DANIEL VENUNYE TORKU

Table of Contents

History of the Four Diversified Conglomerate2

Problem Statement: Q2A...4

Problem Statement: Q2B...8

Problem Statement: Q2C..10

Reference12

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HISTORY OF THE FOUR DIVERSIFIED CONGLOMERATES: BTR, HANSON, TOMKINS AND WILLIAMS HOLDINGS BTR 1. BTR grew strongly in the 1970s and 1980s under strategic leadership of Sir Owen Green. 2. By the early 1990s the company was diversified into control systems, polymers, electrical products, construction, transportation, packaging, and paper technology and consumer products. 3. Alan Jackson succeeded Sir Owen Green as chief executive in 1991. 4. BTRs heartland was based on manufacturing business, industrial customers, low to moderate technology and capital intensity, relatively stable environments with only limited impact from economic cycles and niche markets. 5. Jacksons successor in 1996, Ian Strachan, continued with the strategy that he inherited. 6. Strachan advised institutional shareholders that BTRs day as an acquisitive conglomerate is over and that organic growth around its core strengths was to be a priority. In the past BTR had not invested heavily in organic growth. 7. At this time BTR still comprised over 1000 business units worldwide. Turnover approached 10 billion, although at the peak of it success revenues had reached 14 billion. 8. The style of corporate management was changed from financial control to strategic view. Instead of annual profit planning being the key focus, growth priorities for up to five years were sought. 9. Jackson retired; expressed his belief that BTR was being reduced to too tight a core. Whoever was correct in his belief, the share price continued to fall through 1997 and 1998. 10. In November 1998 BTR was merged with fellow engineering conglomerate, Siebe, and the new business eventually renamed Invensys. The Chief Executive of Siede, Allan Yurko, was to be the strategic leader and Strachan his deputy. 11. Based on share distribution, Siebe comprised 55% of Invensys and BTR 45%. 12. There were now five broad and complementary divisions: intelligent automation, controls, power systems, industrial drives and equipment and automotive components. 13. The combined revenues were around 9 billion. In portfolio terms, both BTR and Siebe contributed cash cows but BTR had more of the dog and Siebe more stars. Some BTR businesses were still for sale. HANSON 1. Hanson was based in the UK and USA and led by partners Lord (James) Hanson and Lord (Gordon) White. 2. Over a period of some 20 years Hanson was involved in 35 agreed acquisitions there were six hostile take-overs and 15 unsuccessful bids. Following the 41 acquisitions there were 40 business disposals. 3. Hanson also bought sizeable stakes in 22 other companies. On a number of occasions (in particular the acquisitions of SCM and Imperial Group) Hanson raised more money from business disposals than it paid to business SCM Chemicals and Imperial Tobacco, respectively. DANIEL VENUNYE TORKU Page 2

1. Hanson diversified into a number of unrelated areas including construction, bricks, textiles, animal foods and meat processing, pulp, coal, gold, tobacco and chemicals. 2. Typically, businesses in competitive industries, and which require investment, were sold, and mature, slow-growth companies retained. 3. Hanson believed that earnings per share were maximized when business units achieved the highest possible sustainable return on capital employed. 4. Business units were decentralized and given strict targets to achieve, but all capital investments were carefully scrutinized at board level. Profits from the businesses were returned to the parent, who decided how they would be used and spent. TOMKINS 1. This conglomerate grew out of a buckle-manufacturing business based in Walsall, UK; acquired businesses included Smith and Wesson handguns, Hayter lawmowers, Murrary bicycles (in the USA) and a range of different industrial products. 2. In 1992 Tomkins acquired Rank Hovis McDougall (the milling and baking business which owns the Bisto, Paxo and Mr Kipling brands), beating off a rival bid from Hanson. 3. Four years later, after successfully absorbing RHM, Tomkins bought the US company Gates Rubber, the worlds largest manufacturer of power transmission belts and industrial hoses. HRM cost 93.5 million; Gates was roughly the same. 4. In 1997 Tomkins added a US manufacturer of windscreen wipers (Stant) to bolt on to Gates. 5. In 1997 Tomkins added a US manufacturer of windscreen wipers (Stant) to bolt on to Gates. WILLIAMS HOLDINGS 1. Built by accountants Nigel Rudd (a deal-maker) and Brian McGowan (acknowledged to be good at handling City institutions). 2. McGowan left in 1993; Rudd remained as strategic leader. 3. The acquisition strategy in the 1980s was based largely on good opportunities for concentrated on businesses where it could exploit its brand management skills. 4. Williams chose to focus on three business areas: building products (including DIY), fire protection and security (locks). 5. Williams claimed to be Britishs first focused conglomerate. 6. Williams (with 12% of the world market) offered a wider range of fire-protection products than any of its rivals. 7. In 1997 Williams acquired Chubb Security (alarms and locks) on its second attempt. 8. 1998 it began to divest its home-improvements businesses, a move that it completed in late 1999. 9. In 2000 the company was split into two: Chubb Security Services and Kidde Fire Protection.

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Problem Statement: Q2A Strategically examine the acquisition and diversification strategies of the four conglomerates. Diversification (Thompson and Martin) Diversification is the extent of the differences between the various products and services in a companys portfolio (its range of activities). The products and services may be concentric (related) through say marketing or technology, or conglomerate (unrelated), which normally implies that they require different management skills. This strategy is applied when the corporate strategy is growth or when an organization wants to pursue growth through acquisition or takeover. Concentric (related) Diversification (Thompson and Martin) argues that any form of diversification involves a departure from existing products and markets. The new products or services involved may relate to existing products or services through either technology or marketing; where this is the case, the diversification is known as concentric or related. A telecommunication operator like MTN may add new product to the existing ones to increase market share. Potential consumers may or may not be the same; distribution may or may not change; the existing telecommunication expertise should prove beneficial. Conglomerate (Unrelated) Diversification In the case of conglomerate diversification there is no visible relationship between existing and new products, services and markets. The strategy is regarded as high risk because the new technologies, new skills and new markets involved constitute unknowns and uncertainties. Moreover, because the change is uncertain and challenging, it can be tempting to switch resources and efforts away from existing businesses and areas of strength, and this compounds the element of risk involved. Conglomerate diversification is often linked to portfolio analysis, and sometimes the search for businesses which might remedy any perceived strategic weaknesses. Parts will be retained if they feel they can add value and benefit accordingly; other parts will be divested. Things to Consider During Diversification Strategy 1. The potential for synergy(is the term used for the added value or additional benefits which ideally accrue from the linkage or fusion of two businesses) from internal and external linkages and alliances 1. The diversification/focus dilemma 2. Opportunities for, and abilities in, transferring skills and competencies 3. Opportunities to benefit from the exploitation of a successful corporate brand name. 4. Organic growth (growth from within, utilizing the organizations own resources and developing new competencies as required) Causes of Diversification Diversification is achieved largely through acquisition and mergers in most economies. This is due to: 1. Concentrated mature markets making growth potentials being limited 2. The competitiveness and competitive advantage DANIEL VENUNYE TORKU Page 4

3. 4. 5. 6.

Declining financial returns/profit margins Potential takeover Threat of new technology Cash cows (Some products and businesses may currently be valuable cash generators, but with little prospect of future growth) 7. A company has developed a particular strength or expertise and feels that it could benefit from transferring this asset into other, possibly unrelated, businesses 8. A firm which a succession problem may seek diversification through acquisition for a new strategic leader. 9. Reducing risk and establishing or restoring an acceptable balance of yesterdays, todays and tomorrows products in a complex portfolio 10. For the benefit of the existing shareholders of the company being acquired.

In choosing whether to diversify or not, Markides (1997) recommends that organizations should address five key questions: 1. What can we do better than our competitors? This, of course, is the area around which to focus and build. 2. What strategic resources are required in the possible new areas? What are the implications of this? 3. Can we beat the competition and become a strong player? 4. Is there a downside risk? In particular, might existing businesses are affected in any detrimental way? 5. What learning potential is there? Can the new business enhance synergy and improve our existing businesses and the organization as a whole? This assumes, of course, that the organization is able to exploit the learning potential. Effects of Diversification 1. Differences in culture in the various divisions or businesses. 2. Acquisition (Thompson and Martin) Acquisition: the purchase of one company by another, for either cash percentage or equity percentage in the parent company. Sometimes the word takeover is preferred when the acquisition is hostile, and resisted by the company being bought. Similarly, mergers are when two companies simply agree to come together as one. Advantages and Disadvantages of Diversification and Acquisition
Advantages 1. Gaining competitive advantage. 2. High market share. 3. Fast Growth. 4. Buying presence. 5. Increase expertise. Disadvantages 1. Premium price may be paid. 2. High risk in terms of misjudgments. 3. Availability of organization. 4. Difficulty in selling unwanted assets.

Corporate Strategy of the four conglomerates DANIEL VENUNYE TORKU Page 5

1. Growth 2. Diversification, 3. Acquisition 4. Divestment. This argument is supported by this quote: (Tomkins, Hanson, BTR and Williams) all started in the same place; buy what you can, sorts it out and move on. Now our aspirations are to build businesses internationally. (Roger Carr, Chief Executive, Williams, in 1996) Business Strategy of BTR and Hanson 1. BTR and Hanson were dominated by the desire to deliver profit, focusing on accounting measures such as costs and return on sales. 2. BTR and Hanson generally avoided capital expenditure, and preferred take-over targets with profitable product lines, usually in niche markets. It then increased the prices of these products to the maximum, to generate exceptionally high margins. 3. BTR and Hansons growth depended on finding a continual stream of take-over targets, and managing them more effectively. 4. Hanson especially was into business restructuring strategy. Strategy Implementation 1. Individual businesses enjoy considerable semi-autonomy. 2. Tight financial control systems. Situational Analysis of BTR Corporate Dividends 1. Strategic leadership of Sir Owen Green 2. Ability to turn mature business which has low market share into a profitable venture. 3. Intensive profit planning skills 4. Ability to manage a decentralised with multiple business centres 5. Low central overheads 6. Skills in acquiring and turning around acquisition 7. The ability to introduce the BTR culture into a new business 8. Skills in raising prices when demand is high 9. Strategic leaders of the various businesses were rewarded for success. Corporate Losses 1. Synergy and linkage was not high on their agenda 2. Issues of succession 3. Many acquisition trials 4. Decline of undervalued businesses PEST Analysis of BTR Political Factors 1. Difficult trading conditions in overseas business contribute to the decline in sales. 2. Business reforms policy of government Thatcher also saw few undervalued businesses available for BTR to acquire. DANIEL VENUNYE TORKU Page 6

Economical Factors 1. Currency translation is the major factor that affects the decline in sales of BTR during the period of declines, due to the differences in currency rates. 2. Low demand in the building cycle, especially in Australia and West Germany. 3. Competitive pricing from competitors 4. Downturn in European markets. 5. Changes in tax laws (Australia and UK) Society Factors 1. Buyers perceived their prices to high and taking advantage of short term captured customers. 2. Difficult and poorly executed reorganization. Technology Factors: 1. Service and production inefficiencies contribute to the decline in business of BTR. HANSON Hanson argued that it is more appropriate for head office to remain detached from operations, and instead of involvement to set strict financial targets. All Hanson businesses were reputedly for sale at any time. Both approaches have been shown to work, but with different levels of overall performance and strategic growth patterns. In essence it is all down to the quality of management. Corporate Dividends of Hanson 1. Ability to make profit on sale out 2. Ability to maximize share holders value 3. Low cost financing of businesses in a competitive environment. 4. Slow growth companies retained. 5. Astute tax management Corporate losses 1. Interest in buying only mature businesses 2. Risk averse nature of Hanson 3. Strict financial constrain on managers of the various businesses. 4. Difficult acquisition trials with many hostile takeover bids failing. 5. Succession problem TOMKINS Tomkins, during the 2000 concentrated on automotive and building products. Corporate Dividends 1. Ability to buy back shares and re-invested in the already own businesses. 2. Concentration on innovative products. Corporate Losses 1. Complacency (They stopped renewing and refreshing their stores) 2. Higher prices than its competitors 3. Not concentrated on the most sorts after products by customers. DANIEL VENUNYE TORKU Page 7

4. Mismanagement on the part of CEO Hutching WILLIAMS HOLDINGS Corporate Dividends 1. A deal maker and strategic leadership of Nigel Rudd. 2. Wider range of products than it competitors 3. Focused conglomerate business style 4. Tightening of fire regulation in the world. 5. Brand management skills In conclusion, BTR and Hanson divested into more than three business areas while Tomkins and Williams Holdings concentrated on two major business areas.

Problem Statement: Q2B In manufacturing the only reliable methodology for growth is acquisitions and take-over. Critically evaluate this statement within the above context. Take Over A takeover is when one company buys another publicly-traded company. 'Publicly traded' simply means that their shares can be bought and sold on the stock market by anyone. The company doing the bidding (buying) doesn't have to be publicly traded, but they often are. The idea is that the bidding company will purchase enough of the target company's stock to gain overall control of that company. Friendly Takeover: the company bidding will approach the directors of the other company to discuss and agree an offer before proposing it to the shareholders of that company. The bidding company will also have an opportunity to look at the accounts of the business they want to buy (a process known as due diligence). Hostile Takeover: the company bidding has their offer rejected or does not approach the board of the company they wish to buy before making an offer to shareholders. This also means they will not have access to private information about the company - increasing the risk of the takeover. Banks are usually more cautious about lending money for hostile takeovers. The main reason for takeover is decline in profit margins/financial returns and Marris (1964) postulates growth as a key concern, as managers derive utility from growth in the form of enhanced salaries, power and status. The constraint is one of security. If, as a result of growth strategies pursued by the firm, profits are held down, say because of interest charges, the market value of the firms shares may fall relative to the book value of the assets. In such a case the firm may become increasingly vulnerable to takeover, and managers wish to avoid this situation.

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TAKE OVER AND ACQUISITION ARE CRITICAL FOR GROWTH IN THE MANUFACUTURING BUSINESS. Acquisitions and takeovers are the best investment strategies for growth for manufacturing industries because these strategies allow you to expand without a lot of overhead costs, completive edge and ability to add value to shareholders. If you feel like you will not be able to stand alone it is better to enter into a takeover agreement with another company or to be acquired by the other company. If you are struggling to survive and an opportunity comes to merge with another company you should probably jump at the chance. On the other hand, if you are a strong company and you are thinking of taking over, you might want to wait and acquire the other company when it starts to fold. Though the current takeover movement pales in comparison to the great takeover movement of the late 1800s and early 1900s, takeover have increased by more than 50% since the early 90s. This trend in takeover and acquisitions has raised political and social concerns, especially in the realm of food production. The primary political concerns about takeover companies are those of price fixing, monopolies, and antitrust violations. Because of these concerns, the United States Department of Justice for examples has the power to block takeovers and acquisitions. If you are considering an acquisition or takeover of your manufacturing plant and another plant or company, there are several things to consider. 1. One thing to think about is whether your company is acquiring or taking over a company that has a higher or lower price to earnings ratio. If you are going to reduce your price to earnings ratio through a merger, you need to consider the perspective of your stockholders. Is reducing your overall earnings per share of stock worth the benefits of the acquisition or takeover? 2. Another thing to consider when you are considering a merger is if you are combining two plants that manufacture the same things, you might not come out ahead in the long run. In that case, it may be a better idea for you to increase productivity at your current plant. If you are going to have two plants, it might be better if they focused on different aspects of manufacturing the same product or even manufacturing a different product all together. 3. Another thing to consider when you are thinking about an acquisition or a takeover is what they are going to do to you competitively. If you don't takeover or acquire the other plant, it is quite likely that someone else will? If you merge with the competition, you eliminate the competition. On the other hand, if your competition merges with the competition, you might not be able to compete with their combined forces. I will like to conclude that one of the big advantages of acquisition and takeovers is resource surplus. You may be able to combine some departments and surplus the people that overlap between the two departments. You also might be able to surplus some of the equipment. If you utilize heavy equipment in your manufacturing operation, you might find that you only need one rock-crusher between the two companies. When drawing up the plans for acquisitions and takeovers, you should explicitly state surplus in each area of the combined companies. Surplus can be viewed as profit in a merger.

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Problem Statement: Q2C Discuss the Hasonizing strategy, and relate to the similar strategies of BTR, Tomkins and William Holdings. Hasonizing strategy James Hanson always argued the strategy could be applied successfully in any industry, and consequently 1. Hanson diversified into a number of unrelated areas including construction, bricks, textiles, animal foods and meat processing, pulp, coal, gold, tobacco and chemicals. Hanson did not always stay in an industry, and instead divested companies and business units when appropriate for its basic strategy. 2. Hanson believed that earnings per share were maximized when business units achieved the highest possible sustainable return on capital employed. Earnings per share could be improved by increasing returns from existing capital or by reducing capital and maintaining earnings. 3. Hanson was not thought to be interested in companies that could not be improved within three to four years. Hansons Strategy Implementations 1. Business units were decentralized and given strict targets to achieve, but all capital investments were carefully scrutinized at board level. 2. Profits from the businesses were returned to the parent, who decided how they would be used and spent. 3. General Managers in charge of businesses could not spend over 500 without the approval of James Hanson (in the UK) or Gordon White (in the USA). Hasonizing strategy in relation to BTR, Tomkins and Williams Holdings The purpose of acquisitions, and takeovers a. Marketing advantages i. Buy in a new product range ii. Buy a market presence iii. Unify sales departments or to rationalize distribution and advertising iv. Eliminate competition or to protect an existing market b. Production advantage i. Gain a higher utilization of production facilities ii. Buy in technology and skills iii. Obtain greater production capacity iv. Safeguard future supplies of raw materials v. Improve purchasing by buying in bulk DANIEL VENUNYE TORKU Page 10

c. Finance and management i. Buy a high quality management team which exists in the acquired company ii. Obtain cash resources where the company acquired is liquid iii. Gain undervalued assets or surplus assets that can be sold off iv. Obtain tax advantage d. Risk-spreading e. Independence f. Overcome barriers to entry

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Reference 1. Allbusiness(1997)businesswirehttp://www.allbusiness.com/company-activitiesmanagement/financial-performance/7005220-1.htm 2. Chubb Security http://www.chubbsecurity.co.uk 1. David, R.F (2003) Strategic Management. Printice Hall. Edith 5 2. Greener, T (2010) Understanding Organization Part I. Ventus publishing, Aps 3. Greener, T (2010) Understanding Organization Part II. Ventus publishing, Aps 4. Hanson http://www.hanson.co.uk 5. Invensys http://www.invensys.com 6. Jorgen, L and Bindslev, M (2006) Organizational Theory. Ventus publishing, Aps 7. Kidde http://www.kidde.co.uk 8. Rowe, J. (2008) Studying Strategy. Ventus publishing, Aps 9. Ritson, N (2008) Strategic Management. Ventus publishing, Aps 10. Whalley, A (2010) Strategic Marketing. Ventus publishing, Aps 11. Tomkins, R (1998) Moments that build or destroy reputations. Financial Times. 29 September. 12. Tomkins, R (1998) Trouble in toyland pushes Toys R Us on the defensive. Financial Times. 29 May. 13. Tomkins http://www.tomkins.co.uk 14. Diversification.http://www.scribd.com/doc/12376024/Advantages-and-Disadvantages-ofDiversification 15.

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