Hanson PLS Analysis

Hanson PLC is one of the biggest companies in Britain and the U.S. It is a conglomerate having more than 150 different acquired businesses in its portfolio.  It has grown mainly from the acquisition. The company had recorded 26 years of uninterrupted profit growth by 1989 accumulating to $1.61 billion income, revenue of $ 11.3 billion and $12.03 billion worth of assets. The main beneficiaries were the shareholders since the value of the share increased by eightyfold, between 197 4 and 1989 in the London Stock Exchange Market, above fifteen fold average of other companies quoted. It had gained reputation as being the most successful acquiring company.

However, as the company got to 1990s, few question started to arise. To start with the founders were getting old and they were planning to retire. It was also becoming difficult for the company to retain its acquisition trend because there were not many companies to be acquired. Further, there was the question about the long term viability of the company.

History

Formation of this company dates back to 1950s when James Hanson was running a family transportation business and Gordon White selling advertisement for Welbecson limited owned by his father and selling magazines. After the death of Bill, Hanson a brother to Bill became a great friend to Gordon and by the late 1950s, they decided to team up and form a company by the name Hanson White Company: a greeting card company. By 1963, however, they were already nagged enough by the challenges and were looking for acquisition opportunities. They were able to buy Oswald, a vehicle distributing company, which was subsequently acquired by Wiles Group Ltd. Hanson and White were able to secure a substantial ownership position in the Wiles Group and afterwards, they were able to gain managerial control of Wiles Group.  In 1969, they changed the name of their company into Hanson Trust.

As a result of small acquisitions by 1973, Hanson Trust had owned a total of 24 companies whose combined sales totaled $ 120 million. By 1973, British economy was experiencing some troubles as a result of the collapsed stock market, labor dispute, inflation and unemployment. Then the Prime Minister, Edward Health blasted conglomerate companies such as Hanson Trust as being representative of “the unacceptable face of capitalism”. Gordon White found the environment unconducive for being characterized by; socialism and unions, antibusiness government and taxation. He rethought his future and suggested that they should close down. James Hanson however suggested that they should not separate, but rather, Hanson would run the British operation while Gordon would try operation in America where he was planning to go.

White arrived in New York in 1973, but was faced with a lot of challenges especially financial ones due to the regulation in Britain. For example, he was only allowed to carry $3000 when going to America as per the exchange controls. Furthermore, he could not access Hanson’s ample treasury without penalties. Despite difficulties in expressing his credit worthy to the banks, he was able to borrow $32 million in 1974 to finance acquisition of a friendly takeover of J. Howard Smith Company later renamed Seacoast Products. Within the next ten years, White had managed six friendly takeovers and by 1984, he was ready for a hostile takeover of $532 million U.S. Industries. Following closely were hostile acquisitions of SCM Corporation, Kaiser Cement and Kiddle. However, the takeover of SCM was a hard one as SCM filed a lawsuit so as to protect its position, but finally Hanson worn the control. At the same time, White was conducting series of acquisition in Britain with major ones including; acquisition of London Brick, Imperial and Consolidated Gold Fields.

Hanson PLC’s acquisitions are spearheaded by Gordon White who got advice from the investment banking, especially Bob Pirie President of Rothschild Investment bank. Lord Hanson’s primary responsibility is administration. Therefore, growth strategy for this company was acquisition where it had immense achievements which made it perceived as the world’s most successful acquisition firm to an extent of once becoming the world largest company. Due to this growth, shareholders ever demanded more and more dividends. Further, as growth continued, challenges increased whereby they had large debts and not many companies existing in the world supported the businesses that they had already owned. This made them split into four markets; tobacco, building, chemicals and energy. Of the four, the sprinter that retained the Hanson name was that one of construction.

Strengths

Hanson experienced expansion of its asset base as a result of acquiring and selling off companies that never met the profit threshold of the company or its core business. The acquisition enabled the company to expand mainly in Britain and also in the US hence providing a better global diversification (Pahl & Richter, 2009). The purchase of Pioneer for example, has given Hanson access to various new markets including developing countries. Additionally, presence of Pioneer in Hanson has provided extra skills to the management such as ideas on long term ownership of assets for continuous success.  Hanson is also widely known for being able to acquire companies at better prices and making risk free gains from the sale of each piece after improving the inefficiency targeted during the purchase through management restructuring. Hanson’s accepting an offer to purchase Pioneer for example at price of 1.73 billion dollars means it must have a great potential to contribute to the company. The annual reports point out that Pioneer is able to contribute to the company even in the midst of global downturn. Research and development cost is also kept minimal by the use of better information technology that provides efficiency in information flow across the departments. Such information flow helps in capacity planning which reduces the inventory levels hence low holding costs and also reduces the customer response time. Efficient operation helps to have a competitive edge in the consumer appeals by providing quality products that meet their needs.

Hanson has also created autonomous organizations in its various companies and divisions which ensure that each unit has a separate management. This has previously worked well at a time when it had 150 businesses in its portfolio. It is also expected that concentration in business related to construction, such a centralized approach in management is better because of the resource use and the knowledge sharing. Hanson is able to enjoy economies of scale due to its size and this has made it experience growth despite the Asian crisis. The cost advantage has always made it exercise the price leadership without any fear of a possible price war.   

Opportunities

Significant restructuring and development are taking place in Barcelona, China, Indonesia and Madrid. Such foreign operations have enabled the company to diversify its Portfolio. Also being the largest supplier industry in Britain, it’s able to win various long-term building projects from the government in building public infrastructures. 

The company ensured that it removed any excessive overhead that it would incur after acquisition. To achieve this, it closed down the corporate headquarters of the acquired companies, sending some staff to operational levels while others were retrenched. It also disposed any managed perk either found at the corporate or the operating level. To improve the performance of the acquired firm, Hanson provided incentives. Such incentives included providing large pay bonuses if the profit target were hit or exceeded, decentralization to give managers full autonomy to run their businesses and also setting targets for operation managers, would also enjoy significant gains if they hit the target.

The above strengths provided a lot of potentials to the firm. The ability to acquire many companies producing differentiated products helped the company to diversify. Research done before acquiring a company also ensured that the company had many chances of having a successive acquisition. It also had the advantage of serving a greater market. The low cost strategy employed by the firm by reducing the overheads helped it to improve on its profitability. The acquired companies also helped the company to expand its portfolio which in turn enabled the shareholders to benefit from the capital gains of their share.

Weakness

Though Hanson had several strengths based on the approach it had adopted in growth and development, it had some weaknesses that provided threats in the market (Campbell & Craig, 2005). First, the strategies employed were concerned with the short term gains while the long term projections were overlooked. This is especially the case where, White would look for a company whose management engaged in initiatives that would lead to an increased profitability of the firm and the stock price without any considerations, whether such realized gains would be long term. Secondly, there was a sale of the assets once the firm was acquired as witnessed in the Imperial acquisition and PLC’s.  For example, after the purchase of the Imperial groups for 2.6 billion pound, Hanson sold assets worth 2.3 billion. Thirdly there was a lot of focus in disposing the non performing businesses than there was in ensuring quality of the product and also the type of products provided in the market.

The size of the company also provides a risk of losing information to the competitors in the process of integration and sharing information. Operation inefficiency may arise from when the information asymmetry embarks on political plays across departments. This can only be avoided by offering adequate incentives for the team based performance. Growth from acquisition brings the problems of culture and focus on fit staff from the acquired company. The solution to this can only be found through the research and experience. Moreover, as the company becomes big, shareholders focus on the risk of loss from the industry’s downturn and this reduces the attractiveness of its stock in the stock market.