Hanson Case A

Group 2 :

Bahrudin Yusuf .T
Ika Sekartaji
MM UGM AP-14 YOGYA
History Timeline

Hanson was built up by James Hanson, later Lord Hanson, and Gordon White in the late
1950s.
By 1973, the British economy had a big trouble :
stock market had collapsed; labor disputes; inflasion increasing rapidly there was no need
to split up. Hanson would run the British Operation and White tried to build operation in
USA.
By 1974, White managed his first acquisition of J. Howard Smith Company, a New Jersey
based processor of edible oils and animal feed that was later renamed Seacoast Products.
In 1984 :
Whites first hostile takeover : the US Industries (USI). The acquisition of USI was followed
by 3 other hostile takeover bid : SCM Corp, Kaiser Cement, Kidde.
Hanson takeover the London Brick (Britains largest brick manufacturer), Imperial
Company (largest tobacco company), Consolidated Gold Fields.


Acquisition Philosophy
Whites Philosophy (Hanson Industries, US Subsidiaries) :
Target characteristics
companies based in mature, low technology that show potential improving
performance.
Research
Hansons staff routinely investigates companies undertaking leveraged buyouts.
Risks assesment
give considerations to what can go wrong and the likely consequences of a worst
case scenario.
Funding
the British acquisitions have been funded by a mix of cash, equity, convertible
securities and loan stock.
Disposal to reduce debt
typically sells off the parts of the acquired company that cannot reach Hansons
stringent profitability targets.
Contd
Elimination of excess overhead
closing down the companys headquarters, eliminating staffs, sending
other staff down to operating level.
The creation of incentives
Achieved by :
decentralization designed to give operating managers full autonomy for
the running of their businesses.
motivating managers by setting profit targets
giving managers large pay bonuses if they hit or exceed Hansons profit
targets
Contd

Hansons philosophy (Hanson PLC, British Operations):
Decentralization
all day to day operating decisions are decentralized to operating company managers.
Tight financial control
achieved by :
operating budgets
capital expenditure policies
Incentives systems
a major elements of the pay of operating managers is linked directly to operating companys
performance.
Board structure
no operating company managers are ever appointed to the board of ether Hanson PLC or
Hanson Industries
De-emphasizing operating synergy
in contrast to many diversified companies, Hanson has no interest in trying to realize
operating synergy.
Organizational Structure
Hanson PLC (UK) Hanson Industries (US)
Consumer
Building
products
industrial Brewing & food
UK
Allders
British Ever Ready
Imperial Tobacco

USA
Carisbrook
Footwear
Smith corona
UK
Hanson Brick
Crabtree

USA
USI Lighting & building
products
UK
Lindustries


USA
USI furniture &
industrial
SCM industrial
UK
Imperial foods


USA
Hygrade food
Durkee food
Lea & Perrins inc.
SCM acquisitions
SCM profile :
Diversified manufacturer of consumer and industrial products
Had 22 operating companies based in 5 industries ( chemicals; coatings &
resins; paper & pulp; foods; typewriters)
The worlds leading manufacturers for portable typewriters
The worlds third largest producer of titanium dioxide
The sixth largest paint manufacturer
A major force in th US food industry Durkee Famous Foods

Attraction to Hanson
Poor financial performance
Beginnings of a turnaround
Mature businesses
Low risk


Contd
Titanium dioxide was dominated by global oligopoly
2 favorable trends that made high returns likely :
- a worlwide demand was forecasted to exceed supply for the next few years
- input costs were declining because of the currency weakness of the major raw
material source, Australia.
Corporate overhead

Result after SCM acquisition
4 business were sold off in as many months for a total amount that
recouped Hanson the original purchase and left Hanson with the 2 best
business in SCMs portfolio :
Smith Corona typewriters
titanium dioxide business

2 main reasons to retain the titanium dioxide business :
industry operating at close to 100% capacity & with projections
indicating an increase in demand through 1989.
two thirds of world production of titanium dioxide is in the hands of
global producers.


Contd

In the 2 years prior to the acquisition, SCMs management had undertaken the
following steps :
a new line of electronic typewriters had been introduced to match the increasingly
sophisticated Japanese models.
capacity had been reduced by 50% & 6 US production facilities had been consolidated
into a single assembly plant.
As a result of automation, economies of scale, labor agreements, productivity at the
New York plant had increased fourfold since 1984, and unit labor costs had declined
by 60%.
The manufacture of electric models had been moved offshore to a low cost facility in
Singapore.
Smith-corona typewriter had just introduced the first personal word processor.

The Imperial Acquisition
Company profile :
One of the ten largest firms in Britain
Britains leading tobacco manufacturer
The third largest tobacco company in the world
Its Courage Brewing Company was one of the big six beer company in UK

Attraction to Hanson
Mature business, low technology industries
There is little prospect of radically changing fashions or technological
change in tobacco, brewing & food industries.
Low risk
high brand recognition in Britain
Contd
Tobacco cashflow
had a classic cash cow
Failure of Imperials deversification strategy
Inadequate returns in brewing & leisure


Contd

Results :
Things began to go wrong for Hanson in the 1980s, as growth began to slow
and Hanson attempted to maintain high share dividends. In the past, the
problem was easily overcome by acquiring new businesses. But now Hanson
PLC had become a victim of its own success. The size of the necessary
acquisitions to meet the dividend requirements of shareholders was growing
ever larger. This raised the problem not only of finding large potential
acquisitions to meet the companys requirements, but also of funding them.
Hanson was criticized to fail to add value to the companies they acquired
(Imperial Chemical Industry acquisition in 1990), even they got profit of 45
million ($70 million) when sell its stocks in 1991.


Hanson PLCs Strategy
Make sure that value is being added to every business in the portfolio by
identifying ways in which each can be helped to achieve major improvements in
performance.
Restrict the portfolio to activities in which a constructive fituseful skills attuned
to the needs of the businessesexists at the center.
If growth prospects appear limited, try reinvention, moves into related businesses,
new ideas, or acash-cow strategy.
Focus effort and investment on areas in which the company have demonstrable
skills: dont diversify into unknown areas.
When substantial and discernible value is not being added, change the portfolio.

Conclusion from the overall acquisition strategy
As a result of Hansons acquisition strategy, it had become reliant on
natural resource companies which operated with weak cash flows. As a
consequence, funds for further acquisitions could only be raised by selling
existing business assets, usually the most profitable ones. The difficulty
was that Hansons portfolio of businesses was steadily weakening over
time, as the best-performing stock was sold to purchase low-performing
assets.

However, Hanson's individual management style had multiplied the
negative effects of the changed business environment, leaving it less well
prepared than most of its counterparts to adapt. Its short-term focus on
earnings, pattern of acquisitions and disposals, lack of direct internal
investment, obsessions with high dividends, labyrinthine accounting and
tax management, and culture of financial engineering, brought it to a
relatively weak pre-demerger position in 1996.