News of the Week
ALLIED TO BECOME EVEN MORE DIVERSIFIED Allied Chemical's intended $590 million acquisition of Eltra Corp., an electrical products company based in New York City (C&EN, July 2, page 7), could be a watershed move. The acquisition may signal a complete change of strategy for Allied, transforming it from primarily a chemical company to a much more diversified firm, if not a conglomerate. At least this is what many Wall Street security analysts think. The proposed acquisition, according to the analysts, bears the stamp of Edward L. Hennessy Jr., the new president and chief executive officer of Allied. Before coming to Allied in May, Hennessy had been second in command to president Harry Gray at United Technologies, one of the most acquisitive of U.S. companies. As one analyst says, "You can't work around Harry Gray without some of his techniques rubbing off." In fact, the acquisition of Eltra may be only the first of many nonchemical acquisitions by Allied. Indeed, in the press release announcing the proposed acquisition, Allied, for the first time, called itself a "diversified company that produces a broad range of products." It had previously labeled itself a "diversified energy and chemical company." The role of chemicals in the company's fortunes will be greatly downplayed if the proposed acquisition is completed. Sales of chemicals and fibers in 1978 made up about 57% of Allied's total sales. Adding sales from Eltra would have lowered this figure to about 43%. Chemical earnings at Allied also would have fallen as a percentage of total corporate earnings. Income from operations (pre-tax) for chemicals and fibers in 1978 was 41% of the total operating income at Allied. With Eltra added, income from chemicals and fibers would have been 31% of operating income. Eltra itself is something of a small conglomerate. Its widely diversified products include automobile and other batteries, typesetting equipment, wire and cable, direct-current electric motors, refractory materials, malleable iron and brass fittings, instrumentation, die castings, and the Converse line of athletic shoes. In addition, Eltra has an equipmentleasing subsidiary. 6 C&EN July 9, 1979
Hennessy: a change of strategy
Eltra's sales have increased 34% since 1974 to $1.02 billion in its fiscal year 1978, ending Sept. 30. After-tax earnings during the same period increased 74% to $47.9 million. By contrast, Allied's sales did better, rising 47% from 1974 to $3.27 billion in 1978, But Allied's after-tax earnings fell 16% during the same period to $120.2 million. During the first six months of its current fiscal year, Eltra had sales of $567.9 million, an increase of 14%
over sales in the same period last year. After-tax earnings for the first half totaled $25.3 million, a gain of 13% over those for the first six months of fiscal year 1978. Allied's cash tender offer for Eltra, which has been approved by the boards of both companies, calls for Allied to pay $51.50 per share for the outstanding shares of common stock of Eltra. However, Allied will not be obligated to purchase Eltra shares unless a minimum of 5.75 million shares is tendered. This does not include the 28% of Eltra's shares owned by American Manufacturing Co. These shares are covered in a separate deal with Allied. The acquisition of Eltra may not be the only imminent change at Allied. There are reports that Allied's troubled foundry coke operations are for sale. Sale of these operations would take Allied out of the coke business entirely. Allied sold its furnace coke operations in 1977. Sale of the rest of Allied's coke business would follow a long line of divestitures by Allied of unprofitable or marginally profitable businesses over the past few years. These divestitures include Allied's thermosets business; a Baton Rouge plant producing chlorine, caustic soda, ethylene dichloride, and vinyl chloride; its organic pigments business; and a Buffalo, N.Y., dyes plant. D
Eltra would further obscure Allied's chemicals activities Sales3
Operating profit3
Energy ^ products and services 22.1% Chemicals and fibers 43.2%
Energy products ana services $&
%$Other 10.9% Eltra 23.8%
Total: $4.3 billion3
Chemicals and fibers 24.
%$Eltra 19.7%
Total: $443 million15
a Sales and operating profits are Eltra and Allied combined for 1978. Eltra figures are based on fiscal 1978, year ended Sept. 30, 1978. b Does not reflect total Allied operating profit, because of losses in other operations and unallocated items categories. Actual operating profit for Allied in 1978 was $330 million.
