UK: The enhancement of Hanson. (4 of 8)

UK: The enhancement of Hanson. (4 of 8) - Halfway through the SCM squabble in the US, Lord Hanson suddenly pulled a trump in London. On Monday December 2 1985 the food, beer and tobacco group Imperial announced a proposed £1.3 billion merger with Sir Hec

Last Updated: 31 Aug 2010

Halfway through the SCM squabble in the US, Lord Hanson suddenly pulled a trump in London. On Monday December 2 1985 the food, beer and tobacco group Imperial announced a proposed £1.3 billion merger with Sir Hector Laing's United Biscuits. By 7.00 pm Thursday night, after two furious days of work, Lord Hanson had put together Britain's biggest ever bid, at £1.8 billion.

Geoffrey Kent, then chairman of Imperial, says today that he prefers not to relive lost battles. But full-page newspaper advertisements of the time speak for him. In them Imperial notes "Two Ways to Make Money": the Hanson way of "buying" growth and Imperial's way of "making things", which had yielded it pre-tax growth of 22% annually since 1981. Hanson stabbed back with its own growth figures, promising that it had "no plans to get rid of any of Imperial's activities".

In the end the bidded-up £2.4 billion United Biscuits merger was referred to the Monopolies and Mergers Commission (MMC), infuriating the merger partners. When United Biscuits failed in any case to get 50% of Imperial by its deadline, it was a heady, if expensive, £2.5 billion victory for Hanson. A former Imperial executive admits: "People saw the merger bid from Hector Laing as a cosy relationship with two traditional managements. Their money would be more likely to appreciate under Hanson than under Laing." The Hector Laing camp left sullenly with a tidy profit and the comment from one: "At that price he'll have to make Imperial's assets bleed, never mind sweat."

In the view of some, bleed was what Imperial did. Assets were siphoned off from the felled giant and sold, including Courage beer, Golden Wonder, Ross Young's, Lea and Perrins, HP Foods and the Anchor, Imperial and Happy Eater restaurant and hotel chains. A story is told that shortly after the takeover Lord Hanson arrived one morning at Courage's offices and asked managing director Michael Cottrell to show him round. Saying hello to no one, he wandered through, listing items of antique furniture and art. A short time later a van showed up and shipped the pinpointed items off to auction.

The rake-in from Imperial parts was over £2.3 billion, all but £180 million of the total cost, with Hanson still holding the cash-generative Imperial Tobacco and the Seven Seas health products business, together estimated to make over £200 million a year. It was an incredible one-year payback on the biggest UK bid ever.

Imperial Tobacco today has lost market leadership to Gallaher - dropping from 44% to 36%, estimates one broker. Its 155 brands were cut back to 28, while jobs have been nearly halved. On the growth side, £40 million is currently going into plant rationalisation and modernisation, while returns on assets have doubled. Jeremy Marshall, who was head of Imperial after the Hanson bid, says: "Hanson was always prepared to spend the money. Total capital expenditure was down, but what's gone through is the sensible capital expenditure."

Through 1986 Hanson trod into two messy affairs: first the highly political squabble over Westland and secondly a dispute at Courage over its pension scheme. The first ended with Hanson backing the successful Government-backed bidder for Westland. Accusations flew at the time that this had influenced the Government's decision to let the Hanson bid for Imperial proceed, while the United Biscuits bid was hampered by a referral to the MMC. The second affair resulted in a landmark case that scuttled Hanson's attempt to remove most of an £80 million surplus from the pension fund.

A peacefully agreed $250 million bid for the US-based Kaiser Cement went through in November 1986, and then, as world stock markets reached their ultimate frenzy the following summer, Hanson sandwiched in another cordially accepted deal - $1.7 billion for US consumer products group Kidde. This time the terrible twins' sense of timing was wildly askew. Within weeks of the bid's approval by shareholders came Black Monday. Lord Hanson and Sir Gordon had paid too much, the newshounds bayed. Hanson's Martin Taylor says today that Kidde is simply an example that "we don't set out to sell businesses after we acquire them". Over $700 million has been realised in sales of Kidde parts and "the businesses remaining are excellent".

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