NL Industries, Inc.
NL Industries, Inc.
Incorporated: 1891 as National Lead Company
Sales: $893.4 million
Stock Exchanges: New York
SICs: 2816 Inorganic Pigments; 2819 Industrial Inorganic Chemicals Nec.
NL Industries, Inc. is one of America’s largest manufacturers of titanium dioxide pigments, which are used to brighten and add opacity to paints, plastics, paper, textile dyes, and ceramic glazes. The company also produces rheological additives, which control the flow and leveling properties of paints, inks, greases, sealants, adhesives, and cosmetics. Having undergone several reorganizations during its history, as technological developments dictated changes in its markets, NL Industries came under the control of entrepeneur Harold Simmons in the late 1980s.
The history of NL Industries may be traced to 1891, when 25 lead mining and smelting operations, unable to compete with larger manufacturers by themselves, teamed up to form a general holding company called the National Lead Company. The parent organization ensured that each member company’s resources were efficiently employed while effectively eliminating competition between the affiliates.
National Lead was primarily a mining company consisting of several dozen lead pits. The company quickly became one of the country’s largest producers of bulk refined white and red lead and lead oxides, which it sold almost exclusively to foundries and paint manufacturers. During this time, white and red leads were commonly used in paint, providing a durable and inexpensive covering considered necessary for preserving wooden structures. When mixed with linseed oil, white lead helped the paint mixture hold other pigments; red leads proved the least expensive paints and became commonly used on barns and railroad structures.
National Lead marked several years of steady growth, and, because of its size and the constant demand for lead by paint companies, it withstood the commodity gluts and financial panics that destroyed its smaller competitors. The most serious challenge to the company’s survival occurred during the Great Depression of the early 1930s, when most consumers could not afford paint, and demand for lead plummeted.
During this time, National Lead prepared to diversify, using whatever capital it could spare to invest in the rights to titanium mines. Titanium was discovered to have applications as a pigment, producing brighter whites and a clearer base for other pigments than was possible with lead. Moreover, titanium dioxide had applications in the manufacture of paper, denture material, ceramics, and even whitewall tires. National Lead set up a brokerage operation for the new product, becoming the country’s largest supplier of the mineral. Thus, by 1934, when the national economy began to recover, National Lead was able to withstand declines in demand for lead and was prepared to take advantage of growth in the titanium market.
By 1939, National Lead had regained earnings stability. The following year, as the country began a modest armament program to meet the growing threat from Germany, titanium paints were increasingly used in upgrading military installations. At the onset of World War II in 1941, titanium was found valuable in strengthening steel and other metal alloys, and the company’s chief product came under government control. Since National Lead remained a supplier rather than a mining operation, sales stalled. Neverthless, at the end of the war, National Lead emerged as the leading dealer in titanium ores. Industrial uses of titanium increased, particularly in equipment for drilling oil wells, die castings, and metal bearings for the railroad and other industries. During this time, National Lead also entered the consumer market for titanium paints, creating a product line under the name Dutch Boy. Dutch Boy paints competed with other brands that contained mineral products supplied by National Lead.
In 1950, in order to strengthen and protect its leading position in the titanium ores market, National Lead entered into a partnership with Allegheny Ludlum Steel. Called the Titanium Metals Corporation of America, this joint venture developed new applications for titanium alloys, produced various grades of the product, and marketed both raw titanium and zinc alloys made with the mineral.
By the 1950s, National Lead supplied roughly 40 percent of the nation’s titanium. Alloys made from the metal were used in aircraft, which were produced in tremendous numbers during the Korean War. When aircraft production was scaled back in the late 1950s, sales of titanium were buoyed by demand in the production of missiles and other weapons. Acquisitions during this time included Doehler-Jarvis, a die cast company acquired in 1953, and the R-N Corporation, acquired in 1957.
National Lead decided to widen the scope of its operations to include products useful in drilling for petroleum in the 1960s. The company’s line of new products included muds—the lubricants used in drilling operations—as well as the alloys, drill bits, and other assemblies used in burrowing through thousands of feet of earth in search of oil deposits. As a result, National Lead became a competitor of oilfield equipment suppliers like Schlumberger and Halliburton. Moreover, through the Titanium Metals Corporation, National Lead secured access to vast mineral reserves in the United States and Norway, and the company initiated its own mining operations. Thus, National Lead became involved in every aspect of the titanium industry: mining, refining, finishing and, in the case of Dutch Boy, retailing.
By 1964, paints, pigments, and oils comprised 38 percent of National Lead’s business. Fabricated lead products, primarily used in the automotive industry, provided 23 percent of revenues, and die castings, zinc alloys, and metal forming dies accounted for 17 percent. Oil well drilling materials and bearings used by the railroad industry contributed the remainder. The company’s agressive acquisition activity helped achieve this dynamic product line, but by the late 1960s, its increased holdings prompted criticism that the company had spread itself too thin.
By this time, National Lead’s subsidiaries included: Morris P. Kirk & Sons and Pioneer Aluminum, companies engaged in the production of aluminum products for the aircraft industry; Baker Castor Oil, a farming operation that raised castor oil used in paint and cosmetics; and Enenco, Inc., a partnership with the National Dairy Products Corp., that produced a line of fatty amines for gelling agents used in paints and water softeners, as well as in the textile, oil, and mining industries.
The diversification of National Lead was strategically intended to consolidate as many applications for its products as possible under one management. However, the plan lead to an unmanageable diversification of its markets, as National Lead supplied products to oil companies, airplane builders, shirt makers, painters, and costmetic companies. Investors lost their enthusiasm for National Lead as its profitability began to slide. Once considered a growth company with glowing management, National Lead was finally seen for what it was: an industrial stock.
As a result, investors lost enthusiasm for the company, and profitability began to decline. The company’s chairperson, Joseph Martino, curtailed the acquisition policy, and the decentralized management structure the company had maintained since its inception was reformed. Because it derived more than 60 percent of its income from titanium operations, National Lead became NL Industries on April 15, 1971. The following year, the company reorganized its operations, creating five divisions that oversaw operations in chemicals, metals, industrial specialties, pigments, and fabricated products. The company’s paint and magnesium unit, including the Dutch Boy enterprise, and its Lake View Trust Savings Bank subsidiary continued to operate independently, in preparation for a possible spin-off.
Perhaps the greatest changes in NL Industries came after 1972, when Ray C. Adam, a former Mobil Oil executive, joined the company’s management team. Well versed in the oilfield equipment business, Adam was convinced that this was the one area in which NL might enjoy faster growth. He began an effort to dispose of NL’s non-core operations, maintaining that the company had attempted to be in too many businesses at once and that “the only thing NL didn’t make was money.” Replacing Martino as CEO in 1974, Adam sold off 38 of NL’s 79 subsidiaries, including Dutch Boy, the bank, and a citrus peeling operation. He also sold off the company’s magnesium and lead businesses, declaring that NL should stand for “no lead.”
The sales yielded more than $400 million, and, with the proceeds, Adam invested heavily in oilfield equipment manufacturing and related services. This proved timely, as the OPEC cartel’s 1973 embargo created a worldwide energy crisis that caused oil companies to renew oil exploration on a massive scale.
Central to Adam’s strategy was NL’s 1976 acquisition of the Rucker Company, a leading manufacturer of oil tools, drill bits, blowout preventers, hydraulic equipment, and drilling muds, for $165 million. Adam retained NL’s metals and chemical groups, which provided steady income that could be used for further investment in the petroleum equipment business.
By 1980, the petroleum services division accounted for more than 50 percent of NL Industries’ sales and two-thirds of its profits. The chemicals group, which included titanium products, contributed 30 percent of sales, while the metals operation comprised 24 percent of sales. Under Adam, the company had undergone radical transformations; with 5,000 fewer employees, it was seven times more profitable.
In the mid-1980s, Adam was succeeded as CEO by Theodore Rogers, during a slump in the oil industry that severely affected NL’s oilfield support business. Failing to downsize quickly, the company’s oil division incurred a $324 million operating loss, prompting a rapid undervaluation of the company. This undervaluation—along with the clean-up of NL’s debt and streamlining of operations facilitated by Adam—created a tremendous opportunity for a corporate raider.
Harold C. Simmons, a relentlessly inventive takeover artist with a brilliant record of acquiring undervalued companies and turning them around, was aware of an unusual company bylaw dictating that the board not consider more than one tender offer at a time, thereby preventing the company’s shares from being put into play (a policy enacted by NL to rebuke an earlier bid by Coniston Partners). Simmons purposely triggered NL’s takeover defense mechanism by purchasing 20 percent of the company’s shares. Rather than amending its policy to accomodate other investors who might have helped stave off the hostile takeover, NL’s board launched its own stock repurchase plan and sought a court enjoinder to prevent Simmons from buying any more shares. To fund the repurchase plan, the board issued tracking stock of the NL’s chemical operations which traded separately from NL’s common shares.
Simmons defeated NL in court, winning the right to buy a majority of the company’s shares, and, after only eight weeks, he emerged with a 51 percent share of NL, as well as a 20 percent share of NL Chemicals. Moreover, he achieved this level of control with an investment of only $250 million, about a third as much as his original tender offer.
The investment vehicle for Simmons’ investment in NL was Valhi, Inc., a conglomeration of diverse businesses, such as refined sugar, forest products, hardware products, and fast food chains, that had no obvious synergies with NL. Simmons proposed a merger of Valhi with NL, but was prevented by outside directors from acquiring the 49 percent of the company not already owned by Valhi. Simmons did finally win board approval to spin off the company’s oilfield services subsidiary, Baroid Corporation, and redeem the tracking stock of NL’s chemical operations. Following the spinoff and redemption, Valhi’s ownership in NL was 66 percent. Valhi’s control of NL gave Simmons access to about $1 billion in loans for further acquisitions.
NL’s operations were subsequently revamped by Simmons and his management team, which included his long-time associate J. Landis Martin, who became president and CEO of NL. NL was divided into two operating divisions, Kronos, which encompassed the titanium dioxide business, and Rheox, which supplied solvent- and water-based rheological additives for paints, inks, lubricants, sealants, adhesives and cosmetics.
In 1993, NL Industries remained an extremely vital player in the titanium and rheological additive markets. The company established a new titanium dioxide pigments plant at Lake Charles, Louisiana—the first such facility to be built in America since 1979. To help pay down the substantial debt incurred to build the facility, NL negotiated the sale of 50 percent of the operation to Imperial Chemical Industries, PLC (ICI) for $200 million. Some analysts suggested that further cooperation between NL and ICI might provide new competitive opportunities for NL’s titanium operations in Europe, where much of the Kronos division is headquartered.
Rheox, Inc.; Abbey Chemicals, Ltd. (Scotland; 70%); Bentone-Chemie GmbH (Germany; 70%); Kronos, Inc.; Kronos International, Inc. (Germany); Kronos-Titan GmbH (Germany); Kronos Titan A/S (Norway); Kronos Canada, Inc.; Kronos World Services, S.A./N.V. (Belgium); Kronos Europe S.A./N.V. (Belgium/Netherlands); Kronos Louisiana, Inc.; Kronos UK, Ltd.; Societe Industrielle du Titan, S.A. (France; 93%); Titania A/S (Norway).
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