Day of reckoning

For three decades Lord Hanson charmed the business world but, as his empire breaks up, who really benefited?

THERE was a moment when Hanson's annual meeting last week descended into farce. Lord Hanson, the chairman, was trying to silence a tiny minority of protesters who were demanding the right to ask questions immediately.

"Later," snapped an irate Lord Hanson.

"Why not now?" shouted the heckler.

"Because I say so. Why don't you belt up?"

It was a puerile exchange - one of many to punctuate the hostile meeting, where at least one shareholder was thrown out by security guards.

Lord Hanson, now 74, looked flustered. Occasionally he would delight his loyal fan club of shareholders, delivering a bon mot to silence his tormentors. But for the most part he looked defensive, out of his depth. It was significant that he did not appear after the meeting to mingle with his fans.

How are the mighty fallen! A decade ago, Lord Hanson was unassailable. Year after year, he came top of the poll as Britain's most admired businessman. From the seeds of a small Yorkshire haulage firm, he and his business partner Gordon White built one of Britain's biggest companies through a series of ruthless takeover bids. In the understated words of Glenda Jackson in its TV commercials, it was "a company from over here that's doing rather well over there". It was the high-rolling 1980s when business leaders were glorified. Lord Hanson, for many, was the business face of Thatcherism.

In the Major years, Hanson's profile was much lower, though even today it is still Britain's 15th biggest company with a stockmarket value of pounds 10bn. But the Hanson era has finally come to a halt with the announcement last week that the company, which has broken up so many other business empires, was to break itself up.

It is a good time to take stock. What, in the end, did Hanson achieve, and for whom, and at what cost? Here's our audit.

Shareholders

Serving the interests of shareholders was always Hanson's raison d'etre. The irony is that for the past 10 years, the company has greatly underperformed the stock market. And its closing price of 197p on Friday was 32 per cent below its all-time high of 288p, reached in February 1994. Conglomerates are out of fashion in a stock market that values focus above all else, and Hanson has suffered accordingly. Nor has it been able to find the undervalued prey that for two decades was its stock in trade.

For Hanson's 226,000 shareholders, the 1990s have been deeply disappointing. But for those who bought the shares in the early days, the returns have been stratospheric.

Investors who bought the shares when Hanson was floated in March 1964 have seen their money multiply 100-fold before dividends. Even those who arrived comparatively late, in 1980 say, have seen a 14-fold return, equivalent to an annual 18 per cent compound growth, before dividends.

Directors

Hanson has proved a money machine for its directors. Even when it ceased to perform for its shareholders, Lord Hanson and his senior colleagues continued to collect some of the biggest pay packets in Britain. Last year Lord Hanson was paid pounds 1.37m, chief executive Derek Bonham got pounds 1.12m and Lord Hanson's son Robert got pounds 257,000.

Even the non-executive directors, who include the former Home Secretary Kenneth Baker and former US ambassador Charles Price II, are well rewarded, receiving between pounds 30,000 and pounds 85,000, according to seniority.

Some of the directors have also accumulated large shareholdings. Lord Hanson owns 6 million shares worth pounds 11.8m and has valuable options over 2 million more.

It is not known how much he has taken out of the business in the course of his long career. He has all the trappings of wealth, from the corporate jet to the Rolls Royce, and spends much of the year at his poolside in America. Robert has shares worth pounds 7.4m, most of them a gift from his father.

Industrial base

Hanson did not buy many British companies, but some of its targets were enormous, and all were transformed by the group's much-imitated management style. Its main purchases were Berec (renamed British Ever Ready) in 1982, United Drapery Stores (1983), London Brick (1985), and Imperial Group (1986). Three years later, it bought Consolidated Goldfields, and last year Eastern Electricity. Hanson bought many more companies in the US, but wherever it pounced, the recipe was the same.

It was a simple one. Close down the headquarters, strip out the top layer of management and as much bureaucracy as possible. Then sell off everything that did not fit - too high-tech or too low a market share. Often this would be the bulk of the company.

Between 1964 and 1986, 63 per cent of acquisitions by purchase price were disposed of in this way.

In the companies that stayed, managers likely to flourish under the new regime were promoted. Clyde Riley, head of Michigan-based frankfurter maker Hygrade, which Hanson owned between 1975 and 1989, was one.

He explained what he was expected to do. "Our mission was to maximise our profit every year with the minimum investment. We understood that."

The key financial ratio, reported to headquarters every month, was return on capital employed. Because it was easier to cut the amount spent rather than boost profit generated, parsimony flourished. Mr Riley and his like did well by following this creed. They found they were taking home bonuses they could never have dreamt of under the old regime.

The effect on the industrial base was more mixed. On the positive side, Hanson put a bomb under companies that might not have survived under their previous management teams.

The Berec factory in County Durham was "very overmanned" before Hanson arrived, a staff member recalls. Imperial Group was a byword for complacent management and overstaffing. But the bad news vastly outweighs the good. Sometimes Hanson was a pure asset stripper. More often the charge is that its real skill was "managing decline". Maybe this was no bad thing for a cigarette company (Imperial Tobacco), but the effect on companies such as Berec is difficult to defend.

In 1980, Berec made 3 million batteries a day. When Hanson sold it to Ralston Purina in 1993, it made 500,000. The previous management must take part of the blame for failing to grab opportunities (especially alkaline batteries), but Hanson made no attempt to fight back in a fast-growing market.

It did launch an alkaline battery, but this was designed to do no more than slow the decline. "It was a sandbagging operation," a former Hanson man said. As other battery companies invested to become international, British Ever Ready stayed resolutely at home. Only when it was too late did Hanson try to buy his way back, bidding unsuccessfully for Duracell. And even in the UK, market share fell from 80 per cent to 35 per cent. Eventually, it sold to Ralston Purina.

Employees

Staff at electrical retailer Powerhouse are the latest to feel the steel toecap of the Hanson boot. On Friday, 2,300 jobs were set to go as the firm moved to close 200 branches of the loss-making chain, bought as part its Eastern Electricity purchase.

Without an inside track, it is impossible to say exactly how many employees Hanson has fired during its 30-year rampage through UK and US industry.

Simply because it has bought and sold so many firms, there are no reliable statistics, save to say the cast runs to many thousands.

In 1987, just after Hanson's takeover, Imperial Tobacco employed 11,026 people in all, making profits of pounds 69m. By 1994, when the last accounts were filed, just 2,911 staff were left after factory closures under the Hanson wing.

Other Hanson units tell a similar tale: Ever Ready saw its staff halved to 1,137 between 1985 to 1992; London Brick's staff was sliced by two- thirds to 1,093 between 1990 and 1994. Last year, Hanson as a whole employed 65,000 people - against 105,000 in 1988. Just 16,000 of those were in the UK, against 50,000 in 1987.

The R&D base

Until it threatened ICI in 1991, Hanson had always shied away from high technology. Bricks, cigarettes and food were more its style. Where a new subsidiary had an R&D department, it did not survive the Hanson treatment because it could not possibly provide the rapid financial returns the company demanded on all investment.

After buying Berec, Hanson closed the big north London research and development centre, as well as the the advanced projects group at Abingdon. The R&D operation had been chaotically managed, but Hanson's approach was extraordinary. A consultant working for the company visited the design centre, and asked whether the work could not be done by an advertising agency. Ralston Purina, the new owner, has 400 people in its R&D centre. Unfortunately, it is in the US.

The City

Over the course of decades of acquisitions and disposals, Hanson has spent tens of millions of pounds, maybe more, on City advice. The biggest beneficiaries have been the merchant bank Rothschilds and the stockbroker Hoare Govett. In big, controversial contested takeovers, the fees were substantial. Occasionally other houses got a look-in when there was a potential conflict of interest.

The financing of most deals was underwritten and sub-underwritten by City houses and investment institutions, which charged 2 per cent. Other advisers such as Gouldens, the solicitors, and Ernst & Young, the accounting firm, have also benefited from long-term relationships with Hanson. E&Y received pounds 6m from the company for audit work last year, and another pounds 1m for advice on tax minimisation and other matters.

Conservative Party

Over the past 12 years, the company has given just over pounds 1m to the Conservative Party directly and over pounds 150,000 to the Tory think tank, the Centre for Policy Studies.

While other firms have fallen by the wayside, Lord Hanson has never shirked in showing his gratitude - to Lady Thatcher in particular, for creating free-wheeling culture of the 1980s on which Hanson thrived..

Last week, shareholders approved the donation of another pounds 100,000 to the Tories. Hanson is consistently the biggest corporate donor. "Our help is more than ever needed," Lord Hanson told shareholders.

So far, Hanson has largely escaped allegations of favours on government contracts in return that have dogged other quoted groups with contracting interests, such as Tarmac.

Only last week, though, local Labour councillors in Peterborough, where Hanson is building a pounds 500m new town, were claiming the deal was a quid pro quo for contributions.

Long-time partner Gordon White, who became Lord White of Hull in 1991, was perhaps even more strident - in deeds rather than words - in what were to become Thatcherite beliefs. In 1973, he quit the UK for the free market US, disgusted at Edward Heath's U-turn on the economy, to set up Hanson Industries, the mainstay of Hanson's growth.

The Exchequer

If the Conservatives have done well out of Hanson, the public purse has hardly benefited as much as it might.

Such has been the prowess of Hanson HQ in minimising tax and interest costs that this week the City is ruing the loss of the central treasury as a major drawback to the break-up.

Over the past 10 years, the maximum rate of tax Hanson has paid on profits was 27.8 per cent in 1993, when earnings per share slipped for the first time in its history. Otherwise, it has paid rates of just 20 to 24 percent in the other nine years, compared with UK corporation tax rates of 33- 35 per cent in the period and 34 per cent in the US, before state taxes.

Hanson has made use of offshore tax havens in minimising its liabilities to the Exchequer. In 1994, the group had a staggering 1,280 subsidiaries in all. Most were operating businesses, but a number were based in the likes of the Netherlands Antilles, Cayman Islands and Panama.

Hanson's techniques have included shifting profits around the group, such as taking interest in low or no-income tax havens. Holding assets in offshore companies often attracts no capital gains tax when they are later sold.

Had Hanson paid even 30 per cent throughout the past decade, the public purse would have been pounds 935m better off, even without allowing for inflation.

Business culture

Hanson's impact on business culture is hard to measure, but undoubtedly immense. For a generation of managers in the 1980s, he was a role model, someone whose ruthless dedication to short-term earnings growth was widely admired and emulated.

His example spawned a rash of mini-conglomerates, many of which have fallen by the wayside, though others have prospered. One of his former employees was Greg Hutchings, who left to set up Tomkins, a conglomerate that has grown to a stock market value of more than pounds 3bn, fed by acquisitions such as those of baker Ranks Hovis McDougall in Britain and gunmaker Smith & Wesson in the US.

Other former colleagues include Chris Miller, who went on to set up another mini-conglomerate, Wassall, and one-time Hanson financial controller Harvey Lipsith, now chief executive of the department store group Allders.

Lord Hanson no longer commands the fan club he once did, but even now he is not short of admirers. The Mori/Independent on Sunday poll of business leaders published last month still had him in fourth place in a ranking of industrialists, with 7 per cent of the vote.

But the admirers are dwindling. History will judge that the company's greatest - perhaps only - beneficiaries were Lord Hanson and his early hareholders, the City and the Conservative Party, in that order.