The Henley Group, Inc.
The Henley Group, Inc.
Hampton, New Hampshire 03842
Fax: (603) 926-5661
Sales: $1.57 billion
Stock Exchange: NASDAQ
The Henley Group is a holding company whose operating subsidiaries can—and in most cases will—each operate as an independent company. Many of its executives are managers of Henley’s predecessor companies. Their goal is to acquire and develop low-risk, underperforming properties, and, after some time, to divest or trade these subsidiaries at a profit, paying out generous dividends in the process.
The Henley Group was created in 1986, when 35 diverse but unprofitable businesses were spun off by Allied-Signal. Under the leadership of Michael D. Dingman, chairman and chief executive officer, Henley raised $1.2 billion, in a record initial public offering.
The formation of Henley began in November 1985, when the board of directors of Allied-Signal approved reorganization plans. The recently merged Allied Corporation—a chemical giant—and The Signal Companies—an aerospace and engineering company—decided to concentrate on two industries: aerospace and electronics. That left 35 unrelated businesses. Because selling them individually would take years and tie up his managers, Allied-Signal chairman and CEO Edward L. Hennessy Jr. chose to unload them all in one major effort. He bundled them into Henley and gave Allied-Signal stockholders one share of the new company for every four of their Allied-Signal shares.
Henley’s original offices were located in New York City because its people were working closely with Allied-Signal, located in New Jersey, immediately following the spin-off. Henley moved to La Jolla, California in 1987 because many of its executives, including Dingman, had been working there since their days with Signal, which was headquartered there. In 1988 Henley opened an office in Hampton, New Hampshire, and Dingman relocated to the East Coast. The company operated dual offices for several years, and in 1990 Henley phased out the La Jolla office, making Hampton its world headquarters.
Former Allied-Signal President Dingman, a rowing enthusiast, named Henley after the English town famous for its regattas. A self-described turnaround man, Dingman said of Henley, “When I saw it, I was intrigued by somebody’s lack of insight... The success I’ve had in my business career has been taking other people’s junk and making it worth more,” according to Business Week, June 2, 1980. Dingman had built Wheelabrator-Fry into a $1.5 billion environmental and energy company. He sold Wheelabrator-Frye to The Signal Companies in a 1983 stock swap and, as president of Signal, engineered that company’s move into high technology by selling off its low-tech companies.
The first six months after Henley went public were spent streamlining the company’s operations into three main businesses. Henley formed Fisher Scientific Group, the Wheelabrator Technologies Group, and a manufacturing group.
The principal businesses of Fisher Scientific Group included the design, manufacture, distribution, sale, and service of medical diagnostic and therapy-management products for use in hospitals and independent clinical laboratories. Fisher Scientific Group also manufactured and distributed infusion systems for the regulation and control of intravenous solutions.
The Wheelabrator Technologies Group is the nation’s leading developer and operator of refuse-to-energy systems, which dispose of solid waste and generate electricity. Its operating units are involved worldwide in process-engineering, design, and construction services for such industries as oil and gas processing, pulp and paper, ferrous and nonferrous metals, electric utilities, nitrogen fertilizers, plastics and petrochemicals. Its operating units also design, finance, construct, own, and operate refuse-to-energy systems, cogeneration plants and other small power plants, and provide chemical processing systems.
The manufacturing group includes businesses engaged in the manufacture of seamless copper and copper-alloy tubing and other seamless nonferrous tubing; nonpolluting materials cleaning systems; precision profile wire screens for groundwater and industrial applications; lithographic blankets and plates for the printing industry; precision bearings; parts and components for the semiconductor market; metal stampings and wire products for the automotive market; and components related to the aerospace industry.
In June 1986, Henley acquired IMED Corporation for $163 million. IMED develops and sells systems to control the flow of intravenous solutions for hospital patients. IMED fit in with Henley’s Instrumentation Laboratory Inc., a maker of chemical analyzers, and Fisher Scientific Group. These companies were part of Henley’s medical-technical group— among Henley’s most promising businesses.
Another milestone in Henley’s evolution as an independent company was the purchase of the 15% of Henley’s stock that Allied-Signal had retained for $466 million in January 1987. Henley also repurchased approximately 39 million shares of its own common and preferred stock, reducing shares outstanding by 30%.
In 1987 Henley created three public companies to increase shareholders’ value. By creating separate entities whose activities are concentrated in one industry, investors are offered a “pure play” instead of a “conglomerate play,” and are willing to pay a premium for the opportunity. Henley therefore distributed approximately 20% of the common stock of its Fisher Scientific Group subsidiary to Henley shareholders, and its Wheelabrator Technologies subsidiary sold 6.9 million shares of its common stock in an initial public offering that raised $119 million. It also distributed approximately 45% of the common stock of its Henley Manufacturing Corporation subsidiary to Henley shareholders.
In 1986, Henley began purchasing Santa Fe Southern Pacific Corporation common stock, and by early 1988 owned 15.7%, or nearly 25 million shares. Henley and Santa Fe Southern Pacific Corporation had discussed a merger, but discussions were terminated in 1988.
In 1987, despite stock market turbulence and sluggish economic forecasts Henley’s operating companies continued to post strong performances. In 1988 Henley divided itself into two public companies and distributed its third stock dividend in 21 months. The division of assets—known as a reverse spinoff—enabled Wheelabrator Group and the new Henley Group to be independently valued, resulting in a higher total market value of these businesses. The Wheelabrator Group owned Henley’s investment in Wheelabrator Technologies and certain related assets, and the new Henley owned the rest of Henley’s previous assets.
That same year Henley traded its Signal Capital operations and its investments in Santa Fe Southern Pacific Corporation, American President Companies, and Oak Industries with Itel Corporation for $827 million in cash and a 40% stake in Itel. It was a $1.2 billion transaction.
Late in 1988, Henley and investment banker Wasserstein Perella & Company formed a partnership to acquire half interest in Pneumo Abex Corporation, an aerospace and industrial company, from IC Industries, in a $1.3 billion transaction. Pneumo Abex participates in most commercial aircraft production programs, and its customers include Boeing, Cessna, McDonnell Douglas, and all major commercial airlines. Also in 1988, Henley’s manufacturing subsidiary was acquired by New Hampshire Oak.
At this point Henley owned Signal Landmark Holdings and held approximately 12% of Wheelabrator Group, 81% of Fisher Scientific Group, 82% of Cape Horn Methanol, 50% of Pneumo Abex, and 40% of Itel Corporation. At the end of 1988 Henley had assets of $2.8 billion.
In 1989 Henley stock underperformed the market averages for the first time. This situation strengthened Henley’s determination to continue distributing the value of its assets to shareholders by separating Henley’s investments and operations from the parent company in the most tax-efficient manner. To accomplish this task, Henley continued to seek to liquidate its investments and exchange its holdings for other assets.
In August 1989, Henley completed a cash tender offer for the 20% of Fisher Scientific Group common stock not previously owned by Henley, making it a wholly owned subsidiary. Fisher Scientific Company, Henley’s largest operating unit, is one of the oldest and most respected names in the $17 billion world market. The company distributes more than 100,000 different products, including its new products for environmental testing and research, plasma analysis, and electronic research.
In April 1989, Henley agreed to purchase the 50% interest in Pneumo Abex Corporation the company did not already own. Pneumo Abex had net sales of $901 million in 1989. At year-end in 1989, Henley again divided, into two public companies: Henley Properties and another new Henley Group. This was the fourth time the Henley Group had divided itself since it was created. Operations of Henley consisted of a group of diversified businesses, conducted mainly through three major operating segments: Fisher Group—Fisher Scientific, Instrumentation Laboratory, and IMED; Aerospace Products and Services—Pneumo Abex, Cleveland Pneumatic Company, NWL Control Systems, and Abex Aerospace; and Industrial Products—Abex Friction Products and Jetway Systems.
Henley Properties, with assets of $680 million, has 24 real estate developments and other properties in southern California, Hawaii, Illinois, Michigan, Wisconsin, and New Hampshire. These holdings include one of the last large, undeveloped ocean-front properties in southern California and important housing developments in and near San Diego, California.
Henley’s waterfront property in Bolsa Chica, California— the principal portion of its southern California holdings—had languished for 25 years as local groups blocked plans for residential development. Dingman made peace with the antigrowth groups by increasing the amount of area set aside for parks and wildlife and ecological preserves and by agreeing not to build a new harbor. Housing construction was slated to begin by early 1991.
In January 1990 Henley announced that had it ended a prior agreement to sell its IMED unit to Advanced Medical Technologies, due to delays in reaching a final agreement and concerns about the ability to finance the deal. In May 1990, Henley announced plans to spin-off its two largest operating units, Pneumo Abex and Fisher Scientific Group, as separate public companies.
Prior to the spin-off, Henley owned Pneumo Abex and Fisher Scientific Group, as well as 82% of Cape Horn Methanol, 38% of Itel, 7% of Wheelabrator Group, and held an option to buy 15% of Henley Properties. After the spinoff, Henley Group retained 65% of Pneumo Abex, 82% of Cape Horn Methanol, 34% of Itel, 7% of Wheelabrator Group, an option to buy 15% of Fisher Scientific Group, and 15% of Henley Properties.
According to Dingman, next on the company’s agenda is to dispose of a substantial portion of its investments, including all or a portion of the Itel shares. These dispositions may take the form of sales, further dividends, or exchanges.
Pneumo Abex (65%); Cape Horn Methanol Limited (Cayman, 82%); Itel (34%); Wheelabrator Group (7%).
Baum, Laurie, and John Byrne, “Wall Street Is Just Wild About Henley,” Business Week, June 2, 1986; Dumaine, Brian, “Wall Street Likes A Spinoff Known as Dingman’s Dogs,” Fortune, June 9, 1986; Lorenz, Christopher, “Junk With A Lot Of Potential,” The Financial Times, January 23, 1987.