Merger Mania Strikes Again in Furniture Field
Strange but true, one of the hottest industries for merger action recently has been neither high finance nor high technology, but the ancient and venerable business of furniture making. It’s an industry in which about 600 companies share about $20 billion worth of business, roughly divided between office and home furniture. It is a business in which the size of the largest company can still be expressed in millions of dollars, not billions.
Now that is changing. Masco Corp., a Detroit-based maker of faucets and garbage disposals, has spent more than $500 million since last July to acquire Drexel-Heritage and Henredon, two of the most fashionable names in American furniture. Kohler of Kohler, Wis.--a bathroom fixture company--went after Baker Furniture. And Chicago-Pacific, the financial shell of a bankrupt railroad, recently bought Pennsylvania House and Kittinger.
The industry is buying its own, too. Interco Inc., a diversified $2.5-billion (sales) St. Louis-based company that owns Ethan Allen and Broyhill furniture--as well as Florsheim shoes and London Fog raincoats--is paying out more than $500 million in stock for Lane Co., a 75-year-old Virginia firm with a profitable line of reclining chairs.
Bassett Furniture--which makes dining room tables--has bought a recliner maker, also, while La-Z-Boy Chair, the leader in recliners, has acquired a table company.
Comedy of Errors
Why is this happening? Partly it’s the comedy of errors called corporate strategy, but also the industry is responding to changes in the way furniture is sold in America, to some increase in foreign competition and to a growing market among the so-called baby boomers who, like Ken and Barbie grown up, are shopping for home furnishings.
Who wins in this game? Well, most of all the shareholders of family-owned furniture companies in North Carolina and Virginia who are being paid fancy prices by the newcomers.
The stock of Henredon, for example, was selling in the mid-$30 range before Masco paid $58 a share for it. Lane Co. was at $39 before Interco agreed to pay stock worth $64 for it in a merger that, if shareholders of both companies approve, will leave Lane stockholders controlling 30% of Interco. Furniture stocks, which mostly trade over the counter, are understandably strong on merger fever these days.
Who else wins? Hard to say. The consumer could benefit if aggressive newcomers would slash furniture’s traditionally high retail markups. But, aside from imports from Taiwan and South Korea, price cutting is not in prospect.
One reason for the merger activity is so that companies can put together a full line to display in fashion showrooms, as Ethan Allen does now.
Change in Marketing
The traditional furniture section in department stores will be replaced by manufacturer’s brand-name boutiques--furniture being sold the way perfume is now. Expect to see more advertising trying to make furniture brands recognizable.
The aim is to appeal to the now-numerous 25- to 44-year-olds who comprise 16% of the population, but earn 27% of the disposable income. It’s their time of life as much as the money that has the industry hopping. “That’s the furniture-buying age,” says Treasurer Gene Hardy of La-Z-Boy Chair, “past-45 people tend to live with what they have.”
But there will be some losers, too, as there were before when big companies bought into the furniture business.
The industry’s leading analyst, Wallace Epperson of Richmond, Va.’s Wheat First Securities, recalls how Sperry & Hutchinson, the green stamp company, and General Mills, Georgia Pacific and others paid big money for furniture makers in the 1960s and early ‘70s. Now all those companies have sold or spun off their acquisitions and left the business again, citing “poor performance” or “failure to meet profit goals.”
What happened? The usual thing: Big companies buy out family owners of profitable small companies in another industry, say they intend to leave local management alone, except to “help” with things such as finance.
Good Relationship
Then, soon after the honeymoon, the big company is milking profits from the small to meet earnings targets of its own, demeaning local management and sapping local initiative. Small wonder the business goes downhill.
Epperson isn’t saying that will happen necessarily with Masco and the others, only that it has happened before.
Interco’s record, in fact, has been just the opposite--a good and profitable relationship with its furniture acquisitions since 1981. But Interco used a different approach for its pending acquisition of Lane, forcing a takeover by tough bidding tactics.
And despite the generous price it’s paying, Interco has bred resentment. “What do they bring to the party?” asks a Lane senior manager testily.
Makes you wonder if acquisition-happy companies wouldn’t be better off paying premiums to their own shareholders and letting them invest in furniture if they want.
