1 Grosvenor Place
Hanson's aim is to grow and build value for shareholders by expanding in building materials, while recognising the importance of its other responsibilities to its customers and suppliers, to the environment and the communities in which it operates. Hanson will build on the strength of its core businesses through further acquisitions, capital investment and improved productivity.
Hanson PLC is an international building materials company with three principal operations. Hanson Building Materials America (HBMA) is the third largest producer of aggregates in the United States, producing more than 100 million tons of crushed rock and sand and gravel for highway, residential, commercial, and industrial construction projects. HBMA also produces concrete pipes, cement, bricks, and asphalt. Hanson Quarry Products Europe is the second largest aggregates producer in the United Kingdom, and leads its market in sea-dredged aggregates, concrete pipes, and concrete blocks. Hanson Bricks Europe is a leading European brick manufacturer. Hanson PLC was a conglomerate until a series of demergers in 1995 through 1997 sliced off the company's retail, industrial manufacturing, chemicals, tobacco, and energy businesses.
The origins of Hanson go back to 1964. In March of that year a small City (London financial district) merchant bank, Dawnay Day, floated the Wiles Group on the stock exchange. The group was an animal byproducts, sack hire, and fertilizer business created by George Wiles and based in Hull, Yorkshire. In August 1964 Wiles started to diversify through the acquisition of Oswald Tillotson Ltd., a company operating in the field of commercial vehicle sales and distribution. James Hanson and Gordon White were on the board of Oswald Tillotson Ltd. and held a controlling interest in the company.
James Edward Hanson and Vincent Gordon Lindsay White were both born in Yorkshire and, after war service, started their early careers in their respective family businesses. The Hanson family road-haulage business was 100 years old when it was nationalized in 1948. James Hanson then spent some years in Canada building up a transport business with his brother. In the late 1950s he joined Gordon White--a family friend, whose own family publishing and printing business, Welbecson, was acquired by Wiles in 1965--in a venture importing U.S. greeting cards. Thus, the partnership that underpinned the development of Hanson was already formed when the two men joined first Tillotson and then Wiles.
Between 1965, when James Hanson became chairman of the Wiles Group, and 1969, when the company was renamed the Hanson Trust, further acquisitions were made to develop the group into an industrial holding and management company. Its principal objective was defined by James Hanson as "to expand profitability while achieving careful expansion through acquisitions." The purchase of Scottish Land Development in 1967 for £700,000 took Wiles into the hire and distribution of earthmoving and construction equipment and pumps. In 1968 the group paid £3.2 million for West of England Sack Holdings, which expanded its existing business in that field. In the same year it bought the Butterley Company for £4.7 million, an acquisition that took it into a new field of operations, the manufacture of bricks for house construction.
Hanson was by no means the only company then searching for underperforming and asset-rich companies to target as prospective acquisitions. In 1968 the conglomerate Slater Walker took a large shareholding in the Wiles Group. Hanson and White over the years consistently pointed out the difference between the takeovers made for financial reason--the fast track--and those, like Hanson's, for industrial reasons: "We are the work horses."
Expanding Brick-Making Operations: Early 1970s
Between 1971 and 1973 Hanson expanded its brick-making activities with the acquisition of the National Star Brick & Tile Company for £2.1 million, British Steel Brickworks for £2.7 million, and NCB Brickworks for £2.2 million. It also bought a majority interest in a property development company, City and St. James. The changing scope of its activities led to a restructuring of its operations first in 1970, when it sold the commercial vehicle distribution operation, and then again in 1972, when the expansion of brick manufacturing warranted the creation of a separate division.
In 1973 the Bowater Corporation, eager to diversify out of the low profit-making newsprint and pulp activities and fresh from its merger with Ralli International (masterminded the previous year by Jim Slater), made an agreed bid for Hanson. But when the bid was referred to the government's Monopolies and Mergers Commission, Bowater withdrew. This experience, combined with the prevailing uncertain economic climate in the United Kingdom, led Hanson and White to look further afield for development prospects, more particularly because White, "in disgust at socialism," wished to leave Britain. In that year, therefore, White went to the United States. From the 1950s until the mid-1970s, merger activity in the United Kingdom was high and encouraged by governments, particularly the Labour government of Harold Wilson, which established the Industrial Reorganization Corporation specifically to promote mergers such as that of General Electric Company and Associated Electrical Industries Ltd. On the other hand, reference to the Monopolies Commission of mergers that might operate against the public interest sometimes brought a negative response. Even when the commission's verdict was not unfavorable, changing conditions in the period of consideration could lead to the breaking off of the engagement, as happened with Hanson and Bowater. The commission was generally neutral on the matter of industrial conglomerates, although it pointed to the risks of the creation of stock to finance the purchase and to the danger of a failure to increase efficiency after the merger. More damning criticisms of the merger movement and its results in the United States were made by a U.S. congressional report in June 1971.
Entering U.S. Market: 1973
In the United Kingdom the asset-stripping activities of other companies tarnished the public image of the industrial conglomerate in the late 1970s. Hanson insisted that it was an industrial management company. In the United States Hanson Industries was formed as a holding company in 1973, with White as executive chairman. His first major acquisition came the following year when, at a cost of $32 million, Hanson Industries bought Seacoast Products, a Florida-based company manufacturing animal foodstuffs, fish meal, and edible oils that remained part of Hanson until 1986.
In the 1970s, against the background of a turbulent world economy shaken by two large increases in world oil prices, Hanson's growth on both sides of the Atlantic was steady rather than spectacular. In the United States in 1976, Hygrade Foods, the second largest seller of hot dogs in ballparks, was acquired, along with other purchases in the food servicing and vending and textile industries. In the United Kingdom, Hanson acquired Rollalong, which manufactured mobile accommodation units. In addition, Hanson purchased two flour milling and cereal companies and also delved, by way of acquisition, into yarn and thread manufacturing.
All these acquisitions fell into what became recognizable as the Hanson pattern. Hanson looked for and bought companies manufacturing basic, low technology products. By introducing a system of centralized and strong financial controls combined with decentralized operating management, Hanson increased profitability both for shareholders and for the holding company, thus building up its resources for more acquisitions. Some acquisitions required further financing with bank debt, to be quickly reduced in part by disinvestment. The diversity of Hanson's portfolio spread the risk with the steady demand for food and other consumer products balancing the upswings and downturns in demand for building industry supplies. The caution of the two founders was well-documented. James Hanson said, "I've always thought about the down-side risk on a take-over rather than the upside potential--we don't gamble." It was this approach, according to White, that led to the decision in 1974 not to buy 51 percent of Avis, the U.S. car rental business. White recalled, "I told him it could put us straight in the big league but that if it went wrong it would bust us."
Takeovers and Divestments: 1980s
Hanson's purchase, for £25 million, of Lindustries in the United Kingdom in 1979 was its largest to date and presaged a decade of even greater spending and growth, taking Hanson very definitely into the big league. In 1980 Hanson Industries acquired McDonough, which included footwear manufacturing and retailing and cement manufacturing interests, for an agreed bid of $180 million. In the following year, in what was to become a typical Hanson activity, it recouped $49 million by selling the concrete and cement business. In the United Kingdom there were two major acquisitions in 1982, the Berec Group, manufacturers of Ever Ready batteries, for £95 million and United Gas Industries, makers of gas meters and of gas and electric fires, for £19 million. In the following year Hanson bought United Drapery Stores (UDS) for £250 million and immediately recovered almost three-fifths of the purchase price by selling Richard Shops and some of the other UDS subsidiaries. Allders Stores, a department store chain, and Allders International, which owned and operated duty-free shops at U.K. airports and on ferries and cruise ships, remained part of Hanson until 1989 when it was sold for £210 million.
By 1984, with turnover up to over £2 million, Hanson was increasingly seen on both sides of the Atlantic as a predator, a reputation it enhanced in that year with the acquisition of the London Brick Company for £247 million, making Hanson the world's largest brick manufacturer. At the same time in the United States it paid $535 million for U.S. Industries (USI), stepping in with a brisk offer to replace a management buyout. This acquisition gave Hanson interests in diverse fields ranging from clothes to lighting manufacture, and subsidiaries in office and domestic furniture making as well as heavy engineering. By doubling the size of the U.S. operation, the USI acquisition put Hanson Industries among the top 150 companies trading in the United States. In the following year in the United Kingdom, the attempt to increase its interests in the engineering industry failed when Powell Duffryn successfully resisted Hanson's takeover bid; in the United States Hanson Industries sold the food service management company Interstate United for more than three times the price it had paid in 1978.
The year 1986 was marked by two major acquisitions. In the United States Hanson Industries won control of and paid $930 million for SCM Corporation, a typewriter, food, and chemical concern described by Fortune International as "sluggish." The chemical division, which was the world's second largest producer of titanium dioxide, developed a successful sales and profits record under Hanson. In the two years after the acquisition of SCM, disposal of parts of the conglomerate raised more money for Hanson than it had paid for the purchase. On top of that, 52 percent of the typewriter business Smith Corona was sold by flotation on the New York Stock Exchange in 1989. The Smith Corona sale helped offset the price of SCM, but entangled Hanson in a legal battle lasting more than two years. Investors who bought shares in Smith Corona Corp. claimed that Hanson officials knew of the impending layoffs and falling sales the company announced shortly after the stocks were purchased, and disposed of the property with that knowledge. Hanson and White denied the accusations. Much of the purchase price of Hanson's 1986 U.K. acquisition, the Imperial Group, bought for £2.5 billion after United Biscuits had failed to gain control of the group, was also covered by divestments. Hanson disposed of the Imperial diversifications--the Courage Brewery and off-license chains, Golden Wonder crisps, the hotels and restaurants, and the food interests where the brand names of Ross Young and Lea & Perrins brought a premium price--while retaining the original Imperial tobacco business.
The increasing importance of and value put upon brand names in a multinational business world was reflected in the purchase in 1987 by Hanson Industries of the U.S. conglomerate Kidde, an acquisition regarded at the time in New York as one for which White had, at US$1.7 billion, grossly overpaid; 18 months later Kidde's return on capital was up by more than eight percent, and the acquisition had come to be seen as an "excellent purchase." With over 100 different businesses, including such diverse products as kitchenware and Jacuzzi whirlpool baths, the Kidde acquisition took Hanson Industries into the top 60 U.S. companies. The Hanson investment criteria required that an investment must contribute to profits within one year and pay for itself within four years.
By the beginning of 1989, financial journalists and Hanson watchers were openly speculating about when or where the next takeover would come. The previous year had, for the first time in the 1980s, passed without a Hanson acquisition while disposals had enriched its war chest, giving the company disposable cash of £12 billion. The 1980--81 recession had been a powerful stimulus to corporate slimming. The increasing application of "hansonization"--the combination of tight financial control with subsidiary autonomy on operational management--had played a part in reducing the number of badly managed candidates for acquisition. Within Hanson, expenditure of more than £500 over budget in the United Kingdom and US$3,000 in the United States required head office authorization.
In August 1989, when Minorco was obliged to admit defeat in its attempt to take over Consolidated Goldfields PLC, Hanson stepped in with a successful bid of £3.5 billion. Following its usual post-acquisition policy, Hanson closed down Goldfields' London head office and sold its South African gold-mining interests and the U.S. aggregates business, Amey Roadstone Corporation, America (ARC).
Continuing Acquisitions: Early 1990s
Despite the worldwide recession in the early 1990s, Hanson continued to be "expansion-minded," as the chairman phrased it in his 1990 letter to the company's shareholders. In May of that year Hanson spent $240 million to buy a 2.8 percent stake (20 million shares) in Britain's largest industrial company, Imperial Chemical Industries (ICI). (ICI's pension fund was one of the largest holders of Hanson stock.) Just two months later, Hanson Industries acquired Peabody Holding Co., the largest coal producer in the United States. After a brief fight over the coal giant with AMAX, Hanson paid US$1.25 billion for Peabody, which upset some U.S. coal officials who resented the foreign ownership. Beazer Plc, one of Britain's largest home construction companies, found itself deeply in debt in a seriously depressed housing market; it also found itself to be a subsidiary of Hanson by the end of 1991.
A 1991 study of Hanson's history of takeovers found that the company made most of its profits by improving the performance of the companies it acquired. The finding refuted accusations that Hanson made most of its money by buying and selling assets. The analysis of the period from 1986 to 1990 showed that, of Hanson's total earnings of £4.16 billion, only 18 percent came from asset sales. During the same period, 55 percent of the company's £821 million pretax profits gain came from the improved performance of Hanson businesses. Despite strong trends in the United States, none of the deals utilized junk bond financing.
But in 1991 external and internal forces came to bear on Hanson's long history of growth through acquisition. The Gulf War and worldwide recession slowed down mergers and acquisitions in the United Kingdom. There were fewer big deals made, but nearly the same number of smaller concerns changing hands. At the same time, Lords Hanson and White began slowly to pass leadership to Derek C. Bonham, who had been with Hanson 20 years, and David H. Clarke, a former director of Smith Corona. Bonham was appointed chief executive of Hanson in early 1992 and Clarke was the president of Hanson Industries, but Hanson and White&mdash executive chairmen of Hanson PLC and Hanson Industries, respectively--maintained overall direction.
At that time Hanson PLC had more than $30 billion in assets, $13 billion in revenues, and 70,000 employees, but had neglected some of its core businesses, such as chemicals and coal mining. The company also faced a net deficit of about £1.5 billion, with loans of £9.5 billion and cash of £8 billion. Bonham and Clarke hoped to dispense with many of Hanson's consumer-related companies and make long-term investments in the key businesses.
In April 1992 Hanson sold Ever Ready Ltd. to Ralston Purina Co. for £132 million, generating a £108 million profit. One month later, Hanson and White confounded financial analysts by selling the conglomerate's interest in ICI at a 17 percent pretax profit. The sales fueled speculation on which businesses would next join Hanson's roster. Observers thought Trafalgar House PLC, Pilkington PLC, and Allied-Lyons PLC in Britain, and Solvay & Cie of Belgium were candidates for takeover. In October 1992 the conservative strategy seemed to have been thrown out the window. Hanson announced its hostile £780 million cash bid for Ranks Hovis McDougall (RHM), a move that was quickly repulsed by RHM's board of directors.
Although it seemed that the company had lost its takeover touch, Hanson made one final acquisition in the early 1990s, paying $3.2 billion ($720 million in Hanson stock and the assumption of $2.5 billion of debt) for Quantum Chemical Corporation, the largest polyethylene maker and second largest seller of propane gas (through Suburban Propane) in the United States, in September 1993. The deal, however, increased Hanson's debt-to-equity ratio to 86 percent, a huge leap from the 18 percent of September 1992. It also led in part to the company's first profit decline in 30 years, as aftertax profits fell 33 percent, to $1.5 billion, for the fiscal year ending in September 1993. At the same time, Hanson's stock had underperformed the market for three years running, leading to speculation that the company would be split into separate British and U.S. companies.
Instead, Hanson returned to the strategy of divestiture, selling 15 companies for a total of $800 million by early 1994. Included therein were Beazer's U.S. homebuilding unit, New Jersey-based Hanson Office Products, and its Axelson oil equipment business in Oklahoma. An even more dramatic jettisoning came in May of the following year when Hanson spun off 34 of its U.S. companies into a new public company, US Industries Inc. Among the businesses were Jacuzzi whirlpool baths, Farberware pots and pans, Tommy Armour golf equipment, Rainbow vacuum cleaners, Ames garden tools, and Ertl toys. Also divested in 1995 were Suburban Propane and Cavenham Forest, an Oregon timber company holding 1.1 million acres of forest land. That year also saw the reorganization of Beazer's U.S. building materials operations as Cornerstone Construction & Materials, and the merger of London Brick and Butterley Brick into the U.K.-based Hanson Brick. The year 1995 was also marked by the £2.5 billion takeover of Eastern Group, a U.K. electricity distributor. At this point, Hanson operated within four main business areas: tobacco, energy, chemicals, and building materials.
Despite the takeover of Eastern Group, it was becoming increasingly apparent that Hanson's days as a conglomerate were numbered. With sales exceeding $17 billion, only very large acquisitions could have any appreciable impact on the company's share price and profits--and there were few of these target companies out there. Furthermore, the trend of the 1990s was away from diversification and toward focusing on core businesses. This was particularly evident in the United States with the breakups of ITT Corp., AT&T Corp., and Minnesota Mining & Manufacturing Corp. Other factors that conspired to lead Hanson PLC in a new direction were the continued poor performance of the company's stock, the death of White in August 1995, and the legacy-mindedness of Hanson, who had announced that he would retire in 1997 at the age of 75.
Despite the signs pointing toward the dramatic, the company's announcement in January 1996 that it intended to split into four businesses still came as a surprise. Several journalists stated that the breakup of Hanson marked the end of the conglomerate era. In any event, on October 1, 1996, the chemicals group&mdash′incipally consisting of Quantum and SCM--was demerged as Millennium Chemicals Inc., a primarily U.S.-based operation; and the tobacco group was demerged as Tobacco Group PLC, primarily U.K.-based. The energy group was demerged on February 24, 1997, as The Energy Group PLC, which was comprised mainly of the U.K.-based Eastern Electricity and the U.S.-based coal producer Peabody.
This left Hanson PLC as primarily a building materials company. The new Hanson was initially led by Hanson as chairman--replaced following his retirement by Christopher Collins, who had been deputy chairman--and Andrew Dougal as chief executive; Dougal had previously served as finance director. Several businesses outside of building materials were soon sold off: Hanson Electrical, a supplier of wiring accessories; Grove Worldwide, a Shady Grove, Pennsylvania-based maker of hydraulic cranes; Norfolk, Virginia-based Spectrum Construction, a roadbuilding and civil engineering group; Melody Radio, a U.K. radio station; Air Hanson, a small charter aircraft company; and a U.K. commercial property subsidiary.
The disposals were completed in 1998, generating more than £500 million (US$830 million) in proceeds, which were used in part to fund acquisitions, principally in the North American building materials market. The acquisitions actually began in 1997, with the £78 million (US$125 million) purchase of Concrete Pipe and Products, which made Cornerstone Construction one of the largest concrete pipe producers in North America. During 1998 itself, Hanson acquired San Diego-based H.G. Fenton, an aggregates producer, for £52.7 million (US$87.3 million); Becker Minerals, the leading producer of sand and gravel in the Carolinas, for £48.9 million (US$81 million); Condux, the fifth largest producer of concrete pipe in the United States, for £47.2 million (US$78.2 million); and Nelson & Sloan, another San Diego-based aggregates producer, for £22.7 million (US$37.6 million). During its first full year following the demergers, Hanson posted revenues of £1.57 billion (US$2.64 billion) and operating profits of £261.5 million (US$433.2 million).
In January 1999 Hanson announced a new corporate structure, reflecting the company's emergence from its conglomerate past as a unified building materials company. Cornerstone was renamed Hanson Building Materials America; ARC, the U.K. aggregates business, became Hanson Quarry Products Europe; and Hanson Brick became Hanson Bricks Europe. Continuing its North American expansion, Hanson in May 1999 acquired the North American brick group of Jannock Limited for £141.1 million (US$229 million). The group was the second largest brick producer in North America and was soon renamed Hanson Brick America. In January 1999 Hanson made its first significant acquisition in the Asia-Pacific region, with the purchase of a quarrying business in Malaysia.
While North America was likely to continue to be the focus of expansion for Hanson, Europe and Asia were slated for increased attention. Commenting on the company's 1999 half-year performance in the Financial Times, Charles Pretzlik stated that "Hanson has reaffirmed its reputation as a solid performer in the sector, and its strategy of expansion in the U.S. has again been vindicated in the face of a dull U.K. market." Although it was a mere shadow of its conglomerate past, Hanson was poised to be a long-term major player within its niche.
Principal Operating Units: Hanson Building Materials America (U.S.A.); Hanson Quarry Products Europe; Hanson Bricks Europe.