Poised to pounce : NEWS ANALYSIS

Hanson's latest move, with its hint of new acquisitions, has the City buzzing. William Kay reports
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The Independent Online
IT WAS the deal that set the City slavering. Not only did Hanson, the master deal-making company, announce a surprise £855m demerger of part of its US operations, but its chief executive, Derek Bonham, also dropped a heavy hint that the deal puts the group in a better position to make a large acquisition.

The American demerger, consisting of 34 businesses that include Jacuzzi Whirlpool Baths, Tommy Armour Gold, Ames Garden Tools and Ertl Toys, is being wrapped into a new company, US Industries, to be listed on the New York Stock Exchange.

Hanson shareholders will be given one USI share for every 100 Hanson. USI will be one of America's top 200 companies, with sales of £1.9bn a year and operating profits close to £200m.

From UK investors' perspective, however, the USI package was little more than a stocking filler. Mr Bonham's hint was the real treat. Analysts' calculators soon told them that Hanson had the financial firepower to make a bid of up to £3bn.

That puts half the companies in the FT-SE 100 index within reach, ranging from Granada Group to Kingfisher, Redland, British Aerospace, Blue Circle Industries, United Biscuits, Inchcape and Sears. And the Hanson camp was pointing out that they will not have to wait until the USI deal is cleared before pouncing: its value as debt collateral is strong enough to allow a bid to be launched before then.

"We could even save money by holding the extraordinary shareholders' meetings for USI and a bid on the same day," mused one insider.

Mr Bonham was naturally not revealing his hand at this stage. But he did give a few glimpses of the way his mind is working. The company will be based in the US or the UK, in a growth industry. The deal will have to be big enough to give the group a new and eighth leg, adding to its existing seven: chemicals, coal, building materials, cranes, tobacco, forest products and propane.

As Hanson's recent advertisement spoof of the film The Graduate has self- deprecatingly emphasised, the company has long had a love of boring, basic industries in which there is not too much competition, nor much government interference.

That could rule out one of the current favourite possible targets, Yorkshire Electricity. Apart from being valued at a paltry £1.5bn, it could be frighteningly vulnerable to consumerist legislation if - as the opinion pollsters are shouting at the tops of their voices - Labour is going to win the next general election.

The Hanson family has painful memories of part of their transport business being nationalised in 1948, and Lord Hanson will take plenty of persuading to run that risk again. The close look he took at PowerGen before it was privatised only goes to show that there is a price for everything.

But the true significance of last week's announcement is that it was made not by Lord Hanson, but by Mr Bonham. He was appointed the group's first chief executive in 1992, and his position was enhanced the following year when he was made deputy chairman.

"I like the individual manager approach," Lord Hanson once said. "Give a man a chance to run his own company and you get the best out of him." He now seems to have done precisely that with the whole group.

Lord Hanson, 73, and Lord White, 71, have said that they will retire in January 1997, a little matter of five years after the previous deadline they set themselves. Reminded of the delay, Mr Bonham, who trained as an accountant before joining Hanson in 1971, gave an involuntary wince.

"I had to grab the chief executive's role for myself," he said. "These things have never been clearly defined, but I see the institutions, and do the day-to-day stuff and handle acquisitions. Lord Hanson and Lord White have been running down their day-to-day responsibilities and dumping them on David and me."

The David in question is David Clarke, the American who was seen at one time as a rival to Mr Bonham. That situation was largely resolved when Mr Bonham became chief executive and Mr Clarke was given a similar role with Hanson Industries in the US. He is now to head USI, the demerged American operation.

The present Hanson finance director, William Landuyt, another American, is returning home to take Mr Clarke's place at Hanson Industries.

Mr Bonham dismissed as "ridiculous" a jibe by Chris Alexander at the US-owned securities house, Lehman Brothers, that USI was a reincarnation of the "dustbin trust". That was a reference to the much-derided Dual Trust spun off by Jim Slater when he was running the Slater Walker conglomerate in the 1970s.

"We are about creating shareholder value," Mr Bonham retorted stoutly if a shade predictably. "USI comes out from the shadow of Hanson, but the businesses in it are terrific. USI needs credibility on the street and, with the debt it is carrying, it has to be in the best possible shape to perform. We don't want a foul-up."

City stockbrokers threw their hands up in horror at USI's planned 400 per cent debt-to- equity gearing. Mr Clarke defended it by claiming that US investors liked heavy debt as it gave more leverage. They were more concerned with whether there were enough profits to cover interest charges.

However, he added that his aim was to get USI's debt down from $1.4bn (£890m) to $800m as quickly as possible, because that reassures the banks and "we can then return to the well." Mr Clarke intended to achieve this by selling 15 of USI's initial 34 companies in the next two or three years.

"Then we would be considered to have investment-grade paper, and we could go on the acquisition trail," explained Mr Clarke. He added that Jacuzzi, Ames and Ertl would definitely be retained as core businesses.

Ironically, once USI is fit to enter the takeover arena it could find itself competing with Hanson for prizes. Given the cross-directorships between the two companies - Mr Bonham on USI's board and Mr Clarke on Hanson's - it will be a real test of USI's independence if such a predicament does arise.

But, in view of the litigiousness of American investors, it may be more a matter of whether USI dare not compete with Hanson in the corporate arena. Otherwise it may be denying its own shareholders the opportunity to benefit from an attractive prospect. UK tax laws prevent Hanson from owning any shares in USI.

The tantalising question for Hanson's army of City followers is where the Bonham leadership style will take the company. For there is no doubt that the USI demerger as well as the loudly signalled follow-up takeover bid mark the beginning of Mr Bonham's reign.

"There have been many turning points for Hanson over the years," he said, "and this is another one. Only time will tell whether it is historic or not."

Mr Bonham lacks the flamboyance of Lord White, with his past fondness for fast cars and even faster women. He will therefore stick to the well- tested group formula of going for companies that generate plenty of cash, in basic industries facing little technological threat, with offshoots that can be sold easily.

But he made it clear that he wants to rev up Hanson's growth rate again, despite its £12bn value. That could tempt him to take Hanson into services for virtually the first time. And there some observers believe that he will want to give the group more of an Asian flavour.

The only certainty is that he will not stand still - and that he feels there is nothing sacred about the company's current crop of activities.

"Hanson is still going to be a conglomerate," Mr Bonham declared. "But any bids are going to have to be of a scale and size to give us a new division.

"We have come a long way from our origins in fertilisers and truck hire. They don't exist in the group today, and the company is perpetually evolving.

"If you get yourself locked into one set of businesses, you become an industrial dinosaur," he added.