American Standard Inc.
American Standard Inc.
Wholly Owned Subsidiary of AST Holding Corporation
Incorporated: 1929 as American Radiator & Standard Sanitary Corporation
Sales: $3.33 billion
In its first 100 years, American Standard evolved from a leading manufacturer of plumbing and heating products to a leading manufacturer of plumbing and air-cooling products. American Standard became the world leader in such staple items as toilets and radiators, diversified into a number of unrelated fields, and then gradually returned to its bread-and-butter industries. Today, American Standard remains the world leader in plumbing products. No longer a factor in heating, the company secured a strong position in commercial air conditioning with its 1983 acquisition of Trane Company. The remainder of American Standard’s ambitious purchases have been sold off, most to reduce debt after the parent company was taken private in a $2.5 billion leveraged buyout by Kelso & Company, a relatively small investment banking firm.
The early history of American Standard is bound closely to the figure of Clarence Mott Woolley, born in 1863 to a wealthy Detroit iron manufacturer. Forced to begin working at the age of 15 after the panic of 1873 wiped out his father’s fortune, by 1886, Woolley had become a successful salesman of wholesale crockery and built personal savings of around $5,000, not an insignificant amount of money at that time. After investigating a number of promising businesses, in 1886 Woolley became a partner in the newly formed Michigan Radiator & Iron Company of Detroit, makers of cast-iron radiators for residential and commercial heating systems. The cast-iron radiator could be made far more cheaply than its steel predecessor, and Woolley correctly predicted that its advent would mark the beginning of the age of radiant heat.
In 1891, Michigan Radiator merged with the two other leading manufacturers of cast iron radiators, Detroit Radiator Company and the Pierce Steam Heating Company of Buffalo, New York. The merger was an early example of business consolidation, and created a firm with yearly net income of $300,000 and a capital base of $8 million. As secretary and head of sales for the new American Radiator, Clarence Woolley, then only 28, soon proved himself an invaluable and tireless promoter of the company’s patented advances in radiant heat. An economic downturn, however, nearly snuffed out the new business in the 1890s. As the depression of the mid-18908 deepened, Woolley recommended pursuing sales contacts he had made with foreign buyers at the 1893 Chicago World’s Fair. In 1894, he took the highly unusual step of traveling to Europe to peddle American Radiator products, and, much to the surprise of his skeptical fellow officers, came home with a suitcase full of orders. Thirty train carloads of American Radiator heaters were installed in the new Swiss capital building, and other major orders soon followed. The injection of fresh business kept American alive through the depression’s worst years and helped create the company’s strong European presence. Over the next 30 years, American added production facilities in many of the major European markets, and by the 1920s about 40% of its revenue was generated overseas.
In 1902, at age 39, Clarence Woolley was named president of American Radiator. From that date until Woolley’s retirement in 1938, American Radiator dominated the world heating market by carefully exploiting four basic strengths, as Fortune reported in April 1935. The first was the company’s sizable technological lead in cast-iron equipment. Although its originally exclusive patents at length expired, American’s head start and great size made it a fearsome competitor. In addition, Woolley saw to it that American spent lavishly on research and development—the second of the firm’s strengths. With far more capital than its nearest pursuers, American could afford to maintain its technical advantages even without the benefit of exclusive patents.
The company’s two other valuable resources were both vested in Woolley himself. By all accounts, Woolley was a consummate industrial salesman, able to drink with plumbers and sweet-talk corporate executives over dinner. American’s sales depended on the support of the master plumbers and builders, who both bought and installed heating systems across the country, and Woolley’s sales force knew the concerns and complaints of these men inside out. American’s fourth great strength was its president’s ability to forecast economic conditions, especially recessions. In 1907, for example, Woolley correctly deduced from soaring raw-material prices the imminent arrival of another panic, and kept American’s inventories at near-zero levels to avoid having bulging warehouses in a dead economy. In 1915 he laid in an enormous stock of pig iron just before World War I drove up iron prices. It is estimated that this maneuver alone netted American some $2.5 million in savings.
The postwar boom economy pushed American’s income to around $10 million annually. Flushed with success, Woolley built a spectacular new Manhattan headquarters for American; its black brick and gold roof quickly distinguished it as an architectural landmark. Just before the Depression, Woolley planned a merger for American, one that would have been a colossal achievement even in that merger-mad era. His plan was to unite four of the largest building-products corporations in the country—H.W. Johns-Manville, Otis Elevator, Standard Sanitary, and American Radiator—into a single immense powerhouse, its unified sales force able to offer the contracting customer nearly everything needed. Woolley however, was able to come to terms only with the Pittsburgh-based Standard Sanitary, the nation’s leading supplier of plumbing products. By mid-1929, the merger was concluded; American Radiator & Standard Sanitary Corporation (ARSS) finished that year with income of over $20 million on sales of $187 million, as well as strong cash reserves with which to face the suddenly grim economic scene.
The Great Depression brought new construction to a dead stop, ruining Woolley’s plans for a new conglomerate. The anticipated big profits became big losses. In 1932 ARSS lost $6 million—easily the worst year in the company’s history. Although the firm had begun to break even by 1935, it was clear that all was not right in the black and gold tower. The 20-odd companies brought together by the 1929 merger had never been properly consolidated, and antagonism between the American and the Standard affiliates was growing. Friction became such that when one American outfit decided to build a warehouse next to a Standard facility, the latter promptly erected a fence around its property and forced American to put in a separate driveway for its own use.
The hostility was aggravated by American’s failure to hold up its end of the sales and profit agreement. American’s radiator sales were being seriously challenged by the new forced-air-furnace technique, and what little profit the company managed to make was largely generated by its numerous European subsidiaries. The company’s overall lack of coordination eventually culminated in a confrontation between Woolley and Standard President Henry M. Reed, who pressed the 75-year-old Woolley to step down as chairman of the combined companies. Finally, in 1938, Woolley agreed, and Henry Reed became the new chief executive.
Reed wasted no time in simplifying ARSS’s tangled structure. He cut its 25 operating subsidiaries to 12. Top management underwent a similarly drastic winnowing. With a newly unified sales force, American’s performance was on the upswing until the outbreak of World War II in Europe, an event that presented a new set of problems. American had always relied on its strong and highly profitable European division for a disproportionate amount of its net income, but with Europe at war, the fate of American’s 16 overseas plants was suddenly in doubt. In addition, American’s domestic operations were suffering as a result of the growing popularity of “direct-to-you” stores, which bought plumbing and heating products in bulk and resold them directly to the consumer. Although direct retailing is now a standard practice, in the late 1930s the practice caused bitter controversy for those tradesmen and manufacturers who had a vested interest in the older system, in which all equipment was bought and installed by craftsmen. As the nation’s largest such manufacturer, ARSS was naturally concerned about this potentially momentous change in its customer mix.
As events unfolded, however, neither World War II nor the direct-to-you stores slowed American’s subsequent growth. The company suffered keenly from several years of lost European sales, but, at war’s end, the European affiliates were able to reassume their former dominance quickly. As for the direct stores, American generally stuck by its network of plumber-contractors, who did not fare as poorly as some had predicted. American also began to manufacture forced-air heating systems. Over many years, the company wound down its radiator-based business while adding additional forced-air capacity—and its natural counterpart, air conditioning.
The postwar U.S. economy carried building-products companies along with it. With the suburbs burgeoning and mortgages easily obtainable, the U.S. construction industry threw up record numbers of new homes across the country, each in need of plumbing and heating fixtures, supplied by ARSS. By the mid-1950s, ARSS was pushing $400 million in worldwide sales and continuing to score steady, if modest, profits. Around 1957 however, American entered a ten-year period of disappointing performance. Affected by rising raw material prices and a strongly unionized labor force, American’s earnings per share and dividends drifted downward. From 1955 to 1960 domestic sales at ARSS earned a thin 2% on the dollar. The bulk of corporate profits again were being provided by the company’s 20 European plants, which faced a less competitive market than U.S. operations.
Around 1963 ARSS began a program of diversification that would occupy it for the next 15 years. By 1963, in addition to its traditional heating and plumbing lines, the company had branched into industrial controls, plastics, heat-transfer equipment, and nuclear-reactor construction. This flurry of activity produced modest results, however; in 1965, sales of $553 million were only marginally higher than they had been in the late 1950s, and profit remained unacceptably low at 3%. As a result two potential merger partners backed off after concluding that ARSS was too weak to purchase. The most serious of these suitors was Boise Cascade. One of that company’s executive vice presidents, William D. Eberle, joined ARSS as its new president in 1966 and proceeded to turn the company around. In three years, Eberle more than doubled sales while decreasing the company’s dependence on the housing market by means of several major acquisitions. American bought Mosler Safe, a maker of security devices for the banking industry; Westinghouse Air Brake Company, a diversified manufacturer of equipment for the railroad, construction, and mining businesses; and William Lyon Homes, a California home builder. Eberle also changed the company’s name to American Standard to indicate its movement away from the heating and plumbing niche.
By 1971 American Standard’s sales reached $1.4 billion, its employees numbered some 70,000, and industry analysts judged Eberle’s work a mess. By quickly expanding, Eberle had indeed reduced American’s dependence on the housing business, but at the cost of massive new debts, a confusing overlay of unrelated businesses, and plummeting earnings. In 1971 Eberle was shuffled out, and his successor, William Marquard, set aside $100 million on the balance sheet to defray the expected cost of undoing Eberle’s work. Marquard shut down inefficient plants, reduced employment by 20%, and sold off a number of the more extraneous divisions, using the proceeds to reduce debt and raise earnings. Marquard went further, however, easing American out of its original heating business while developing its railroad, truck brake, and mining-equipment operations. By keeping only those companies that were efficient and profitable, Marquard built a far sturdier, more lucrative business. Although total sales remained steady at $1.6 billion for much of the decade, earnings per share skyrocketed from 1971’s 110 to $5.25 in 1977.
American was not yet finished with its housecleaning. During the 1980s the company completed its long retreat from Eberle’s diversified conglomerate to position itself as a relatively simple manufacturer of plumbing and air conditioning products. Under chairman and CEO William Boyd, American Standard sold the Mosler security business and the various transportation companies. Though generally profitable, these outfits did not mesh well with American’s core businesses. American Standard’s only major acquisition during the 1980s did mesh, however. In 1983 American Standard purchased the Trane Company, the largest commercial air conditioning products company in the U.S. With $833 million in sales, Trane made up some of the volume American Standard had lost to reorganization. By 1988 the once-heterogeneous mix of companies at American Standard had been boiled down to three basic businesses: plumbing, air conditioning, and railway brake systems, together producing sales of about $3.4 billion. In January 1988 The Black & Decker Corporation, the Maryland-based maker of hand tools and appliances, began a prolonged attempt to buy American Standard. In a complex round of legal and financial maneuvers, American Standard sought to protect its independence while Black & Decker pressed the attack, eventually raising its bid to $2.5 billion, or $77 per share, up from $34 per share before the takeover bid. Finally, in July 1988 after six months of fighting, American Standard found a white knight in the investment-banking firm of Kelso & Company, which took American Standard private in a $2.5 billion leveraged buyout. To reduce the large debts thus incurred, Kelso subsequently sold American’s remaining railway-brake business for around $250 million. ASI Holding Corporation, formed by Kelso in 1988, owns the shares of American Standard.
As a private concern, American Standard is not required to publish financial data and its current health is not easily gauged. Judging by its successful 1987 results and the further concentration afforded by the sale of its last extraneous subsidiary, however, American Standard is no doubt moving much as it has in the past. Although not highly profitable, American Standard holds number-one positions in domestic markets for plumbing and commercial air conditioning, with about half its sales to foreign customers.
“Heating Man,” Fortune, April 1935; “American Radiator & Standard Sanitary Corp.,” Fortune, March 1940; “Radiator maker starts to swing,” Business Week, May 3, 1969; “How American Standard cured its conglomeritis,” Business Week, September 28, 1974; Clifford, Mark, “Back to basics,” Forbes, June 30, 1986.