David Koch, billionaire co-owner of Wichita, Kan.-based Koch Industries, announced he was stepping down for "health reasons," according to a report from CNBC released June 5, 2018. The prominent philanthropist and influential Republican will be taking the role of Director Emeritus for the company, per the report.

Koch Industries is the second-largest privately held company in the U.S., after Cargill.

Koch has a net worth of $60 billion, making him the world's eight-richest man, according to Forbes billionaire rankings as of June 2018. He joined Koch Industries in 1970, co-running it with his brother Charles. David and Charles are the two largest shareholders of the company, which was founded by their father Fred Koch in 1940 - at which time it was known as the Wood River Oil and Refining Company.

Fred Koch, Captain of Industry

At the age of 27, a chemical engineer by the name of Fred Koch developed a new and more efficient process for turning crude oil into gasoline. A little more than a decade after making his discovery, Koch used the improved process to start an oil refinery business of his own. The company was initially called Wood River Oil and Refining Company, then later became Rock Island Oil and Refining Company before finally being renamed Koch Industries.

Since then, the company has expanded its operations beyond oil refining into industries such as agriculture and consumer goods manufacturing. Fast forward to today, Koch Industries realizes annual sales of $100 billion and is the second-largest privately held company in the United States. In 1961, the company was worth $21 million. This equates to a 57-year cumulative return of more than 476,000%. To put that into perspective, the Standard & Poor's 500 Index increased roughly 5,600% between Jan. 1, 1961 and Jan. 1, 2018 (adjusted for inflation).

As of June 2018, Koch Industries had 120,000 employees worldwide.

All of Fred Koch's four sons have become billionaires as a result of the unprecedented growth of the family business. The two brothers are the only members of the family's second generation who still play an active role in the management of the company. 

A Head Start to Wealth

Following the sudden death of his father, Charles Koch assumed the role of chairman and chief executive officer (CEO) of Rock Island Oil in 1967. He was 32 years old at the time and had been working in the company for a little more than five years. Before his death, Fred Koch had experienced some heart-related health issues, and as such, had been preparing his son, Charles, for an eventual handover of management, should anything happen to him. During a 2010 interview with New York magazine, David Koch briefly spoke about his father’s unfortunate and unexpected death. He mentioned, “Father was on a hunting trip bird-shooting in Utah. He was in a blind with a gun loader next to him. He was having heart palpitations and wasn’t shooting that well. Finally, a lone bird came over. He took the shot and hit it square. The duck falls from the air. He turns to the loader and says, ‘Boy, that was a magnificent shot,’ and then keels over dead.”

Despite having wealthy parents, the Koch brothers were raised in an environment that taught them the importance of hard work. Charles is famous for saying that his father never wanted his boys “to turn into country-club bums.” As a result, they were required to spend their spare time working while attending school. In the book, Sons of Wichita, Daniel Schulman wrote, “He [Fred] put them [his sons] to work milking cows, bailing hay, digging ditches, mowing lawns, and whatever else he could think of.”

With that being said, it is still true that the Koch brothers were given a head start when they inherited their father’s business. A couple of years before his death, the company was valued at $21 million and was doing $250 million in yearly sales by 1967. Additionally, the company already owned several stakes in oil refineries throughout the country. (See also, Top 6 Companies Owned by the Koch Brothers.)

Growing Koch into a Billion-Dollar Conglomerate

Shortly after taking on the role as CEO of Rock Island Oil, Charles Koch renamed the company Koch Industries in honor of his father. He continued to expand the company by engaging in a series of strategic acquisitions of oil and energy-related companies, such as refineries and pipeline operations. Throughout the history of Koch Industries, the company has reinvested 90% of its net earnings into growing the business. 

David Koch, the younger brother of Charles Koch, joined the company as a technical service manager in 1970, and he quickly rose through the ranks, ultimately becoming the president of Koch's engineering division by 1978. 

At the dawn of the 1990s, Koch Industries began to invest in sectors that were outside of the oil and gas space. In 1995, the company established a $150 million venture capital fund to invest in startups. A short list of core industries in which the Kochs have invested over the years include petroleum, chemicals, ranching, finance and trading, especially commodities, fertilizers, architecture, paper, transportation and distribution.

Landmark purchases include the $22 billion acquisition of Georgia-Pacific in 2005, bringing in Quilted Northern toilet paper, Brawny paper towels and Dixie cups.

In December 2012, Koch Industries spent $7.2 billion to purchase Molex, a global electronic components manufacturer. The company is most notable for its largest client, Apple (AAPL), as Molex makes parts for the iPhone. The deal raised eyebrows because of its sky-high valuation, as  $7.2 billion was roughly 30 times Molex's earnings at the time of the purchase.

Koch Industries partnered with Goldman Sachs (GS) in April 2014 to purchase a printing ink manufacturer called Flint Group for $3 billion. In November of that same year, Koch Industries paid $445 million to acquire Oplink Communications, a producer of optical components. 

In 2015, Koch Industries contributed $100 million to an investment fund launched by Eaglehill Capital Partners LP. The fund is set up to help private equity takeovers of small-to-medium-sized businesses, mostly through debt financing.

According to a filing with the Securities and Exchange Commission (SEC), Koch Industries is "a collection of capabilities continually searching for new ways to create value," and each subsidiary "strives to bring the power of the free-market inside its business to maximize productivity and adaptability."

Frederick and William Koch have not been involved with Koch Industries for many decades. The two brothers sold their shares to Charles and David and in exchange received $800 million. Frederick has since moved to Monaco and now collects art, while William serves as the CEO of Oxbow, an energy company he founded after selling his stake in Koch Industries. As of November 2017, Oxbow was the 176th largest privately held company in the United States with $2.6 billion in annual revenue. 

Political Interests 

Charles and David Koch are sometimes referred to as "GOP kingmakers." They have given millions of dollars to the campaigns of Republican candidates over the years. Their organizations provide grants to more than 250 colleges and universities for research and education programs, including the Institute for Humane Studies, which promotes individual liberty and free market economics. The Charles Koch Institute offers professional education programs to help professionals "successfully advance economic freedom through their careers." It actively seeks doctoral students to advance academic research in the fields of "free societies" and "human well being and prosperity."

According to a 2015 Politico article, the Koch brothers have invested more in politics than virtually any other individuals in America. The article also noted that their advocacy groups employed 1,200 full-time staffers in 107 offices in the United States, more than three times the size of the Republican National Committee (RNC). It was widely reported that Charles and David, along with a network of other wealthy donors, would be willing to spend as much as $889 million on the 2016 election cycle.

David spoke about his interests in politics during a 2012 interview with The Wichita Eagle. He said, "[His father] was extraordinarily fearful of our government becoming much more socialistic and domineering... So from the time we [David and his brothers] were teenagers to the present, we’ve been very concerned and worried about our government evolving into a very controlling, socialist type of government.”

The Bottom Line

Combined net assets of more than $96.6 billion make the Koch brothers America's second wealthiest family. The vast majority of their fortune is invested in a family-owned business called Koch Industries. The company was started as an oil refinery more than 75 years ago by Fred Koch, and today is a diversified conglomerate that is worth approximately $100 billion. Charles and David Koch are the largest shareholders in Koch Industries, both owning a 42% share of the enterprise.

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