Lambourn Court
TI Group plc is a holding company for an international specialized engineering group of firms with three core business activities: the manufacture of mechanical seals for leak-prevention applications in the process, aerospace, marine, and automotive industries (John Crane International); the manufacture of small-diameter tubing and fluid-carrying systems for the refrigeration and automotive industries (Bundy Corporation); and the manufacture of aircraft landing gear, hydraulic systems, and propellers for the military and commercial aircraft industry (Dowty Aerospace). In 1995 its operations comprised roughly 125 companies with about 350 manufacturing and customer service facilities in 115 countries with sales outside of the United Kingdom comprising 85 percent of its total revenues. In the 1990s TI was ranked as the second-largest specialized engineering firm in Great Britain, Europe's fifth-largest fabricated metal product manufacturer (excluding machinery and transportation equipment), and one of Europe's top ten largest specialist engineering groups.
From Metalbashing to Bikes and Kettles: 1919-40
TI Group plc was founded as Tube Investments Ltd. in Birmingham, England, in July 1919 out of four Midlands steel tubing manufacturers and distributors who agreed to merge as a public limited committee to more effectively compete in the British tube making industry. That industry, which manufactured such basic industrial products as gas, water, and oil pipes, had been only a few decades old when in 1903 the two largest tube makers in Scotland and England, Stewarts & Menzies and Lloyds, respectively, agreed to merge to form Stewart & Lloyds Ltd. By 1907 the United Kingdom's crowded tube making market consisted of 50 to 60 principal firms turning out about 300,000 tons of iron and steel tubes a year.
When Tube Investments (or "Tubes," as it soon came to be called) came on the scene twelve years later with £1 million in assets and two thousand employees, it began to specialize in the manufacture of precision and other high-quality steel tubes. Throughout the 1920s, TI worked its business niche until by the end of the decade it had become Stewart & Lloyd's only real rival for dominance of the U.K. tube industry. To avoid inefficient competition and redundant research efforts the two firms formed an alliance in 1930. The Depression led to a massive dropoff in demand for British tubes, however, and by 1932 U.K. tube exports were less than half 1929 levels. The export slump continued until 1937, but demand for small-diameter tubes for gas companies and the construction industry kept domestic orders up, and between 1934 and 1939 the production of hot rolled strip for tubes by British firms jumped from 158,000 to 293,000 tons. In 1936, TI and Stewart & Lloyds teamed up to acquire the British Mannesmann Tube Company of Newport on the Welsh coast (which Stewart & Lloyds took over completely in 1938) and then joined forces again in 1938 to provide the capital for the construction of Jarrow Tube Works Ltd. near Newcastle-upon-Tyne.
To broaden its position outside the competitive tube industry, by 1939 TI had diversified into non-tube engineering products, bicycle manufacture, and domestic products and appliances, including kitchen kettles, cookers, and heaters.
Losing Ground: 1940-86
As World War II raged to its conclusion, Sir Ivan Arthur Rice Stedeford was named TI's chairman and managing director in 1944, and he quickly began scouting for postwar opportunities for expansion and diversification. TI's first Asian-Pacific investment was completed in the 1940s with the founding of Tube Investments of India Ltd., an independent, public-stock corporation, in Madras, India. Between 1945 and 1951 the postwar U.K. Labour government nationalized Britain's steel companies, but under the succeeding Conservative governments virtually all these firms were reprivatized between 1953 and 1961. TI took advantage of the volatile climate by adding to its steel holdings throughout the decade. In 1954 it purchased the century-old Round Oak steelworks, the equally historical Park Gate steelmaking business of Sheffield a year later, and--through a joint venture with the U.S. metal industry giant Reynolds Metals Co.--the British Aluminum Co. in 1959. Despite efforts by TI's management in 1955 to begin establishing long-range investment strategies for the corporation, global economic trends began to threaten TI's position as an international steel products leader. Germany and Japan's rapid postwar economic recoveries and the entrée of new developing countries with low labor and manufacturing costs had transformed the international marketplace, and with the decade-long steel glut that began in 1960 TI's ongoing profitability was suddenly a much more tenuous proposition.
In 1960 TI expanded further into the bicycle manufacturing market by purchasing Raleigh Industries, a Nottingham-based bicycle maker, which by 1989 was accounting for half of all bicycle sales in the United Kingdom and at its peak was producing two million cycles annually from its 65-acre plant. In 1963, Sir Stedeford stepped down as TI's chairman after nearly two decades at the helm and was replaced by Lord Plowden who also assumed the position of TI's managing director. TI's second major venture with a U.S. firm followed in 1965 when it agreed to manufacture motor control and switch equipment with General Electric under the brand name Simplex-GE, and in the same year TI acquired Radiation, an unfortunately named manufacturer of gas cookers and water heaters. In 1967, a new Labour government nationalized the U.K. steel industry again, and TI lost the Park Gate steelworks with its Round Oak plant becoming an associate company jointly owned by TI and the government-run British Steel Corporation.
Still struggling with the intensified competition of the steel products industry in the 1970s TI continued reshuffling its corporate deck to find the right mix of profitability and diversification. Its non-tube making holdings still included Raleigh bikes and the gas appliance manufacturers New World and Glow-worm, the electrical cooker and shelf goods producers (respectively) Creda and Russell Hobbs, and the cookware and solid fuel heating manufacturers (respectively) Tower Housewares and Parkray. But following TI's acquisition of Steel Service & Engineering Ltd. of Canada in early 1970, no fewer than eleven British firms were added before year's end, and in the next three years TI purchased an additional six firms. As the United Kingdom joined the European Community to increase international trade opportunities, TI acquired a majority interest in Allen West & Co. Ltd. in 1973, which was later merged in the Simplex-GE joint venture. After Lord Plowden was replaced by Sir Brian Kellett as managing director in 1974, TI moved to increase its holding in British Aluminum and added a gas cylinder division in 1979. Although by the end of the decade TI was still among the thirty largest companies in the United Kingdom it was still far from clear whether its postwar mix of aluminum, machine tools, domestic appliances, and other consumer products was still viable. Its traditional core business--commodity tube making--which traditionally provided only low added value, remained a riskily sizable segment of its operations, and only 15 percent of its manufacturing was being performed outside the United Kingdom.
The first steel industry strike in the United Kingdom since 1926 erupted in 1980, and the recession in the British engineering industry that followed led to a devastating £10 million loss for TI in 1981. The strength of the British pound sterling throughout the recession years only added salt to TI's wounds by rendering its products less attractive to overseas customers, who accounted for roughly half the company's annual sales. Moreover, rising production costs and falling demand for aluminum forced TI's British Aluminum subsidiary to close its smelter at Invergordon, Scotland, in 1981, and with Raleigh's far-flung bicycle division continuing to bleed the corporate balance sheet, TI's domestic appliances operations seemed to be the only business keeping TI out of bankruptcy court.
By 1982 it was plain that radical steps were needed, and beginning with a symbolic name change from Tube Investments to TI Group plc, TI's management began simultaneously divesting and expanding to resuscitate the group's unfocused operations. King Fifth Wheel of Pennsylvania had been acquired in 1981--transforming TI overnight into the world's largest producer of aircraft engine rings--and under new managing director Ronnie Utiger, TI also jettisoned its primary and semifinished commodity-type products, culminating in the 1982 sale of its two-decade-old interest in British Aluminum Co. In July 1982 TI entered the promising computer-controlled lathe making machinery industry with the purchase of the Alfred Herbert company. Despite such considered moves, by the mid-1980s the fortunes of TI's 25 companies were still unclear: its machine tool line, which had been underperforming for a full decade, lost £2 million in 1984, the government's imposition of a value-added tax had damaged sales in TI's Parkray solid fuel heating business, the once-promising U.S. gas cylinder division was faltering, and in 1985 Raleigh cycle--which lost £30 million between 1980 and 1985 alone--suffered a 30 percent drop in demand. A year after Utiger took over the chairmanship in 1985, domestic appliances still accounted for 25 percent of TI's annual sales, specialized engineering (aircraft engine rings, mechanical seals, and vacuum furnaces) close to 25 percent, the newly divisionalized automotive products group about 20 percent, steel tubes 15 percent, and Raleigh cycles 14 percent.
By enlarging TI's position in such growth businesses as automobile mufflers/exhaust systems (making TI one of Europe's top three producers) and car seat mechanisms, Utiger had clearly stabilized TI. By mid-1985, however, Evered, an acquisitive U.K. miniconglomerate, had managed to gain a 20 percent stake of TI stock, further weakening TI's already weak standing in London's financial market and notifying Utiger that even more drastic change was in order.
Clean Sweep: 1986-96
In July 1986 Utiger's hired Christopher Lewinton, a former chairman of Wilkinson Sword, to create a new direction for the company as TI's new CEO. Lewinton went to work studying TI's troubles and soon issued a new corporate mission statement declaring bluntly that "TI's strategy is to become an international group concentrating on specialised engineering businesses, operating in selected niches on a global basis. Key businesses must be able to command positions of sustainable technological and market share leadership." The company's headquarters were relocated from Birmingham to London, and before the year was out the consumer goods subsidiaries Russell Hobbs and Tower Housewares had been shown the door. Four months later the long-suffering Raleigh was sold for £18 million, and appliance makers Glow-worm and Parkray were unloaded for another £63.5 million. In May and June New World appliances was sold to Birmid Qualcast, and Creda was auctioned off to General Electric plc. With domestic appliances now disposed of, Lewinton turned to TI's slow-moving tube and machine tool holdings: TI Machine Tools was sold off in October 1987 and Cold Drawn Tubes and Seamless Tubes were dismissed in March 1988.
Lewinton's unceremonious amputation of at least two arms of TI's historical product mix had its upside too: TI's promising automotive division was bolstered with the acquisition of Armco Inc., an automotive brake and fuel line producer, in January 1987, and eight months later TI purchased Chicago-based Houdaille Industries Inc., then promptly resold it all save for the real target of Lewinton's interest: Chicago-based John Crane International--the world's largest producer of mechanical seals for the industrial process, marine, and automotive industries and the inventor of the forerunner of modern mechanical seal technology. Next, in April 1988, Lewinton acquired Bundy Corporation--a Detroit-based producer of small-diameter tubing and fluid-carrying systems for the automotive and refrigeration industries (founded in 1922). In less than nine months, Lewinton had acquired the two businesses that by 1996 would account for 80 percent of TI's total sales. Moreover, the traditional product mix that at the beginning of Lewinton's reign had forced TI to depend on the U.K. market for more than half its sales had been traded in for a new international model that by 1996 drew less than 25 percent of its sales from the United Kingdom and fully 43 percent from North America.
The key to Lewinton's strategy was his discovery that for almost a half century TI had simply been in the wrong line of work. Its appliance businesses situated TI in the consumer goods industry, but, as Lewinton later explained, "TI's basic culture was engineering. I therefore decided to focus on its basic culture and build the engineering business." The Crane and Bundy additions, however, were meant to be complemented by a third new product group, and it was Lewinton's attempt to determine what that business would be that led to the only missteps in his massive course correction plan. The acquisition of heat-treated furnace maker Thermal Scientific in August 1988, for example, turned into a disappointment and by 1992 had been sold off, and a plan to acquire Spirax Sarco, a manufacturer of steam traps, fell apart when its management spurned TI's overtures. By 1990, TI had moved to a larger headquarters in Abingdon near Oxford and could boast 300 manufacturing and customer service facilities in 114 countries. The third cog in the wheel that would complement Bundy and Crane, however, remained elusive until 1992 when Lewinton narrowed his short list down to one firm: Dowty Aerospace, founded as a manufacturer of actuators in Cheltenham, England, in 1931 by George Dowty, who within a few years would invent the first retractable landing gear for aircraft.
Despite Dowty's resistance, TI concluded its takeover of Dowty in June 1992 for £510 million, capping the second phase of Lewinton's rebuilding strategy and earning TI a place in the prestigious FT-SE 100 index of British companies. Even with a prolonged slump in the aerospace industry, Dowty began to emerge as the diversification vehicle Lewinton had wanted. In June 1993, Dowty's landing gear business was fused in a joint venture with Messier-Bugatti, the landing gear subsidiary of the French Snecma Group. Although closing the deal, which created Messier-Dowty International, forced TI to sacrifice some of Dowty's profit potential in a sector&mdashærospace--that was supposed to be a crucial component of the "new TI," the venture instantly propelled TI to the forefront of the global landing gear industry. By the mid-1990s, Messier-Dowty landing gears were installed in more than 14,000 aircraft and 40 percent of the world's civil jets and warplanes. Dowty's promising polymer engineering business--which comprised industrial and automotive applications such as gaskets and sealing technology--was meanwhile absorbed into TI's John Crane operations, and Dowty's high-tech propeller business began to pay an unexpected dividend when it edged toward global market leadership.
In the 1990s TI moved aggressively into more international markets, extending its network to 115 foreign countries. In the Latin American market (including Mexico), Crane, Bundy, and Dowty were generating US$2.65 billion in sales by 1995 through operations in Venezuela, Colombia, and Argentina and spearheaded by TI's Brazilian mechanical seal, landing gear, automotive fuel and brake line, and refrigeration condenser businesses. TI's North American holdings (including Mexico) added another US$2.1 billion to its balance sheet and by 1995 was generating 43 percent of TI's total sales. In this, TI's largest market, Crane's mechanical seals were being sold to Amoco, General Motors, the U.S. Navy, and DuPont, and major customers for Bundy's brake, fuel line, and other automotive systems included Ford, Chrysler, Mercedes-Benz, and Toyota. Meanwhile, in the early 1990s Messier-Dowty won a contract to supply the nose landing gear for the U.S. Navy's F/A18E/F fighter, the world's largest combat aircraft program, as well as a US$4 million contract to supply all rigid tube requirements for the Lockheed Martin's Atlas Space Vehicle Program in 1996.
In Europe, the fall of the Iron Curtain in the early 1990s had opened new markets in an Eastern Europe hungry for TI's high-tech product lines. In the Czech Republic, for example, John Crane purchased the mechanical seals firm Lutin in March 1996, and Bundy set up a brake and fuel line plant near Prague to supply the Czech auto industry. Bundy's Hungarian refrigerator condenser plant also began supplying Central Europe's largest refrigeration manufacturer, Samsung-Calex, with condensers in the mid-1990s, and in Russia Dowty moved into that country's cable laying machinery industry through a contract with the Russian Ministry of Post and Telecommunications.
Sales to the Asian-Pacific region, an area specially targeted in Lewinton's grand strategy, grew to £150 million (15 percent of total sales) by 1995 through operations in Australia, China, Hong Kong, India, Indonesia, Japan, New Zealand, Singapore, and South Korea. TI's John Crane Tianjin Ltd. subsidiary became the largest manufacturer of seals in mainland China, and TI's Chinese Dowty operations supplied spare parts and technical support to more than fifty Chinese airlines. In 1995, John Crane won its first mass transit intercarriage gangway assembly contract in the Asian market from the city of Hong Kong, Dowty Aerospace landed a US$8.7 million contract to establish an aircraft landing gear repair facility for the Indian Navy, and Messier-Dowty received an order from India Airlines for the overhaul of the landing gear for its Airbus fleet. In 1994-95, TI formed three major joint ventures--with Sembawang Group of Singapore, Tubemakers of Australia Ltd., and Murugappa Group of India&mdashø solidify its growing presence in the Asian-Pacific market.
TI's turnaround was not entirely seamless, however. In 1995, a whistleblowing employee at one of Dowty's subsidiaries alleged that the U.S. Air Force had been the victim of repeated overcharging by TI subsidiaries in several aircraft part contracts. TI maintained its innocence, and the case was dismissed for lack of jurisdiction. Moreover, while TI had indisputably resurrected itself financially, some industry analysts questioned the permanence of its recovery. Its large presence in the automotive parts industry increased its dependence on a notoriously boom-and-bust automobile industry, and its penchant for acquisitions regularly seemed to threaten its cash reserves. In 1996, the Morningstar stock analysis service praised TI for becoming more profitable but described the company overall as only a "steady ... but far from spectacular" performer.
By 1995 TI's virtually unprecedented corporate transformation was nearly complete. Only £100 million of its £1.5 billion in sales came from companies in its possession when Lewinton took over in 1986, and only steel tube maker Accles & Pollock (itself founded at the beginning of the century) remained from the original 1919 Tube Investments merger. Sentimentality had never been part of Lewinton's game plan, however, and in September 1996 when he moved to double TI's holdings in John Crane's polymer engineering business with the purchase of the Swedish firm Forsheda, he also sold off Accles & Pollock. TI had come full circle.
Principal Subsidiaries: (I) John Crane (includes Polymer Engineering): John Crane Inc. (U.S.); Dowty O Rings North America Inc. (U.S.); Dowty Palmer-Chenard Inc. (U.S.); John Crane Marine USA; John Crane Canada Inc.; John Crane UK Ltd.; Deep Sea Seals Ltd.; Dowty Woodville Polymer Ltd.; Lapmaster International Ltd; (II) Bundy (includes smaller engineering companies: Bundy Corporation (U.S.); Huron Products (U.S.); Titeflex Corporation (U.S.); Bundy of Canada; Bundy UK Ltd; Lewis & Saunders Inc. (U.S.); VARI-FORM Inc. (Canada); (III) Dowty Aerospace (includes TI Aerospace): Messier-Dowty Inc. (Canada); Dowty Aerospace Aviation Services Sterling - Dowty Aerospace Corp. Inc. (U.S.); Dowty Aerospace Yakima - Dowty Decoto Inc. (U.S.); Dowty Aerospace Los Angeles - Hydraulic Units Inc. (U.S.); King Fifth Wheel (U.S.); Dowty Aerospace Propellers; Dowty Aerospace Hydraulics; Dowty Aerospace Gloucester Ltd.; Messier-Dowty International Ltd. (U.K.; 50%); Messier-Dowty Ltd. (IV) Parent and other: Dowty Group plc; TI International Holdings Ltd.; Dowty (USA) Holdings Inc.; TI Group Inc. (U.S.).
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