CITY FOCUS: The human cost of Hanson sell-off

By KARL WEST
Updated:

Over-paying for the wrong deal at the wrong time is a sure-fire way of destroying value for shareholders, wrecking the lives of workers, and ruining reputations. And that's if you are lucky.

German building materials giant HeidelbergCement was not so lucky, and its ill-fated cash deal to gobble up Britain's Hanson for a punchy £9billion had a far greater cost than just mere money.

Ultimately, it played a large part in the suicide of the previously successful industrialist Adolf Merckle, who threw himself under a train near his hometown of Blaubeuren, near Stuttgart, in January.

bricks

Demand for bricks has slumped 50 per cent to its lowest level in 20 years


Merckle's family said the 74-year-old was 'broken' by financial woes.

This week, his son Ludwig, who currently holds 72.4 per cent of HeidelbergCement, faces seeing the family holding cut down to 20 per cent after selling down shares in the company, plus participating in a hugely dilutive emergency rights issue.

The fundraising will help pay down some of the £10billion of debts racked up by the German group, mainly because of the Hanson deal.

As well as leaving HeidelbergCement convulsed with indigestion, the sale of Hanson has cast a dark pall over the UK business.

Before the deal, Hanson employed about 8,500 staff in the UK; today it has just short of 6,000.

A Hanson UK spokesman said the 2,500 job cuts are a combination of the integration and the recession taking its toll on the industry.

For example, Hanson has closed or mothballed eight of its 16 brickworks in Britain because demand for bricks has slumped 50 per cent to its lowest level for 20 years.

Of the eight brickworks still operating, further job cuts are on the way as four of those are set to cut another 200 jobs by the end of the year.

There is even more uncertainty for those that remain as the Germans have put some 'peripheral' UK businesses up for sale, which actually account for around 20 per cent of the UK arm.

The spokesman said the group is actively touting around the block paving subsidiary Formpave, a flooring business in Derby, and specialist cladding firm Structherm, based in York.

It has also hoisted a for sale sign over its brick division, which includes the iconic London Brick business that can trace its brand back more than 130 years.

The spokesman explained: 'The brick business is up for sale but we are conscious that in the current market we may not get full value for it, so we are sitting on it for now. It is still for sale, but not at any price.'

He said the group had sent out 'very brief teasers' to potential buyers to flag the assets that are up for grabs.

He added: 'We are currently in the process of drawing up formal (sale) documents to send out.

'It's not a question of a fire sale, we know the value of these businesses. This is a long-term strategy, it's not a slash and burn.'

India's Tata Group has also come a cropper after gobbling up former British Steel group Corus for £6.2billion in cash in January 2007, and then following this with the £1.15billion deal to buy Jaguar Land Rover from Ford last May.

Both deals have proved disastrous for Tata, leading the group to plead with the government to stump up taxpayer cash to help it through the downturn in both markets.

Since seizing control of Corus, the Indian conglomerate has presided over 4,500 job cuts in the UK and closed the steelmaker's final salary pension to new entrants.

At JLR, it has waved goodbye to about 2,200 car workers as it struggles to offset the slump in demand by slashing overheads.

In both cases, Tata paid a full price for businesses at the peak of the demand cycle.

Another top of the market deal that has destroyed value, was the £2.4billion purchase of music giant EMI by Terra Firma supremo Guy Hands in the Summer of 2007.

The private equity firm struck the all- cash deal with the help of a jumbo loan from Citigroup.

Terra Firma has cut roughly 2,000 jobs at the music group to offset the severe slump in CD sales. Hands has also written down down half of the value of the investment.

After breaching loan covenants with Citi, Hands is now renegotiating the terms of the debt.

Hubris and greed can drive those in powerful positions to do strange things.

Unfortunately, decisions like these that are forged in the name of value creation, are often the most destructive.

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