group 5-hanson case b.pptx

8/11/2019 Group 5-Hanson case B.pptx

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Strategy ManagementHanson PLC (B):BREAKING IT UP

Roll No. Name

60025 Muskaan

60031 Rohit Kumar

60032 Ruchika Wardhan

60042 Sushant Saurav

Presented By :

CIMP


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Derek Bonham David Clarke

Key Protagonist

David Clarke

Other Key Players


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Key Facts

During the 1970s and 1980s, Hanson PLC put together one ofthe most impressive growth stories of any industrial company inthe world

Between 1973 and 1991, Hanson put together 29 years ofuninterrupted profit growth with revenues of $12.3 billion andoperating income of $2.13 billion

A bitter public relation battle with ICI( Imperial ChemicalIndustries) , another acquisition target of Hanson damaged itsimageIn September 1993, its businesses were suffering from theeffects of recession in both Britain and America, Hansonreported 33 percent decline in after-tax profits to $1.5 billion,the first, such decline in its history.


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A New Direction?

In 1992, Derek Bonham and David Clarke took over as CEO forHansons British -based operations and American Operationsrespectively.

Bonham and Clarke clearly lacked the predatory thirst that haddriven Hanson and White to acquisition

Bonham started focusing managements attention on improvingthe performance of its core businesses in building materials,

chemicals, tobacco, and natural resources

Bonham signaled bolt on acquisitions that the days of hostileacquisitions and quick asset disposals to pay down debt wereover


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Shift in Managements Philosophy

In May 1994, Hanson announced to lengthen the payback periodrequired of new capital investments from three or four years tofive or six years

The reason stated that it had lengthened the required paybackperiod to take advantage of low interest rate and continuing lowinflation

Bonhams stated the goal of increasing internal investments as away of generating growth


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Acquiring Quantum

On June 31, 1993, Hanson announced that it has reached to anagreement to purchase Quantum Chemical Corp., the largest U.S.producer of polyethylene plastics, valued at $720 million

The acquisition added to Hansons U.S. chemical operations,which included SCM chemicals, the worlds third largestproducer of titanium dioxide

The acquisition represented a strategic bet by Hanson that acyclical downturn in the polyethylene business was nearing atthe end

Quantum had saddled itself with the $2.5 billion debt load in a1989 restructuring, undertaken when plastic prices were at theirprevious cyclical peak.

One immediate financial benefit of the acquisition was thatHanson was able to use its superior credit rating to refinance

Quantums debt


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Acquiring Quantum(Consequences)

One immediate financial benefit of the acquisition was thatHanson was able to use its superior credit rating to refinanceQuantums debt

By the end of 1994, the prices for low density polyethylene hadrisen to $33 per gallon from $28 per gallon in 1993

Quantums chemical operations earned almost $200 million infiscal year 1994

Quantums result helped Hanson to 34 percent rise in pretaxprofits and a record operating profit of $1.92 billion


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1993-1994 Disposals

Throughout 1993 and 1994, Hanson proceeded with a series ofrelatively minor asset disposals.

The objective of these disposals were as follows; first to focusthe company on its core businesses and second to help paydown Hansons enormous debt load

In fiscal year 1993 Hansons long term debt stood at $11.5 billion

and its debt to equity ratio was 1.83Between January 1993 and August 1994, Hanson sold more thanfifteen companies for a total of $1.3 billion


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Spinning Off U.S. Industries

In February 1995,the big strategic move of Hanson came withthe announcement that it would spin off 34 of its smallerAmerican-based companies into a new entity called U.S.Industries .

Hanson would retain ownership over several of its larger U.S.operations, including Quantum Chemical and Peabody Coal

In 1994, the 34 companies had sales of $3 billion and operatingprofits of $252 million

The new company first objective would be to reduce its debtload, primarily by selling off a number of companies valued at $600 million.


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Acquiring Eastern Group

In July 1995, Hanson announced that it would acquire Easterngroup, one of Britains major electric utilities, for $3.2 billion Eastern Group has a customer base of 3 million and isresponsible for 15 percent of the electricity produced in Britain,primarily for natural gas-fired generating facilities

In the year ending March 31, 1995, Eastern earnings were up 15percent to $324 billion on the revenues of $3.2 billion

The debt- financed purchase of Eastern caused Hansons debt -to-equity ratio to shoot up from37 percent to 130 percent, raisingconcerns that it might not be able to service its historically highdividends.


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The Demerger

Hansons cyclical business staged a significant performanceimprovement, with operating profits increasing by 44 percentfor the fiscal year 1995

Since the early 1990s, the companys share price had beenessentially flat whereas the London and New York stock marketshad increased substantially

By the end of 1995, the price-to- earnings ratio of Hansonsshares was 30 percent below the average stock on the Londonexchange.


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The Demerger(Continued)

Hanson stunned both London and Wall Street with its January 29announcement that it would divide the company up into four

independent businessesHanson stated that it would split into a chemical business, anenergy company, a tobacco company , and a building materialenterpriseBonham was to run the energy business, while Hanson was totake over the building materials group until his retirement and itwas estimated that the demerger would be completed by early1997In March 1996, Hanson announced the sale of its remaining U.S.timberland operations to Willamette Industries for $1.59 billion


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Impact of the Demerger

Hansons stock price initially surged 7 percent on the news, but itfell later the same day and ended up less than 0.5 percent

The lack of a sustained positive reaction from the stock marketson both sides of the Atlantic puzzled Hansons managers

The lack of favorable reaction came among the concernsexpressed were that the demerger might raise Hansonsborrowing cost.

The tax consequences of the demerger were also not

immediately apparent, although there might be some one-timecapital gains tax charges.

Stock analysts commented that the demerger Hanson unitsmight not be able or willing to maintain Hansons historicallyhigh level of dividends


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THANK YOU

group 5-hanson case b.pptx

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