Hanson Trust Puts British Twist on Hostile Takeovers

Amid the chrome-and-drapery decor characteristic of expensive restaurants everywhere, actor George Segal rattles on in a loudmouthed vein about an American corporation he’s heard of that has racked up exceptional profits. Great minds they have in New York, he says.

“Piffle,” replies actress Glenda Jackson from behind a copy of the Wall Street Journal. “Poppycock.”

Coldly she informs him that his company is actually owned by a British firm, one of the leading concerns in the United Kingdom. The British voice-over archly introduces Hanson Trust: “A company over here that’s also doing rather well . . . over there.”

As an assistant at a videotape machine flicked off the commercial, scheduled to be aired on British television, Sir Gordon White explained the disadvantages of being a British company whose American operations contribute 65% of annual sales and 56% of pretax profit: “Our British investors don’t know we even have an American operation,” he said, “while American investors don’t know we’re owned by a company in the U.K.”

Still, for all the demurrers of White, one of Hanson’s two founders and the chairman of its American operations, the company has scarcely been blending into the woodwork in either place.

In 1986, the 23-year-old company completed two hostile takeovers, one on each side of the Atlantic, which shook up even hardened merger-and-acquisition professionals while increasing Hanson’s total sales to $6.2 billion in 1986 from $3.8 billion in 1985.

One takeover was the more than seven-month campaign to acquire SCM Corp. of Stamford, Conn., for $930 million. That deal produced an important legal ruling when a federal court threw out SCM’s arrangement to sell two of its most valuable units to Merrill Lynch & Co. at a “sweetheart” price, a step designed to discourage Hanson’s bid. The ruling largely put an end to such “lock-up” takeover defenses.

Nearly simultaneously, Hanson was pursuing Imperial Group PLC, a diversified British brewer and cigarette maker best known here for having bought Howard Johnson, failing miserably at running the famous restaurant concern and eventually selling it off.

Imperial fought back with a harsh advertising campaign questioning Hanson’s reputation and growth record as the product more of acquisitions than of effective operational management.

The unusual campaign was more effective in bruising Hanson’s standing among British investors than in deflecting its bid, for Hanson won Imperial for $3.7 billion but has since suffered from a persistent undervaluation of its stock in the London market.

This is despite Hanson Trust’s enviable record of 23 straight years of profit growth and its stature as one of Britain’s premier corporate successes. Pretax profit--the standard measure in Britain--rose last year to $667 million from $364 million in 1985 (including the profits of its newly acquired companies).

Hanson’s stock price may also be suffering from the severe reaction in the London financial community against acquisition-oriented companies. This is an offspring of a government investigation into charges that illegal stock purchases, possibly involving Ivan F. Boesky, were involved in Guinness PLC’s acquisition last year of Distillers Co.

Element of Disaffection

The financial scandal has produced a “certain indefinable element of disaffection with companies that have been active in the acquisition sphere,” said Mark Cusack, an analyst in London for the investment firm of Hoare Govett. But Cusack believes that the disaffection will soon yield to the customary admiration that British investors have for Hanson.

Most recently, Hanson functioned as the “white knight” in snatching Kaiser Cement, the last vestige of what was once the giant Oakland-based Kaiser industrial combine, from the apparent takeover designs of Los Angeles financier David H. Murdock.

Hanson’s bid was sought by the Kaiser Cement board, which may have feared that Murdock would oust management while Hanson would keep it on. “Well, we certainly didn’t want to buy the cement company without its management,” White said.

Hanson in November paid $200 million for what White describes as a modernized collection of manufacturing plants that can be efficiently “bolted on” to the company’s large building products business.

Since then, Hanson has stayed out of the acquisition market, in part to continue digesting its spoils but also because of the rise in anti-takeover sentiment on both sides of the Atlantic. Not only have 10 years of a takeover boom forced up acquisition prices, but the Boesky and Guinness affairs have aroused regulators.

“All of the values that were there in 1976, ‘77, ’78 have been eroded,” said White, who moved to the United States in 1973 to establish Hanson’s U.S. beachhead with $3,000 in cash, the limit imposed by British currency regulations. By 1976 he had acquired four U.S. companies, including Hygrade, a maker of processed meats, and Carisbrook, a yarn and fabric manufacturer.

Considers Himself American

Standing well over six feet tall, White occupies a Park Avenue office decorated with paintings of racehorses and photographs of himself with such friends as actress Joan Collins. “I think of myself as an American now,” he said.

To some observers, a slowdown in acquisitions will be a genuine test of the Hanson Trust management’s skills and judgment. For, since 1969, when James Hanson and Gordon White, two natives of Yorkshire, joined to create the company, its growth prospects have been closely identified with its ability to acquire new operations. (Hanson was elevated to the peerage in 1983, and White was knighted in 1979.)

“At center they’re a cash-allocation machine,” said Robert Morton, a London-based securities analyst for the Barclays deZoete Wedd unit of Barclays Bank, in a telephone interview. “They pull cash out of the businesses they acquire and reallocate it.”

Hanson’s and White’s greatest talent, he said, has been “their adeptness at taking advantage of the market,” identifying undervalued companies and paring them to their essentials.

Having acquired SCM for $930 million, for example, White recovered the purchase price in about eight months by selling off four major units and the company’s former headquarters in New York. The sales included the divestiture of Durkee Foods for $40 million more than the $80-million price at which Merrill Lynch was prepared to take the operation off SCM’s hands.

Analysts expect SCM’s four major remaining businesses, including its typewriter manufacturing unit, to contribute more than $130 million in pretax profit in 1987.

Usually Slashes Staff

Once it acquires a company, Hanson characteristically pumps up its profits by, among other things, ruthlessly winnowing its corporate staff.

“We take out, first of all, that major bureaucracy that exists at corporate headquarters and the layers of management that seem to accumulate before you get down to the actual operating company that’s making the money to support all this rubbish,” White said. “SCM had 250 people running six major companies, all really autonomous operations. That was reduced to 25,” White said.

At U.S. Industries, an industrial manufacturer that Hanson acquired in 1984, White said he was appalled to discover that the headquarters employed eight or nine economists.

“The chief executive or financial officer producing their budget for the following year might get from headquarters an economists’ report saying”--and here his voice is heavy with sarcasm--”that in, say, the building industry there’s not going to be as many starts as there were last year. I mean, that gave the management a wonderful opportunity to say, ‘Gee whiz. Now we don’t have to make much money this year, do we?’ ”

The economists were axed, as were all but about 30 members of USI’s 185-strong headquarters staff.

At the same time, Hanson often cuts sharply back on capital spending at its acquired units. “It has to be proved to us that an expenditure of capital will improve a company’s profit,” White said.

Paul H. Elicker, who joined Hanson as chairman of its SCM unit after battling Hanson for months as SCM chairman, said he has found Hanson’s standards to be rigorous but not unyielding. “They are demanding in asking that submissions (for capital funds) be properly justified,” he said. “But from what I’ve seen, when an operation has a good thing going, they get the capital when it is needed.”

Moves Are Logical

Elicker said Hanson’s reorganization of SCM was decisive. “Their style is what they say it is--they dispose of intermediate staff levels in large part and dispose of large portions of the company to pay for the acquisition. Each of these things has logic to it, although it may not be apparent if you happen to be at one of these intermediate staff levels.”

SCM’s remaining operations are thriving, although Elicker noted that some were beginning to show improvement before Hanson’s acquisition. SCM Typewriters, which lost $17 million in the year ended June, 1985, made a pretax profit of $25 million last year and will make significantly more this year, he said.

“It’s pretty early to say that reorganization has brought about critical changes,” Elicker said, “but these people are gentlemen and very astute financially, and one can’t argue with their record.”

Moreover, British observers draw a distinction between Hanson’s acquisition practices and those of such American corporate raiders as Carl C. Icahn.

“The Icahns are in it for a fast buck, although they may occasionally acquire a company to run,” said Hoare Govett’s Cusack. “But while Hanson may make rather daring acquisitions, their whole purpose is to get certain operations, to hold on to them and to manage them much more aggressively to get the good news down to the bottom line.”

Today’s Hanson Trust is an intercontinental conglomerate that resembles such classic American kitchen-sink conglomerates of the 1960s and 1970s as Textron and Gulf & Western.

Its acquisitions have been driven less by any vision of synergy--the favored style of diversified companies in the United States today--than by an eye for what is available at a discount and by a resolute affinity for low tech.

Wide Range of Products

Accordingly, its varied products include several of the leading cigarette brands of Britain, yarn, batteries, office furniture, shoes, bricks, garden tools, frozen foods, typewriters and titanium dioxide, a paint pigment.

“We’ve got something over 100 companies spread over a whole variety of different products,” White said. “We believe the industrial holding company works on the basis of the economic ups and downs of the gross national product. There’s always one sector that seems to perform when another sector goes down, so that across the board we feel we can continue to produce the internal growth we’ve produced for the last 23 years.”

Hanson has about $5.5 billion in cash available to make further acquisitions. These will most likely involve U.S. targets because the devaluation of Hanson’s stock in the London market has made the British style of stock-based acquisitions particularly costly. Still, White said the money is scarcely burning a hole in his pocket.

“We’ve put ourselves in a position where we’re able to be extremely flexible,” he said. “If the market takes a major downturn, then we’re ideally positioned for any bargains that may appear on the scene.”