Pittway Corporation - Company Profile, Information, Business Description, History, Background Information on Pittway Corporation

200 South Wacker Drive
Suite 700
Chicago, Illinois 60606

Company Perspectives:

Our strategy has been very simple. We want to have a full range of alarm and monitoring equipment. We want to achieve design, performance and manufacturing excellence in all the product markets we serve. We want to be leaders, not followers, in new technology. We want the capability to reach our worldwide customer base quickly and efficiently. Finally, we want to give our customers outstanding support and service so they can succeed with their businesses.

History of Pittway Corporation

Pittway Corporation is one of the world's leading manufacturers and distributors of professional fire and burglar alarms and other security systems. In early 2000, Pittway's shareholders overwhelmingly accepted a tender offer from Honeywell to merge Pittway into Honeywell's Home and Building Control business. This new $5 billion division is poised to become the dominant global entity across the entire home and business security and surveillance industry. Founded in 1950 as the Pittsburgh Railway Company, the firm was originally a subsidiary of the Standard Gas and Electric Company, a public utility holding company formed during the mid-1920s. The Pittsburgh-based business operated numerous street railway and bus companies. In 1957 the board of directors at Standard Gas and Electric voted to dissolve and subsequently convert itself into a closed-end investment company--in accordance with the Investment Company Act of 1940--named Standard Shares. As a result of the dissolution, Pittsburgh Railways became a public company, but Standard Shares, with 42 percent ownership of its stock, retained operating control of the firm.

The Early Years

During the late 1950s, Standard Shares drew the interest of Neison Harris. A year after graduating from Yale University, Harris entered the beauty supply business. In 1944 he set up a company called Toni Co. that manufactured beauty products, such as the first home permanent wave, with his brother Irving. The success of Toni products was so great that the Harris brothers sold their company to Gillette Company in 1948 (when Neison was only 33 years old) for approximately $20 million. For the next 12 years, Neison Harris served as president of Toni and as a member of Gillette's board of directors.

Harris grew disenchanted with Gillette management when it changed Toni's operating structure and product line, and he resigned. Along with his brother Irving and sister June, he purchased stock in Standard Shares until they had a controlling interest. But purchasing Standard was only a means to an end; Harris knew that Pittsburgh Railways was the principle asset of Standard, and it was this company that garnered his interest. With the era of mass private transportation clearly in decline, Harris saw an opportunity to remake Pittsburgh Railways.

Growth and Diversification in the 1960s

Using his family's controlling interest, Harris convinced the board of directors at Standard Shares to redeploy Pittsburgh Railways' assets and diversify into areas more financially promising than bus and trolley car operation. Harris immediately went on a shopping spree and, in April 1962, acquired G. Barr & Company, a rapidly growing aerosol products packager. A year later, he purchased the Alarm Device Manufacturing Company (Ademco), a leading manufacturer and distributor of burglar and fire alarm equipment. By the time the city of Pittsburgh condemned the streetcar business in 1964, Neison also had bought Seaquist Manufacturing Corporation and the Industrial Publishing Company, a publisher of business directories and trade magazines.

In 1967 Pittsburgh Railways changed its name to Pittway because of the major changes in the direction of its business. Around the same time, company offices were relocated from Pittsburgh to Chicago, where the Harris family resided and directed its operations. With Neison Harris as president of Pittway and Irving Harris as chairman of the board at Standard Shares, the two brothers collaborated in developing the core businesses of alarm systems, packaging, and publishing, and also expanded into real estate.

The company's packaging businesses, Barr and Seaquist, grew rapidly during the middle and late 1960s, in large part because of the success of pressurized aerosol products. In 1968 management wanted to develop a presence in Europe in addition to entering the growing aerosol pump business. Seaquist subsequently acquired an interest in German aerosol valve manufacturer Perfect-Ventil GmbH and, two years later, purchased the French company Valois, a leading producer of perfume and pharmaceutical valves. The success of Perfect-Ventil impressed the Harris brothers, and they decided to make it a wholly owned subsidiary of Seaquist in 1971.

Pittway continued its diversification strategy by entering the real estate business in 1968. For $2.5 million, the Harris brothers acquired a ten percent equity position in Metropolitan Structures, a high-profile real estate developer in Chicago headed by Bernard Weissbourd. Metropolitan built office buildings, apartment buildings, industrial parks, and shopping centers. Much of the company's work, especially in Chicago, was done in cooperation with renowned architect Ludwig Mies van der Rohe. During the same time, the company also purchased a 50 percent interest in a huge apartment development project on Nuns Island near Montreal.

By the end of the 1960s, Pittway's success was indisputable. The company's four main divisions--the Alarm Device Division, the Barr/Stalfort Division, the Seaquist Division, and the Industrial Publishing Division--grew from a total sales figure of $46.4 million in 1965 to $61.8 in 1968, an average annual increase of ten percent. Earnings for these same divisions grew from the 1965 figure of $3.8 million to $8.7 million in 1968, an average annual increase of 31 percent.

Continued Success in the 1970s

For Pittway, the success of the 1960s continued into the 1970s, mitigated only by minor setbacks. In 1968 Industrial Publishing acquired Patterson Publishing, and then augmented this purchase with Reinhold Publishing in 1974. These two companies published highly regarded magazines such as Hospitality, Progressive Architecture, and Air Transport World. With the acquisition of Penton in 1976, a prestigious publisher of specialized trade magazines, Pittway's Industrial Publishing became one of the leading American magazine publishers.

Seaquist, and the entire aerosol filling industry, were hurt by the negative press that surrounded the banning of fluorocarbons and aerosols during the mid-1970s. Ecologists accused the company of making aerosol propellants that destroyed the ozone layer of the earth's atmosphere. Yet Seaquist's decision in 1976 to expand into the dispensing cap business kept it in financial health. A short time later, Seaquist Closures, one of Seaquist's subdivisions, rapidly developed into the leader of what soon became a major packaging market. Around the same time, Pittway acquired a 35 percent stake in the Pfeiffer Group, a German producer of pumps for both the pharmaceutical and perfume industries. As a result of these measures, Pittway was able to increase its market share in the aerosol filling business even though sales decreased by 17 percent.

BRK Electronics was purchased in 1970 to add ionization smoke detectors to the product line at Ademco. With the expansion of the smoke detector business in the early 1970s, BRK grew exponentially and, by 1975, had developed into a separate division at Pittway. By 1977 BRK was the largest producer of residential smoke detectors in the world, with sales peaking at $84 million and operating profits at $32 million. Ademco benefited enormously from the acquisition of BRK and the growing concern with crime prevention. In 1963, when Ademco first became part of Pittway, sales and operating profits were a mere $2 million and $800,000, respectively; by 1981 sales reached $96 million and operating profits had jumped to $22.2 million.

Troubles and Triumphs in the 1980s

The early 1980s did not look favorably on Pittway. With the onset of a recession, BRK Electronics sales fell to $44 million by 1980 and operating profits decreased to a mere $5 million. Competition in the mature residential smoke alarm business pushed the retail price of a smoke detector down from $49 to $9. In the mid-1980s, however, BRK began to make a comeback when smoke detector codes spurred the demand for residential alarm detectors. BRK also expanded its manufacturing base by designing such products as rechargeable flashlights, timers, night lights, and fire extinguishers.

The fierce competition in the retail market for alarm equipment spilled over into the commercial market, and Pittway's Ademco profits nearly disappeared along with a substantial loss of its market share. In 1984 Ademco rehauled its distribution policy to cover items manufactured by competitors as well as those produced internally. The company also expanded its network of regional warehouses by acquiring a number of regional alarm distribution companies. Management then created Ademco Distribution (ADI) to handle its distribution business. By 1988 sales of alarm equipment began once again to increase rapidly, and ADI was soon the leader in its field.

Pittway management also decided that Ademco needed to make a significant investment in advanced alarm system products; thus the company developed new product lines of control communicators, passive infrared motion sensors, short-range radio devices, and long-range radio systems. A commitment to replacing older factory equipment was implemented, and the company established a maquila plant in Juarez, Mexico to provide it with relatively simple but labor-intensive alarm components. Slowly, Ademco garnered a reputation as a leading manufacturer of innovative, high-quality alarm systems and started to reclaim the market share it had lost during the early part of the decade.

The publishing division of Pittway did not suffer at all during the 1980s, nor did Seaquist. In fact, Pittway's Penton/Industrial Publishing Company kept growing and improving its standing in the national magazine specialty market. In 1985 the company (now known as Penton) purchased Millimeter. In 1987 American Machinist and 33 Metal Producing also were acquired, along with Electronics, Electronic Design, Electronic Design International, and Microwaves & RF. Penton also developed successful magazines such as Computer Aided Design and Foodservice Distributor internally. While Penton was adding titles to its growing list of magazines, Seaquist was also busy with acquisitions. Both Bielsteiner, a German producer of dispensing closures, and SAR, a leading Italian manufacturer of aerosol pumps, were purchased during the decade, along with interests in numerous small packaging companies throughout Europe.

Restructuring Throughout the 1990s

Beginning in 1988, Pittway and Standard Shares embarked on a comprehensive restructuring strategy to focus their combined resources on businesses with the potential for solid and long-term growth. The Harris family intended to shed unrelated businesses in an attempt to strengthen the firm's financial position. Led by King Harris, Neison Harris's son, Pittway and Standard Shares merged in November 1989 to consolidate operations under the name of Pittway Corporation. In 1991 Pittway sold Bielsteiner to the Pfeiffer Group. In 1992 the company sold BRK Electronics and its consumer products, smoke detector, and fire extinguisher subdivision, First Alert, for $92.5 million to the division's management. The same year, Barr was sold to Canada's CCL Industries. In 1993 Pittway was given approval to spin off its Seaquist Packaging Group, which then merged with the Pfeiffer Group to create a new public company, AptarGroup. By 1997, AptarGroup's sales had soared to more than $650 million.

Pittway's Penton division also continued to grow and change. Throughout the early and mid-1990s, Penton continued to acquire trade publications with strong positions in their fields. Of perhaps greatest significance among these were the titles Food Management and EEPN. The company also launched new magazines, including Wireless System Design, IW Growing Companies, and Penton's Embedded Systems, and discontinued four smaller publications that were not meeting the company's goals of being first or second in their segments. During this period Penton added to its other holdings as well, acquiring three prominent trade show companies--A/E/Systems, Industrial Shows of America, and Independent Exhibitions&mdashø bring its roster of such businesses to a total of 55.

These actions proved quite beneficial for Penton and Pittway, as the publishing division's revenues and earnings both increased dramatically. Penton's sales jumped from $165 million in 1993 to more than $205 million by 1997, while operating income exploded from $7.2 million to $25.3 million over the same period. Buoyed by this success, Pittway opted to spin Penton off into a freestanding company. To do so, Penton was merged with a non-Pittway company called Donohue-Meehan Publishing to form a new, publicly traded firm called Penton Media. The new business' sales exceeded $240 million in 1998 alone.

As a result of this protracted restructuring process, Pittway emerged in 1998 as a company focused exclusively on alarm system manufacture and distribution. Of course, this industry had remained at the core of its business plan throughout the decade, and its alarm division had grown rapidly in its own right during that time. Composed of the Pittway Security Group (which included both Ademco and ADI) and the Pittway Systems Technology Group (which included the System Sensor Division, Notifier/Fam-Lite, Notifier UK, Inertia Fire Systems, Fire Control Instruments, and Microlite), the sales generated by Pittway's alarm businesses skyrocketed from $483 million in 1993 to $1.144 billion in 1997. (After the spin-off of Penton, the alarm businesses accounted for all of the company's 1998 sales of $1.327 billion.) Over the same period, operating income generated by these groups more than tripled, from $33.4 million in 1993 to $104.4 million in 1998.

Although the Systems Technology Group expanded significantly in the 1990s, acquiring fire alarm control companies in the United States, United Kingdom, and Australia (including 1999's takeover of Silent Knight), the Security Group--led by Ademco&mdash′oved to be the major engine of growth. On top of purchasing ten companies between 1990 and 1999 (including alarm distributors in the United Kingdom, the Netherlands, Italy, and the United States, along with closed circuit television manufacturers in the United States, United Kingdom, and Canada), Ademco reaped the rewards of a strategic decision it had made in the late 1980s. At that time, the division had taken a calculated risk when it decided to devote substantial effort and capital to developing a modular series of control/communications under the VISTA brand. This gamble paid off handsomely in the 1990s, as these VISTA controls became the industry standard and were selected by most of the United States' leading alarm installation firms. Heartened by these results, Ademco soon devised a VISTA line for foreign markets, which helped the division obtain new business around the world. By 1999, the Security Group had more than 40,000 active customers and 117 distribution centers throughout the United States, Canada, Mexico, and Puerto Rico, as well as an ever-expanding European presence.

Pittway's success made it an attractive takeover target. (It had long been speculated that security giant Tyco International would launch a hostile bid for the company.) In December 1999, Honeywell, a leader in the technology and manufacturing sectors, made a tender bid for Pittway's shares. The per-share offer of $45.50 represented a significant premium over the company's trading price at the time (around $29) and was resoundingly accepted by Pittway's shareholders. Honeywell planned to incorporate Pittway into its own Home and Building Control division (a $3.4 billion unit of the $24 billion company). By combining the strengths of Honeywell and Pittway, the new $5 billion venture appeared situated to capture a dominant position in the $10 billion fire and security industry.

Principal Subsidiaries: Alarm Device Manufacturing Co.; Fire Control Instruments, Inc.; Fire-Lite Alarms, Inc./NOTIFIER; Javelin Systems.

Principal Competitors: Protection One; Tyco International Ltd.


Additional Details

Further Reference

D'Avesa-Williams, Tina, 'Securing New Business Opportunities,' Access Control and Security Systems Integration, November 30, 1997.'Honeywell to Purchase Pittway,' Chicago Sun-Times, December 20, 1999.Murphy, H. Lee, 'Pittway Corp.'s Deal King Strikes the Ultimate Bargain,' Crain's Chicago Business, January 3, 2000.------, 'Pittway Sounds the Alarm for Restructuring,' Crain's Chicago Business, August 17, 1992.Pledger, Marcia, 'Business Spun Off in the Right Direction,' Plain Dealer, August 11, 1998.'Smoke Detectors: Hot Item in Fall Advertising,' Media Decision, September 1977.Tarsala, Michael, 'Leaders and Success: Ademco Security's Guthart,' Investor's Business Daily, May 15, 1997.

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