Morton International Inc.
Morton International Inc.
Sales: $2.14 billion
Stock Exchanges: New York
SICs: 2891 Adhesives & Sealants; 3479 Metal Coating & Allied Services; 2865 Cyclic Crudes & Intermediates; 2899 Chemical Preparations Nee
Morton International—probably best known for its popular blue canister of table salt, featuring a raincoat-clad girl with an umbrella and the tagline, “when it rains, it pours”—is a diversified company maintaining profitable divisions involved in a wide range of products that include chemicals and automotive airbags. In 1986 the company, then called Morton Thiokol, gained notoriety for its part in the explosion of the NASA space shuttle Challenger. The accident precipitated a crisis that led Morton to spin-off the Thiokol rocket business in 1989. Both companies now operate as completely independent enterprises.
Morton began as a small agency distributing salt in the American Midwest, from shipments routed from the eastern seaboard on the Erie Canal. After the Civil War, the demand for salt kept pace with the expansion of the meat-packing industry, particularly in Chicago, where both the meat-packing and salt industries became well established. In 1879 a 24-year-old clerk named Joy Morton joined the agency, and by the age of 30 he owned it.
Morton soon came to dominate at least a third of the salt market, becoming the product’s only nationwide distributor. Morton experienced moderate success, maintaining a large share of a stable and profitable market with few competitors. However, by the mid-twentieth century, the salt industry had fully matured. In the 1950s, Morton diversified into specialty chemicals, including bromides, adhesives, dye stuffs, and polymers. In 1965 Morton Industries went public and decided to diversify further. Its first major acquisition that year was Simonize, a maker of auto wax and household cleaners. Four years later, Morton merged with Norwich Pharmaceuticals, which manufactured prescription drugs as well as such over-the-counter products as Unguentine, Chloraseptic, and Pepto-Bismol.
However, the Morton-Norwich merger was problematic in that Morton did not possess the financial resources to revitalize Norwich. Despite its established product line, Norwich was slowed in its growth by an inadequate research and development budget; at the time, the marketing of a new drug could incur costs of $50 million, a figure far exceeding Morton-Norwich’s entire research budget. As a result, from 1969 to 1971, Morton-Norwich’s dividends remained negligible, and its stock shares sold for only eight times dividends, which was low for pharmaceutical companies. To remedy the situation Morton-Norwich went into partnership with Rhone-Poulenc, a French drug manufacturer. In exchange for 20 percent of its stock, Morton-Norwich received right of first refusal on any of Rhone-Poulenc’s new products. Moreover, Rhone-Poulenc had ample research facilities.
However, the partnership with Rhone-Poulenc was beset with difficulties. “We couldn’t run our business with those people,” said Charles Locke, then president of Morton. Moreover, Rhone-Poulenc was eventually nationalized by French President Mitterand, and decided to sell its stock in Morton-Norwich. The French company did not abide by an earlier agreement to refrain from selling its share of Morton-Norwich to a single buyer, so Morton-Norwich found itself a potential takeover candidate.
In 1982 Morton sold Norwich and used part of the proceeds to buy back its stock from Rhone-Poulenc. However, Morton remained a potential candidate for takeover due to the steady income from its salt operation. Its stock was selling for $30 a share, but with only $20 a share cash reserves, the management at Morton decided to take action. As a result, management began to look for an eligible specialty chemicals company to purchase or merge with.
Thiokol, with its 20 percent annual growth rate, was Morton’s prime candidate for a merger. Thiokol controlled 40 percent of the solid rocket fuels market, and its Texize division manufactured a popular and profitable line of household cleaners that included the brand Glass Plus. Morton decided that the household products divisions in both companies would complement one another, and in 1982 the two companies completed the finalization of their merger.
One year later, however, a severe disagreement arose between the upper management of each company. As a result, the top management at Thiokol walked out. Among the defectors was Robert Davies, president of Thiokol, considered one of the brightest executives in the aerospace and chemical industries. Four other high level executives with experience in aerospace either retired or quit when Davies left. Consequently, Morton’s Charles Locke was given complete control of both companies.
Despite these defections, few industry analysts questioned the wisdom of the Thiokol-Morton merger. In the first year after the merger the company posted record earnings. Two years later earnings per share increased 26 percent. Morton’s and Thiokol’s specialty chemicals divisions were working well together, and the new company offered chemical purification products, metal recovery chemicals, coatings, polymers, and chemicals for the electronics industry. The household products division saw many of its items, including Glass Plus, Yes Detergent, and Spray & Wash, achieve ten to 20 percent market growth in a crowded and highly competitive field. To further strengthen its position in the household products market during this time, Morton Thiokol began to manufacture its own packaging materials, becoming one of the first manufacturers in the industry to do so. In 1985 the household products division was sold to Dow Chemical Company in order to prevent an attempted takeover by that chemical firm.
In the mid-1980s, Morton Thiokol’s staff of engineers was gaining acclaim for its work on materials for the aerospace industry, and the company won a contract to produce rocket boosters for NASA’s space shuttle Challenger. On January 26, 1986, Morton Thiokol engineers are alleged to have approved the launch of the Challenger space shuttle, despite the below freezing weather conditions. Seventy-three seconds after lift-off an explosion occurred that destroyed the rocket and killed its crew. The explosion was attributed to the failure of rubber O-rings on Morton Thiokol’s rocket boosters.
Morton Thiokol chair Charles Locke shocked the public when, shortly after the accident, he told reporters that “the shuttle thing will cost us ten cents a share.” Quoted out of context, the remark nonetheless ensured Locke of a reputation as tactless and insensitive. In 1989, despite performing $400 million worth of redesign work at cost and the resumption of shuttle flights, Morton Thiokol lost a bid for a new booster design to Lockheed. At this point, Locke decided to spin off the Thiokol division.
Before dividing the companies, Locke transferred Thiokol’s chemical businesses to the Morton side of the company. Morton also retained Thiokol’s promising automotive airbag business. The companies were officially split on July 1, 1989. Morton International, with $1.4 billion in sales and 8,000 employees, remained concentrated mostly in chemicals and salt. But the company also invested nearly $100 million in its airbag business.
Airbags, designed to inflate upon the impact of a car crash, protected drivers from colliding with an automobile’s dashboard and windshield. After Mercedes-Benz ordered the first airbag, other auto manufacturers found it to be a competitive advantage. Chrysler incorporated airbags into its designs in 1987, and others followed. The most important development in the airbag market occurred in 1991, when congress passed legislation making airbags mandatory on all new cars. At the time, Morton dominated the market with 55 percent of the market, while its closest competitor TRW held 35 percent.
Morton also actively expanded its chemical operations after its divestiture of Thiokol, taking over the Whittaker Corporation’s coatings and adhesives business for $225 million. In taking over this business, Morton integrated vertically into the polyester market. Subsequent acquisitions included the K.J. Quinn and German Iromer Chemie and Sandoz-Quinn Produckte companies, which were added to Morton’s Dynachem and Bee Chemical divisions. The company’s specialty chemicals business grew to include adhesives, coatings, sealants, electrical chemicals, dyes, sodium borohydride, biocides, tin stabilizers, and laser and semiconductor materials. In late 1991 Morton sold its food and cosmetic colors business to Milwaukee-based Universal Foods in order to concentrate on its industrial dyes operations.
Since the spinoff, Morton managed consistently higher earnings than Thiokol, possibly a result of Morton retaining Thiokol’s most promising businesses before the two companies split up. As it approached the twenty-first century, Morton concentrated its investments on high-growth niche markets.
Bee Chemical Company; CVD, Inc.; The Canadian Salt Co., Ltd. (Canada); Inagua Transports, Inc. (Liberia); Morton Bahamas, Ltd. (Bahamas); Morton Coatings, Inc.; Morton International, B.V. (Netherlands); Morton International GmbH. (Germany); Morton International, Ltd. (Canada); Morton International, Ltd. (Japan); Morton International S.A. (France); Morton International S.p.A. (Italy); Morton Japan Ltd. (Japan); Morton Overseas, Ltd.; Morton International S.A. de C.V. (Mexico); Morton Yokohama, Inc.; N.V. Morton International S.A. (Belgium); Nippon-Bee Chemical Company, Ltd. (Japan); Toray Thiokol Company, Ltd. (Japan); Toyo-Morton, Ltd. (Japan).
“After an Aerospace Spin-off, Morton is Ready for an Upswing,” Chemical Week, May 23, 1990, pp. 14–19.
“A High-Stakes Bet that Paid Off,” Fortune, June 15, 1992, pp. 121–122.
“Life Beyond Challenger,” Forbes, September 21, 1987, p.44.
“Morton Sells Colors Business,” Chemical Week, August 7, 1991, p.5.
“Morton Thiokol Completes Spinoff,” Journal of Commerce, July 6, 1989.
“Morton Thiokol is to Spin Off Chemical Line, Wall Street Journal, February 28, 1988, p. A3.
“Morton Thiokol: Reflections on the Shuttle Disaster,” Business Week, March 14, 1988, pp. 82–91.
“Redemption,” Forbes, January 7, 1991, p. 307.