So on June 4, 2018 it was announced that David Koch would retire from Koch Industries citing health issues. In addition to retiring from Koch Industries David would also retire from his board position at Americans For Prosperity. David will still stay on the Koch Industries board as an emeritus director. The letter from Charles Koch to all employees of Koch Industries read more somewhat of an obituary. Charles wrote "My thoughts of David will always be overflowing with the experiences, challenges, laughter, and love of our life together". The one page letter also notes that David helped grow the Chemical Technology Group of Koch 1,000 fold during his tenure. Koch Chemical Technology Group has 6 different divisions and Bob DiFulgentiz runs the day to day operations of the company. In the roughly 48 years David was at Koch Chemical Technology group he massively expanded the subsidiary of Koch Industries from a single-product business into many different products and services. While David Koch's tenure the subsidiary purchased more than 50 businesses. These days the chemical technology group is sells and offer many different products. The company sells: mist elimination equipment for refineries and chemical plants, sells equipment to purify the water supply, offers products for companies to control their emissions (yes Koch Industries actually sells products that helps companies reduce the amount of pollution), assists companies in turnaround projects (this is typically where a chemical or refinery plant is shut down for some time and the company is performing maintenance or upgrading the plant capabilities).
David started with Koch Industries in 1970 as a technical services manager and founding the New York office. In 1979 he became in charge of Koch Engineering. In his most recent position he was an Executive Vice President of Koch Industries and oversaw Koch Chemical Technology Group. This subsidiary of Koch actually does help companies become more efficient and pollute less. Just recently Koch helped reduce the nitrious oxides emissions of a tomato company by 1,600 lbs in one year even while the company increased doubled the capacity. David nearly every week would fly from New York to Boston and spend 2 days at Koch Membrane Systems in Massachusetts. Back in 2008 Koch Membrane had sales of $110 million. Koch Membrane turns dirty water from the ocean or that is left over from a refinery and converts it into clean/drinkable water. Back in 2011 the company was building a facility that would be used by local industrial companies that would save enough drinking water to supply 600,000 residents.
What is interesting is that Koch Industries doesn't have a replacement for David Koch. Usually large Fortune 500 companies spend years grooming successors to step in for them to learn the job and also to prepare for situations like this. Also I am sure customers, suppliers, and employees within the company are wondering what the next steps are for the company. The letter that Charles wrote said that David had been hospitalized during the summer of 2016 and at that point had been suffering from declining health. To me this signals that David Koch is in quite bad shape given he really enjoys working. In fact in this Newsmax profile from 2012 he said "my brother and I are going to be carried out of our offices feet first. We'll work until we drop". Koch is known as a hard worker as he often would get to the office at 9 A.M. and stay until 7 P.M. (with 12 hour days not being unusual). For a man nearly 80 years old this could take a toll. In addition to his job Koch also serves on the board of 21 different organizations (this would be a full-job in itself).
Koch has long battled prostate cancer and was initially diagnosed in 1992 with prostate cancer. According to Sons of Wichita in August 1993 after being treated with radiation and finally entering remission thanks to Sloan-Kettering David decided to have a $100,000 fireworks display along with an orchestra champagne soiree at his Southampton place. Back in 2012 David had a bout with diverticulitis and was given antibiotics intravenously for a week and then oral antibiotics. Koch says if he didn't have those antibiotics his colon would have ruptured and he most likely would have died. While in college Koch played basketball and completely wore out his knees which lead to an artificial knee replacement. Koch joked "that if you had spent as many years as I did begging girls for favors, you'd have bad knees too".
Since David Koch is now retired the question is where his shares go to. There are only a few possible options. The first is the shares could go to his wife. Married couples can pass an unlimited amount of money between one another due to the unlimited martial deduction. This would most likely mean that Julia Koch would become a shareholder of Koch Industries and show up to board meetings. This isn't far fetched since Elaine Marshall (the daughter in law of J. Howard Marshall) is currently shareholder of Koch Industries stock. David Koch did mention in this article that "almost all our money is in Koch Industries. Once we pass, our children will acquire the stock". By we I believe he is referring to him and his wife Julie. His wife Julia is roughly 54 years old and his children: David Jr is near 19 years old, Maria Julia is roughly 16 years old, and youngest son John Mark is around 11 years old. Given these ages the children in the future might be involved in the business.
Another possibility is for other shareholders to purchase the interest of David Koch. However, this seems unlikely has his interest in Koch Industries is worth according to Bloomberg is worth over $47 billion and it would be hard for Charles or the Marshall family to come up with that kind of cash since they both have nearly all their net worth in Koch Industries stock and don't have much liquid.
Sometimes individuals with a high net worth purchase life insurance to cover possible estate taxes. They can even use estate planning tricks buy purchasing life insurance and putting it inside a trust to get it out of the estate so it isn't taxed (known as an ILIT trust). According to a court case back in the early 2000's an insurance agent sold an insurance policy to the Koch family and received a $8 million commission for selling the policy. So perhaps this policy was purchase to cover some estate taxes (given that commission it would be hard to justify that all the estate taxes could be covered). According to this article from an agent that was suppose to sell Charles and David Koch on the insurance policy for every $1 of premium would save $9 in taxes which would mean the policy sold to them would avoid $72 million of estate taxes (which yes is a large sum but wouldn't cover the whole estate tax bill). Also Koch could talk to multiple agents and have different policies in place.
In my own view given that David Koch retired I believed he may be near the end. Individuals who work 12 hours days until they are near 80 years old typically don't leave easily unless they are told they must. The most likely situation is the ownership David Koch owns would be transferred to his wife and then ultimately to his kids (will be easier to transfer if they are in the business). Even if you combined the liquidity of Charles Koch, the Marshall family, and the other shareholders I don't think it would be enough to buy out his $47 billion position. If the Koch family purchased life insurance policies this will certainly help but the issue with insurance premiums is the older you get the more expensive the policy becomes (often times making it uneconomical). There is no doubt the future of Koch Industries and who controls it will be interesting.
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