Pilkington wins its war of independence

Since it became a plc in 1970, Pilkington has just received two takeover bids – or one and a half, if we count NSG’s preliminary offer, which at the time of writing is still at the discussion stage.

This happy independence is of course an indication of the costs required to launch a bid, but more importantly the returns to be had – a matter that proved to be Pilkington’s defence.

BTR was an industrial conglomerate of the day whose interests included Dunlop Holdings. It later merged to form Invensys. The group had a ‘remarkable appetite for swallowing less efficient businesses and bewildering range of interests from car wheels to women’s tights’, said the Financial Times. BTR’s £1.16 billion takeover bid got a hostile reception.

‘This wholly unwelcome bid has no industrial, commercial or financial merit. The board has no hesitation in recommending shareholders to treat this misconceived bid with the contempt it deserves.’ said Chairman Antony Pilkington, after BTR’s bid was announced on 20th November 1986.

The Daily Telegraph observed:‘Pilkington management is streets ahead of that of BTR’s last two victims. The price looks mean, and the commercial reasons for the offer are, so far, vague and unconvincing.’

The offer of ‘commercial logic’ from BTR chairman Sir Owen Green, came with no obvious experience or synergies, and was not welcomed by Pilkington. This provoked endless City and political comment which was mostly sympathetic of the glassmaker’s cause. The prospect of BTR’s lean management style mobilised staff at the St Helens headquarters.

Vindicated

Peter Butler captured the mood in February 1987’s Glass Age after the bid was withdrawn:

Tory MPs expressed relief, fearful at a possible further loss of jobs in St Helens and under attack from the Opposition who were saying government merger policies put companies like Pilkington, who spend heavily on research, at the risk of predatory conglomerates seeking swifter short term returns.

Shadow Chancellor Roy Hattersley claimed all manufacturing industry was being imperilled by ‘merger mania’. Mrs Thatcher argued BTR’s withdrawal vindicated the decision not to refer the bid to the Monopolies Commission: ‘The market took its own decision, much more quickly than would have happened had the matter been referred.’

Critical of policy

Anthony Pilkington, on the other hand, criticised the industrial policy which allowed BTR’s bid to be made and go unchecked by the Commission, and said the failure of the bid could mark a turning point in attitudes to takeovers:

‘This has pointed up a lot of problems with the present way of managing industry from the takeover point of view. It will change quite a number of people’s views.

‘Predator companies should have to justify their bids. Our experience is that the victim company has to run very fast to keep up. We ran extremely fast and did very well.’ News of the victory brought a glow to an otherwise damp evening in St Helens. Large sections of Pilkington’s 6,000 workforce held impromptu parties in what one bystander compared to ‘a rerun of VE night.’

‘It’s the town that’s won,’ said a jubilant Mike Doyle, chairman of the Council’s economic development committee. ‘The community fought for this. It has emerged stronger. This is what happens when the public and private sectors work together.’

The following day there were new flags outside the Pilkington HQ and flying around the town, emblazoned with the words ‘We’ve won’. It is a measure of the group’s confidence – or possibly bravado – that they were ordered before Christmas.

In retrospect

Pilkington had made its own defence, announcing a 76 per cent rise in 1986-87 interim profits and a 58% rise in sales, helped by rising prices, accelerating growth in existing businesses, and the consolidation of new acquisitions. Glass prices rose by 25 per cent during 1986.

Chairman Antony Pilkington promised the interim results were ‘just a starting point. The future for the company is one of great promise,’ which most observers took to mean he had a few cards up his sleeve if or when BTR increased the bid.

BTR decided that they could not increase their initial bid from 540p per share to the 800p the analysts suggested were needed. Even BTR’s adviser, Morgan Grenfell, thought that Pilkington could make £200m profit in 1987, a figure not reached in recent years.

Timing also played a role in Pilkington’s victory: BTR might have been successful if it had launched its bid a few months before such bullish interim results were announced.

BTR’s short-termism was a great issue in the takeover battle, but analysts were slow to mention that Pilkington’s triumph was against a long-term scenario of falling glass prices. Operating profit was £256 million for 1986-87 and it peaked at £349m in 1988-89. Nothing approaching this figure has been seen since.