Hammer Museum in Los Angeles. The museum is a massive black-and-white marble building that sits on an entire square block. Inside, you will find a priceless collection of works from artists including Picasso, Cezanne, Rodin, Matisse, Rembrandt, Goya, Gaugin and van Gogh. At a stop light right in front of the museum, I looked over at my friend in the passenger seat and tried to impress him with a bit of trivia:

"Did you know that the Hammer Museum was founded by Armie Hammer’s great-grandfather, Armand Hammer?”

Thinking he could one-up me, my friend volleyed back with his own piece of Hammer family trivia:

“Yes, but did YOU know that the Hammer family has nothing to do with Arm & Hammer baking soda… the similar-sounding name is just a coincidence?”

To which I smugly retorted:

“Actually, you’re right AND wrong about that...”

I’ll explain why my friend’s trivia was both right and wrong at the end of the story below. First, let’s talk about Armand Hammer, one of the most fascinating and controversial tycoons of the last century.

DEEP DIVE: Armie Hammer + Armand Hammer + Arm & Hammer?!

Armand Hammer was born in May 1898 in New York City. Outwardly a medical doctor and entrepreneur, his father, Julius Hammer, was also a staunch supporter of Vladimir Lenin’s Bolshevik movement and its most visible organization, the Soviet Labor Party. Julius actually co-founded the American Communist Party.

For much of his life, Armand claimed his father chose the name “Armand” as a reference to a character in an Alexandre Dumas book. But later in life, he admitted that story was a lie to cover up a slightly more awkward origin for a capitalist billionaire tycoon.

Take a look at the official logo/symbol of the Soviet Labor Party:

How would you describe that symbol in words? You might describe it as an arm holding a… hammer? Or, more succinctly, an “arm and hammer”? Now, put it all together…

That’s right. Armand Hammer - future capitalist tycoon - was named after a communist logo.

Not only did Julius co-found the American branch of the Communist Party, perhaps most egregiously, he used his legitimate company, Allied Drug and Chemical, to raise money for Soviet causes by selling illegal diamonds from Russia and laundering the funds back to communist organizations.

For a variety of complicated reasons that were indirectly related to his communist activities, Julius was arrested in 1919 and sentenced to 3.5 years in prison.

While his father was in prison, Armand and his brother Victor took the reigns at Allied Drug, which was now drowning in debt.

In 1921, after earning a medical degree that would allow him to be called “Dr. Hammer” for the rest of his life despite never practicing medicine for a single moment in his life, Armand moved to Russia to manage Allied Drug’s foreign operations. Using his father’s connections, Armand set up a successful export/import business. Business boomed as Allied Drug won concessions to import Ford tractors, fur coats, pens, and pencils.

In 1927, he married a Russian actress named Olga. In 1929, they had a son named Julian.

Unfortunately, with the rise of Joseph Stalin in the late 1920s, Armand quickly came to realize that it would be very hard to make, and perhaps more importantly, KEEP, a fortune working under a totalitarian communist regime. His worst fears were realized in 1930 when Cheka, the precursor to the KGB secret police, took control of Allied Drug. Seeing the writing on the wall, Armand decided to move back to America. He left his wife and child behind.

Back in the US, Armand and Victor Hammer sold art, bought a beer barrel maker, then a distillery.

At some point, he divorced Olga. He married a second time in 1943 and a third and final time in 1956.

At this point Armand was approaching 60 years old and was looking for a second act. So he did what any of us would do. With zero industry experience or knowledge, he decided to buy an oil company.

Occidental Petroleum

In 1956, Armand paid $50,000 to acquire a nearly bankrupt tiny oil company called Occidental Petroleum (Oxy).

Business was slow in the first few years, but then Armand had a revelation. In the early 1960s, the height of the Cold War, his political connections made him perhaps the only private citizen on earth who could freely travel back and forth between the US and Russia. His Russian connections could also open doors in countries that were totally inaccessible to most Americans.

Armand took advantage of that unique position and set up a meeting with Soviet leader Nikita Khrushchev. From that meeting, which was not approved by the American government, Nikita complained that Russia desperately needed billions of dollars worth of fertilizer for its agriculture industry, but American sanctions had cut them off. Could Armand help?

Upon his return to America, Occidental acquired a dozen fertilizer-related assets, including the largest fertilizer company in the US. Within a year, 90% of this “petroleum” company’s revenue was actually coming from the sale of fertilizer… but not to the Soviets. The deal Armand dreamed of making with Khrushchev was killed a year later when the Cuban Missile Crisis ratcheted up the Cold War to the brink of a nuclear apocalypse. And then, Khrushchev was ousted altogether in 1964.

Undeterred, Armand looked for other opportunities. The opportunity of a lifetime found him a few years later.

In 1964, the notoriously corrupt King Idris of Libya put out a request for proposals from foreign oil companies to explore for oil in several new concessions.

Armand and Occidental submitted a proposal. There’s no direct evidence that Armand and Occidental won the contract thanks to a massive bribe. HOWEVER. Given that King Idris was known to be “notoriously corrupt” and the fact that decades later, Armand’s son Julian exposed his father’s longstanding practice of bribing foreign heads of state and oil ministers with millions of dollars in cash… That’s all I’m going to say.

Occidental won two concessions in Libya… essentially the right to explore for oil in 2,000 miles of desert wasteland.

Oxy did find a little bit of oil in the first concession. But the exploration and infrastructure costs were so huge that it was a Pyrrhic victory (a victory that required such huge costs it’s almost a defeat).

The second concession was a different story. Occidental struck oil with its very first well. And not just a little bit. That first well immediately pumped 40,000 barrels per day. As they installed more wells, the oil kept flowing. Pretty soon, Oxy was pumping out 800,000 barrels of oil per day. As it turned out, Libya was sitting on one of the world’s largest supplies of oil.

Practically overnight, Occidental went from a tiny outfit no one had heard of to the world’s sixth-largest oil producer.

But trouble was on the horizon. As has been the case in pretty much every previously dirt-poor country that struck a massive quantity of oil, at some point, a radical nationalist revolutionary, usually an army general or religious cleric, decides the king is a spoiled rotten capitalist bastard. So, he stages a coup… and nationalizes the oil industry.

This is what happened in Libya (and Iran, Iraq, Mexico, Russia…).

In the early morning hours of September 1, 1969, while he was in Turkey getting medical treatment, King Idris was deposed in a coup d'état by a group of Libyan Army officers.

The coup was led by a charismatic 27-year-old named… Muammar Gaddafi.

Gaddafi would go on to rule Libya with an iron fist until he was deposed and executed in a 2011 revolution. [In the wake of his murder, it was reported that Gaddafi had stashed a $200 billion fortune in foreign accounts. And while that would “only” make him the third richest person in the world today, in 2011, that made him 3x richer than the richest person at the time, Mexican billionaire Carlos Slim.]

One of Gaddafi’s first moves was to re-negotiate the revenue share terms with the various oil companies working in Libya. There were two dozen oil companies working in Libya at the time. All but one had interests elsewhere in the world and, therefore, had the leverage to walk away. The only company that had no leverage at all was Occidental. Very close to 100% of Oxy’s oil production came from Libya.

Ever the diplomat, Armand tapped his Soviet connections, who had influence over Gaddafi, and after months of hard-fought negotiations, Occidental agreed to increase its rev share to 55/45 in Libya’s favor. But within a few years, Gaddafi came knocking again.

In 1974, Oxy and Libya announced a new 35-year partnership at an 81/19 revenue share. Who knows how long this partnership would have lasted, but it was cut off in 1986 when American sanctions forced Oxy out of Libya.

Thankfully, by then, Libya wasn’t Occidental’s only source of revenue. During these difficult years, Armand wisely acquired additional oil, coal, and other assets around the globe.

Today, Occidental Petroleum is a publicly traded conglomerate with a market cap of $50 billion, and 2023 revenues generated $28 billion.

Oxy’s stock has increased 5X in the last four years, primarily thanks to a massive investment from Warren Buffett. Today, Berkshire Hathaway owns 30% of Oxy’s equity.

Wealth Estimates & Art Collection

In 1986, Forbes estimated Armand Hammer’s net worth at $200 million. That’s the same as being worth around $600 million today.

Armand Hammer died in 1990 at the age of 92.

His LA Times obituary called him a “Billionaire Art Patron.” Other outlets estimated his fortune at a slightly more conservative $800 million. If true, that’s the same as around $2 billion in today’s dollars.

Why did I say “if true” in the previous sentence?

A few years before his own death, his third wife, Frances, died. She left all of her assets, around $15 million, to a niece. The niece, knowing her “billionaire” aunt owned single paintings that were worth $50+ million, was furious. In July 1990, she sued her uncle, alleging that he manipulated his wife into putting their collection under the control of the Armand Hammer Foundation.

Armand died just a few months later, in December 1990. Over 100 lawsuits would soon be filed against Armand and his foundation.

Estate Battles

For a guy who was touted as a “billionaire,” or at the very least a multi-hundred millionaire, Armand’s family was shocked to discover that his estate only had around $40 million worth of assets to distribute.

At the reading of the will, his only child, Julian, was absolutely furious to learn that his billionaire father had left him just $500,000. The vast majority of the remaining $40ish million went to Julian’s son, Michael Hammer—Armand’s grandson.

Michael began working for Occidental in 1982. On a flight in 1985, he sat next to a fitness instructor named Dru Ann Mobley. Before the flight landed, Michael and Dru Ann were engaged. They married that same year, and in August 1986, they welcomed their first child, a boy they named Armand Douglas Hammer. Better known today as Armie Hammer. In 1988, they had a second child, a son named Viktor.

Dru Ann came from a very religious Christian family, and Michael converted from Judaism to Christianity for his wife. Immediately after inheriting the family fortune, Michael and Dru Ann moved their two boys to the Cayman Islands, where they founded a Christian Academy.

Meanwhile, the Armand Hammer Foundation had to sell some of its priceless works to raise funds to defend itself against the 100+ lawsuits that were filed after Armand’s death.

One of the most notable works sold by the foundation was Leonardo da Vinci’s 36-page leather-bound book that detailed his most significant scientific writings. Armand purchased the notebook in 1980 for $5 million:

The foundation put the Codex up for auction in November 1994. It sold for $30.8 million. The buyer was… the world’s newly-minted richest person…

Bill Gates.

For years, Armand had been planning to donate his entire art collection to the Los Angeles County Museum of Art. But his donation came with one demand: Life-sized portraits of Armand and his wife Frances had to be hung on the museum walls for the rest of time along with the collection.

When LACMA refused this request in 1987, Armand withdrew his planned gift and announced he would build what became the Armand Hammer Museum of Art in Westwood, California. The very same museum that kicked off this story:

I have purposely left A LOT of the Hammer family story out today. There’s too much to tell, and I don’t think you want to read anymore. I’m also sure you already know about Armie Hammer’s recent personal troubles.

Let me leave you with this final anecdote…

Why was my friend both right and wrong to say that the Hammer family fortune had no connection with Arm & Hammer baking soda?

As a side project starting in the 1980s, Armand began to acquire large blocks of stock in a publicly traded consumer goods company called Church & Dwight. Today, Church & Dwight owns a bunch of brands, including Trojan condoms, Arrid deodorant, Nair hair removal, and OxiClean.

But what has been Church & Dwight’s primary product from its inception to the present?

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That’s right. Armand Hammer bought a massive stake in the company that owns… Arm & Hammer.

He did it purely because he thought it would be funny to finally own the brand that he was constantly asked about. He bought so much Church & Dwight stock that he became the company’s biggest individual investor. To fend him off from buying the company outright, he was put on the board of directors, a position he held for the rest of his life (which would only be a few more years).

And FYI, despite the extreme similarities in the logos, the Arm & Hammer baking soda brand has no connection to the Soviet Labor Party. The baking soda brand name and logo originated in the 1860s.

FINAL WORD

In the next edition of “Deep Pockets,” we will tell the story of Bernard Arnault, one of only THREE humans in history who have earned a net worth above $200 billion. And he started with a 17-cent investment.

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