A Billionaire’s Story

Paul Merage

Net Worth: $1 Billion

Wealth Origin: Microwavable Snacks

Hometown: Tehran, Iran

Education: Bachelors of Science in Economics and M.B.A. from the University of California, Berkeley

“America is a noble society and it inspires you to be noble.” – Paul Merage

Fleeing Occupied France

Paul Merage’s great-grandfather was a Rabbi who migrated south from Azerbaijan to Iran. Son of this Rabbi and father of Paul, Andre Merage, emigrated from Iran to France in the early 1920s in search of greater economic opportunity. He’d ultimately make a name for himself as a prominent Iranian-Jewish businessman that exported and imported precious antiques.

“My father used to tell us stories about successful family businesses,” Paul’s brother, David Merage, says. “He instilled in us the belief that family members working together were stronger than any one of us could be working alone.”

There were obstacles far more treacherous than the rigors of entrepreneurship ahead for Andre. 1930s Europe had become quite distastefully mesmerized by fascism; no one man’s capacity for evil’s beyond human comprehension concerned Jews greater than Germany’s Chancellor, Adolf Hitler.

As it would only take six weeks — beginning May 10th, 1940 — for Nazi tanks to bulldoze their way through the streets of Paris, Andre managed to escape France before being crushed by the unforgiving gears of history. He chose to return home to Iran, this was a place where he and his wife, Katherine, could raise their children in relative peace.

Early Life

Paul was born in Iran’s capital city of Tehran in 1943 – he had four siblings. After attending Alborz High School, considered a prestigious college preparatory institution, his father had him shipped off to the United States to further his education. At 16 years old, he began taking courses at Hope College in Holland, Michigan. Following in the family’s traveling footsteps, a young Merage man was once again responsible for starting over in a foreign land.

“I was extremely pleasantly surprised to see that everyone I met [when I came to the U.S.] embraced me with open arms. I appreciate the generosity of spirit,” says Paul. “You can call me a patriot in the true sense of the word. I have seen what the world can be like elsewhere.”

Eyeing America’s west coast, he transferred from Hope College in his sophomore year to continue working towards an economics degree at the University of California, Berkeley.

College

Paul ultimately earned both a Bachelor of Science in Economics and an M.B.A. from UC Berkeley.

His younger brother David was initially sent to secondary school in England, however, after gaining acceptance to California State University, Sacramento, he linked back up with Paul in 1968.

“California felt like home,” says David. “I felt an immediate connection with the people and the culture. I knew I was destined to become an entrepreneur and it would happen here.”

Career

Entry-Level Marketing

The boy’s parents moved to California in 1971, at which point, Andre and David began getting into the real estate market together. Paul, on the other hand, chose to launch a career in corporate America; getting his first big break with an entry-level marketing position at Maxwell House Coffee. He’d find a similar role at Hunt Wesson, the renowned ketchup makers.

A “Dreamer”

Some parents deeply instill within their children this idea that one person is truly capable of accomplishing anything in our world, and that this person can be them. Naturally, a convinced child won’t ever forget the excitement of a boundless future – but they will have to grow up. Most adults tend to fall in line and get realistic, however, for those of us who continue to allow that little boy or girl we once were to tug on the heart-strings of our limitless imaginations, life inevitably becomes an epic adventure dedicated to bringing an endless series of fantasies to fruition.

Even as Paul sat in what was likely a less than thrilling office space at 30 years old, he never stopped allowing his mind’s eye to wander. He had a burden of sorts bestowed upon him at a very young age – that is the burden of knowing oneself’s unlimited potential.

Chef America

Then came the day when Paul suggested to David that they start a business importing and marketing consumer products from Europe and Japan – quite the nod to their father’s past endeavors. According to Family Business, the two brothers subsequently went on a scouting trip to Europe and discovered Belgian waffles.

Paul, having marketed a handful of America’s most iconic brand-name food’s for the last ten years, believed there could be a huge demand for these waffles back in the states. Together, with no experience in developing food products or designing machinery, Paul and David got to work on creating waffles for the masses.

Launching the Company

“For months we spent every night in our mother’s kitchen cooking up recipes,” says David. “After a year and a half of testing, we developed the first generation of frozen waffles. There was nothing like them.”

Putting up the money to start the business wasn’t so easy, Paul was forced to risk it all, taking out second and third mortgages on his house. In addition, their father, Andre, pitched in as an early investor and advisor.

It’s interesting to note the propensity of immigrants to risk their livelihood with hopes of making dreams come true. Yale professor of economics, Ahmad Mubarak, attempts to make sense of this tendency in an article by Saveur, “It’s not that foreigners are going to be more innovative than natives,” he says, “But that the set of immigrants who choose to leave [their homeland], they are risk takers, so they are more likely to be entrepreneurs.”

So it would be, that in 1974, the Merage’s launched General American Foods in Southern California. Although, they soon discovered there was already a corporation called General Foods, therefore, they changed their company’s name to Chef America.

Pulling six and a half day work weeks, the Merage brothers tirelessly began marketing their waffles to coffee shops and restaurants. While giving UC Irvine’s school of business commencement speech, Paul pointed out the “two most important pillars for success in business” are vision and passion.

A New Frontier

Their intense work-ethic paid off within three years as in 1977 Chef America was hailed as the number 1 company in the world mass-producing Belgian waffles; they were doing $12 million in annual sales. Paul and David came to the conclusion that in order to continue growing the business, they would have to expand beyond the breakfast market.

“We couldn’t compete against the lunch and dinner market,” says David, “so we started thinking about satisfying snacks that kids could make in a microwave oven without cutting or burning themselves and that adults could eat on the run.”

While pondering how to break onto the lunch and dinner scene, the Wall Street Journal explains that Paul was particularly intrigued by three demographic trends — more women at work, people eating on the run, and people grazing instead of eating three squares a day — and felt the bureaucracy of giant food firms was missing them.

“Why not develop a frozen food product that kids and teenagers could heat themselves when Mom wasn’t at home?” he asked UC Irvine graduates. “A hand-held product that could be eaten on the run.”

Paul went on to stress that business people need to be nimble in a world of socioeconomic, technological or geopolitical changes.

“A good businessman is aware of all these shifts and uses them to good advantage and moves on them real quickly,” he determined. “You need to monitor this shift and know what it means to you and your customers.”

The Hot Pocket

Selling waffles by day, Paul and others relentlessly pursued the perfect encrusted sandwich recipe by night at his personal home kitchen. The company couldn’t afford research scientists, forcing them to overcome product development struggles — like microwaves causing bread to get rubbery — on their own. It was “three years of very frustrating experimentation,” says Paul.

Finally, in 1980, Chef America brought to market a frozen sandwich that tasted good and didn’t get soggy when heated in the microwave – they called this product, the Tastywich. Three years later, the company came out with even further evolved calzones rebranded as “Hot Pockets.”

You would never think of ordering a Hot Pocket at a restaurant, yet this is where Chef America had to first sell their product as it was too difficult to break into retail outlets such as grocery stores. The initial launch strategy also involved getting Hot Pockets into vending machines, catering businesses, and schools.

Demand began to skyrocket as soon as the Merage’s secured partnerships with supermarkets across the nation in 1985. In addition, two more popular lines of these encrusted sandwiches were released, Lean Pockets and Croissant Pockets.

Growth

Hot Pocket mania erupted to the tune that Chef America’s headquarters was moved to Englewood, Colorado in an effort to have a more centralized location between their California and Kentucky production plants. Despite the mounting success, Paul and David never quit improving their product; what’s quite impressive is they did so in a manner that made raising the price of their calzones unnecessary.

“When the prices of ingredients went up, we asked our research and development team to find ways to offset them,” says David, “and we looked for ways to be even more efficient.”

According to the New York Times, Chef America grew at a rate of over 10% annually between 1996 and 2001. By the end of that period, they took hold of a 50% hand-held frozen food market share and boasted a profit margin of 24%.

Family Business notes that Chef America was manufacturing 30 different pocket products, and each production line was turning out 800 to 900 Hot Pockets a minute. Additionally, the company had sales of $750 million a year, employed 1,800 people and generated 6,000 jobs through its supply chain.

Selling to Nestle

The Merage brothers had created a shimmering example of the prosperity America has to offer anybody willing to take it. Even at the height of such sensation accomplishment, their hearts began pulling them in another direction – philanthropy. It was time to give back; it was time to sell Chef America.

“Only four food companies were in a position to buy a business the size of Chef America,” says David. “And we wanted to sell to an operating company that would retain our management team and other employees.”

Nestle had been on a buying spree, having recently purchased Ralston Purina for $10.1 billion, increased their positions in Häagen Dazs and Dreyer’s Grand Ice Cream, and acquired well-known mineral water brands, San Pellegrino and Perrier.

“We had been looking at Chef America for 10 or 15 years,” Joe Weller, chief executive of Nestle USA (the company’s American Division), told the Los Angeles Times. “We’ve seen a number of people try and compete with them [in hand-held frozen foods] but not be able to do it.”

Nestlé’s chief executive, Peter Brabeck-Letmathe, said that “Chef America is an ideal and strategically important complement to our own frozen-food activities in the U.S.A.” Therefore, on August 7th, 2002 it was announced that Nestle purchased privately owned Chef America for a whopping $2.6 Billion.

MIG Capital

Following the sale of Chef America, both Paul and David opened investment firms in order to diversify their respective fortunes. Paul’s company goes by MIG Capital, the group operates under the umbrella of MIG; MIG being the business entity that oversees the entirety of the Merage family’s wealth.

Portfolio Manager Richard Merage has been managing proprietary family capital since 2003 and founded today’s MIG Capital Long/Short strategy in 2007. For the past 13+ years, Richard has been working with a team of experienced analysts, implementing the Firm’s “operational investing” approach.

Barron’s explains that the strategy invests primarily in four subsectors: consumer discretionary, consumer staples, financials, and technology and telecom. Additionally, the strategy typically owns about 20 longs and 30 shorts; the net long exposure – percentage difference between long and short holdings – ranges from 20% to 60%.

BarclayHedge celebrated the firm for averaging 13.57% annual growth gains between 2013 and 2016. “Most investors don’t like change,” says Richard, “those are the situations my team and I like to analyze.”

Philanthropy

“We’ve been given the opportunity to really share in the American dream. We need to give back,” says Paul Merage. He got to work early on putting his wealth to work in the community, this section out of a 2005 Los Angeles Times article describes the kind of impact his foundations were quickly making:

One foundation has distributed 1,200 DVDs about immigrant success stories to high schools across the country and provides $20,000 stipends to graduating college students so they can pursue their American dream.

Another enlists retirees in Orange County to teach underprivileged preschool children and tries to persuade affluent retirees to donate their Social Security income to help them.

The Merage Foundation for U.S.-Israel Trade brings Israeli MBA students and executives to the United States for two- and three-week seminars in how to market to Americans.

In addition, Merage and his wife, Lilly, are paying for 15 poor children from the Orange County High School for the Performing Arts to attend an intensive summer course in filmmaking at Chapman University.

He is a board member and a leading donor for the Pacific Symphony.

UC Irvine

In 2005, Paul and his wife Lily donated $30 million to the UC Irvine School of Business. Ultimately, prompting the university to rename their college the Paul Merage School of Business.

“I used to tell students he is a role model for what a business CEO should be, and if they have a cynicism based on what they’re hearing about the Enrons and the Tycos, Paul Merage is the perfect antidote,” says Marshall Kaplan, the former dean of the Graduate School of Public Affairs at the University of Colorado. “He’s a man of impeccable integrity.”

Merage Jewish Community Center

Paul donated $3 million to the Jewish Community Center of Orange County, which bears the names of his mother and father.

The Merage Institute

Paul and his family created The Merage Institute. organizations programs are all aimed at improving quality of life through education.

Their “About Us” statement reads:

The Merage Institute is committed to promoting trade as a vehicle to economic growth between Israel and the United States. The institute accomplishes this through a number of innovative initiatives, including specialized Leadership Programs concerning U.S. marketing strategies to Israeli executives in the life sciences, security, military, IT areas and more.

Our programs emphasize highly effective approaches to successful marketing, negotiation techniques, applied networking and sales strategies, finance, and legal and procurement issues concerning conducting business with and within the United States.