Morton Thiokol, Inc.

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Morton Thiokol, Inc.

110 N. Wacker Drive
Chicago, Illinois 60606-1560

Public Company
September 2, 1969
Employees: 17,900
Sales: $1.919 billion
Market value: $2.261 billion
Stock Index: New York

Morton Thiokol was established in 1982 when Morton Industries, recently separated from Norwich Pharmaceuticals, saw Thiokol as a company that would be able to save it from any possible takeover attempt. Morton, because of its steady income from salt, was attractive to Thiokol, whose lucrative aerospace and specialty chemicals business required a large research budget that the income from salt could be used to finance.

Thiokol was founded during the Depression. Its main product was discovered by two chemists, J.C. Patrick and Nathan Mnookin, who were trying to invent an inexpensive antifreeze. In the course of an experiment involving ethylene dichloride and sodium polysulfide they created a gum whose outstanding characteristic was a terrible smell. To make things worse, it clogged a sink in the laboratory and none of the solvents used to remove it were successful. Then the frustrated chemists realized that the resistence of the material to any kind of solvent was a useful property. They had invented synthetic rubber, which they christened Thiokol, from the Greek words for rubber and sulfur.

Mnookin and Patrick negotiated with Standard Oil to develop the product. However, the two men could not reach an agreement with the company. Finally, a salt merchant named Bevis Longstreth provided the financial support for the construction of a plant in Kansas City, Missouri. Yet the plant smelled so bad that its neighbors asked the mayor to remove the company from the area. As a result, Thiokol Inc. was forced to move to New Jersey.

When World War II began the company hoped that the rubber shortage would increase demand for Thiokol, but organic rubber was recycled instead. Thiokol Inc. was thus relegated to making hoses for specialized uses during the wartime period. Dow Chemical purchased 30% of Thiokol in 1948, but sold its share of the company during 1953 on the open market. According to Wall Street analysts, Thiokol was not a promising takeover candidate. In 1944, when Bevis Longstreth died, no one on the board of directors was willing to replace him so Joseph Crosby, a department head, ended up in Longstreths position.

When it was brought to Crosbys attention that the jet propulsion laboratories at the California Institute of Technology were buying 5-10 gallons of the companys solvent resistant polymer, he decided to talk to some of the Institutes scientists. It turned out that this solvent resistant polymer was the best rocket fuel the scientists had ever used.

In the 1950s, the first rockets were powered by liquid fuel. These markets required heavy tanks to hold not only the fuel and the oxidizer, but also the binding agent that held them together. Rocket fuel was so dangerous that one part fuel was mixed with four parts oxidizer to reduce flammability. The attraction of Thiokols polymer was that it was fuel and binding agent in one.

Management at Thiokol decided to go straight to the armed forces with its product, and the Army agreed to finance a laboratory. Research began even before the building was finished. The companys research director recalled mixing propellant late at night in a room illuminated by his cars headlights before any electric lights had been installed.

The Korean War benefited Thiokol a great deal. Solid rocket fuel began to displace liquid, and the companys solvent resistant sealants were selling very well. During this period of time Thiokol began to design and manufacture rocket engines, and with a 70% share of the solid rocket fuel market the company achieved a significant measure of success.

During the 1960s the company worked on the propulsion systems for the Minuteman 3 rocket, the Poseidon submarine, and Sam-D missiles. It also provided flares and other pyrotechnic devices for the war in Vietnam. Almost two-thirds of the companys business came from the government; in fact, Crosby spent as much time in Washington as he did at the companys headquarters in Trenton, New Jersey. Although Thiokol conducted most of its business with the government at this time, during the 1960s it also had an educational division which operated training programs for the hardcore unemployed and for American Indians. Housing programs for low income residents of Gulfport, Mississippi and Raleigh, North Carolina were also administered by Thiokol. Thiokols extensive contact with the military gave it an edge in the competition for these educational and housing programs which were government funded.

Government contracts are lucrative, but undependable, since programs are funded according to the policies of the political party in power. As a result, Thiokol used its income from aerospace contracts to diversify into specialty chemicals, fibers, off-road vehicles, and household products like Spray-n-Wash. These products were also somewhat cyclical, but demand was not linked in any direct way to the political climate in Indochina or the outcome of a presidential election, factors that influenced the size and number of the government programs that Thiokol depended on. The need to partially disassociate itself from the U.S. government became clear in 1970 when fewer government contracts caused sales to drop from $245 million to $205 million. After the market for synthetic fibers turned for the worse in 1975, Thiokol again reappraised its situation and decided to concentrate on specialty chemicals as the division that would provide the company with financial stability in case aerospace contracts were discontinued. The fiber and off-road operations were sold.

In the 1970s Thiokol enjoyed a growth of 20% during certain years. The specialty chemicals and the Texize household products divisions were performing well, while the military contracts remained lucrative. At this same time Thiokols future partner, Morton Industries, was experiencing mixed results in its diversification program.

Morton Salt began as a small agency that distributed salt in the midwest part of the United States. At the time, salt was shipped from the eastern seaboard on the Erie Canal. After the Civil War, in Chicago the demand for salt kept pace with the expansion of the meat-packing industry. In 1879 a 24 year old clerk by the name of 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, and was (as it is presently) the only nation-wide distributor. Salt was extracted by brine pumping, solar evaporation and dry mining. The mining of salt is incomparably safer than coal or diamond mining due to the fact that black lung disease, cave-ins, and fires do not occur. And since salt is used in so many basic industries, demand for salt is steady. The only factor that tends to depress demand is a mild winter, which means that less salt will be sprinkled on sidewalks and roads.

In certain respects, Morton Industries was quite successful. Not only did it have a large share of a stable and profitable market, but the traditionally low price of salt did not attract many competitors. The drawback to salt was that the industry was fully matured. So in 1965 Morton Industries, hitherto private, went public and decided to diversify. Its first major acquisition was Simonize, a maker of auto wax and household cleaners. Four years later, in 1969, Morton merged with Norwich Pharmaceuticals, which manufactured prescription drugs as well as over-the-counter products like Unguentine, Chloraseptic and Pepto-Bismol.

The problem with the Morton-Norwich merger was that Morton did not possess the financial resources to improve Norwich as it required. Despite its established product line, Norwich was slowed in its growth by an inadequate research and development budget. Although it can cost $50 million to market a new drug, in 1981 Morton-Norwichs entire research budget was still only $27.5 million. As a result, from 1969 to 1971 Morton-Norwichs dividends remained negligible. 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% of its stock, Morton-Norwich received right of first refusal on any of Rhone-Poulencs new products. Moreover, Rhone-Poulenc had ample research facilities.

Unfortunately, the partnership with Rhone-Poulenc was beset with difficulties. We couldnt run our business with those people, said Charles Locke, then president of Morton. To make matters worse, Rhone-Poulenc was eventually nationalized by 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 was still a potential candidate for a 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. Earlier, in the 1950s, Morton had diversified into specialty chemicals, including bromides, adhesives, dye stuffs and polymers.

Thiokol, with its 20% annual growth rate, was Mortons prime candidate for a merger. It had 40% of the solid rocket fuels market, not to mention the Texize division, which manufactured cleaners such as Glass Plus. Indeed, the household products divisions of both companies would blend quite well together. In 1982 the two companies completed the finalization of their merger. Yet one year later there was a severe disagreement 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 either the aerospace or chemical industries. Four other high level executives with experience in aerospace either retired or quit when Davies decided to leave. That left Charles Locke, from Morton, in complete control of both companies.

Despite these defections, few industry analysts have questioned the wisdom of the Thiokol-Morton merger. In the first year after the merger the company posted record earnings. Two years later there was a 26% increase in earnings per share. Mortons and Thiokols specialty chemicals divisions had blended well, 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 a 10-20% market growth in a crowded and highly competitive field. To further strengthen its position in the household products market, Morton Thiokol began to manufacture its own packaging materials, the first company to do so. However, in 1985 the household products division was sold to Dow Chemical Company in order to prevent an attempted takeover by that chemical firm.

The explosion of the space shuttle Challenger in January of 1986 can be attributed to the malfunction of Morton Thiokols O-rings, which reportedly froze before the launch. Despite warnings from their engineers, Thiokol executives approved the launch of the space shuttle at that time. The company received even more adverse publicity when it demoted two of the engineers who had testified before the U.S. Congress that they had advised against the space shuttle launch. The men were later reinstated, but only after pressure was applied on the company from the U.S. Congress itself.

The consequences of the space shuttle accident have not yet been fully revealed. At first the accident lowered share prices. Soon afterwards, Locke told the Wall Street Journal that, we think this shuttle thing will cost us 10 cents a share. The share prices revived, but Lockes statement was cited by many people inside and outside the industry as an example of the companys insensitivity. The family of astronaut Robert McNair has filed a multi-million dollar suit against Morton Thiokol and is advocating for a jury trial. This suit may be a harbinger of legal problems to come. The shuttle disaster resulted in a great deal of acrimony and accusation between Thiokol executives and NASA officials, and a coveted contract was awarded to an industry competitor. Nevertheless, the company hopes to win a contract to redesign the booster rockets for the 1988 space shuttle launch.

Morton Thiokol has strong market positions for almost all of its products. And the company has purchased Bee Chemicals in order to compensate for its loss of Texize. If a real problem emerges for the company, it will be in the field of aerospace. Standard and Poors expects U.S. defense programs to shrink due to deficit reduction plans. This decrease is not expected until 1988, however, as old contracts expire and new contracts become more difficult to procure.

Principal Subsidiaries

Bee Chemical Co.; Southwest Salt Co. The company also lists subsidiaries in the following countries: Bahamas, Belgium, Canada, England, France, Italy, Japan, Liberia, Mexico, The Netherlands, Singapore, and West Germany.

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Morton Thiokol, Inc.

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