In a story on SCM Chemicals last Sunday, The Sun incorrectly stated the increase in the company's titanium dioxide production capacity since its acquisition by Hanson Industries in 1986. Overall capacity has increased 73 percent; capacity per employee has increased 56 percent.
The Sun regrets the errors.
New York -- SCM Chemical opened its South Baltimore plant to local visitors this weekend for the first time in three decades to foster a neighborly feel.
Being neighborly is far removed from the caustic descriptions often leveled against SCM's parent, Hanson Industries, a conglomerate that has bought and chopped its way to become an international power in just a few frenetic decades. But now the company has reason to be looking for friends, and SCM, which has become a striking success since being acquired by Hanson five years ago, isn't a bad place to start.
For Hanson may have a truly gigantic deal in the works. In mid-May it loudly took a 2.8 percent stake in Imperial Chemical Industries "for investment purposes." Ever since, people have been wondering what that means. A common guess is a blockbuster takeover in the 1980s mold.
A combination of the two conglomerates would probably trigger other transactions as decisions are made on the fate of hundreds of subsidiaries, including SCM and a major competitor owned by Imperial.
Like Hanson, Imperial Chemical is a multinational conglomerate born in the United Kingdom. But unlike Hanson, a spectacular financial success, Imperial's results, and shares, have languished. Twenty years ago, according to a Morgan Stanley study, Imperial had the 14th-highest market capitalization (stock price times the number of outstanding shares) in the world and the third-largest in the United Kingdom. Hanson at the time had been public only seven years; it was still an industrial midget.
At the end of April, after two decades of single-digit appreciation, Imperial no longer qualified for the top-10 list in the United Kingdom, let alone the top 20 in the world, while Hanson was No. 5 on the U.K. top 10. Combining with Imperial would make it No. 2 in the United Kingdom, and, based on its annual appreciation rate of close to 25 percent, a chartist would conclude Hanson is only a few years away from a place in the global top 20.
While share price may be the entire story for a shareholder, it's only one aspect of a company. Hanson and Imperial reflect not only diferent results but different strategies. Imperial has, like many chemical giants, been forced to wrestle in recent years with tremendous challenges, ranging from stiff environmental costs to complicated research for advanced products. Hanson has focused less on a product category and innovation than results, masterful acquisition, cost-cutting and divesting. As a result, Hanson has produced a more brilliant bottom line, but Imperial has produced more brilliant products, including effective medications for cancer and hypertension.
Is one style wrong and another right? The English papers, which unlike their U.S. counterparts overtly give a perspective with the news, have had a field day with this question. Responding to the prospect of a deal, a columnist in the Guardian of London described Hanson's chairman, Lord Hanson, as "a cannibal with irreproachable table manners." But the Economist (chaired by a former Imperial executive) flatteringly describes Lord Hanson as "a consummate dealmaker." The Guardian tends to focus on Hanson's minimal investment in research and development, the Economist on its effective allocation of resources.
The U.S. markets and the various groups that tend to become enmeshed in major deals, like Congress and affected communities, have been more reserved. On the New York Stock Exchange, trading in the companies' American Depository Receipts (the U.S. equivalent of the British shares) is about 40 percent above average -- high, but not very high.
Similarly, labor unions, citizens groups and Congress have been silent. This could suggest a more laissez-faire approach to business in the United States. It also could mean the significance of any combination of the two companies has eluded the gallery.
Neither Imperial nor Hanson maintain splashy U.S. headquarters, nor do they plaster their name on prominent consumer products. But they are both major U.S. companies whose products are in every home.
Hanson is a major domestic producer of shoes, toys, cranes, batteries, coal and so on. Hanson employs more than 50,000 people in the United States and sells about $6.5 billion in goods, ranking 75th on the Fortune 500.
Imperial's U.S. operations, headquartered in Wilmington, Del., sell about $4.5 billion (equivalent to about 125th on the Fortune list) and employ 20,000 people. The company's interests span the gamut from creation (seeds) to destruction (explosives) and include a billion-dollar pharmaceutical operation.
All told, it is the Hansons and the Imperials and their ilk that underpin the industrial world, and Hanson's move seems to be setting in motion changes that, at the very least, will encourage a reshuffling in that world. On Friday, the Financial Times quoted Alex Krauer, chairman of Ciba-Geigy, as saying: "There is no chemical company which has not been approached [by Hanson] to see if they are interested in parts of [Imperial's] business."
The pharmaceutical business alone, responsible for only 11 percent of Imperial's sales but 47 percent of its profits, could be worth $15 billion in an auction, says Samuel Isaly, a securities analyst in New York. That is equivalent to Imperial's total market valuation.
Another area potentially in flux if a deal is consummated is titanium dioxide. Together, Imperial and Hanson's titanium dioxide operations are, respectively, No. 2 and No. 3 in a world of three critical participants. (Du Pont is No. 1).
Antitrust problem? Perhaps, if a product's importance to society is an issue. While raw titanium dioxide has little public recognition, it is a common product, providing the whitener in paints, wallboard and even American cheese (which is otherwise yellow). As an opaquing element, it makes Bible pages non-transparent; as an ultraviolet screen, it prevents women's stockings from disintegrating in sunlight.
Hanson's global titanium dioxide operations are run by SCM Chemical and headquartered in Baltimore. The division generates close to $1 billion in annual sales, or enough, were it independent, to rank 350 on the Fortune 500. Many Wall Street analysts point to SCM as the quintessential Hanson property. Purchased in 1986 along with a sprawling conglomerate for $930 million, Hanson sold off other SCM assets for more than $1 billion and essentially picked up what was left for free. About 60 percent of the purchase price was recouped by a single sale: Glidden Paint to Imperial for $580 million.
Since the acquisition, Shearson Lehman Bros. estimates that SCM profits have quadrupled to more than $300 million (though the recession should depress this year's results). Questioned about Hanson's reputed stinginess, SCM Chief Executive Donald Borst says that $428 million has been reinvested in operations. Capacity has been increased 56 percent and employment 11 percent, and environmental systems have been upgraded.
Getting money, Mr. Borst says, "hasn't been a problem." But it's not easy, either. Any capital expenditure of more than $3,000 must be approved by a senior Hanson executive as part of tight ongoing reviews of financial plans. Otherwise, SCM runs by itself. Neither Lord Hanson nor Lord White, Hanson's two founders and critical executives, have ever paid a visit.
A merger between Hanson and Imperial could affect who controls SCM. "The only thing you could say about Hanson is they would sell anything," said an analyst at an English brokerage. "It's a very simple, unemotional decision. That's why they have such a stellar record."
Does it matter? "I don't think it would make a bit of diference who owns it," the analyst responded. "It operates independently, does a great job, and its management is highly regarded by Hanson, which isn't easy."