Owens-Corning Fiberglas Corporation
Owens-Corning Fiberglas Corporation
Toledo, Ohio 43659
Fax: (419) 248-5337
Owens-Corning Fiberglas Corporation (OCF) is the undisputed world leader in fiberglass products for industry and insulation for homes, and one of the world’s major producers of polyester resins. The company has sought to enter a number of technical and consumer-oriented markets and— through a combination of marketing techniques and technological leadership—to dominate those markets completely. OCF enjoys 50% of the domestic market for home and industrial insulation; 50% of the domestic market for reinforced plastics, with applications such as automobiles, pleasure boats, and aerospace; and 25% of the domestic market for residential and commercial roofing.
The genesis of OCF, and of the production of modern fiberglass products, dates back to the Great Depression. Owens-Illinois (O-I), then a leader in the development and marketing of new glass products, transformed one of its idle bottle plants into a research facility to study the potential uses of fiberglass. O-I vice president Harold Boeschenstein named engineer Games Slayter to oversee the research and development effort. The project bore fruit quickly with the development of cheap, high-efficiency dust filters for home furnaces, manufactured from glass wool. These filters replaced the much more expensive, traditional steel filters. The truly dramatic breakthrough for O-I and for glass fibers came during a 1932 experiment at the small O-I laboratory in Columbus, Ohio. Dale Kleist was working on ways to melt glass rods. If his experiment worked, the molten glass would seal glass blocks together. The experiment produced, however, a very fine fiber—not what Kleist had in mind. As Kleist mused over how the experiment had backfired, his colleague John Thomas, according to legend, realized that Kleist had stumbled onto a new way to make glass fiber.
Slayter and Thomas predicted that very fine glass fibers would have myriad uses and urged the formation of a joint venture between Owens-Illinois and Corning Glass Works, the country’s premier manufacturer of glass products, in 1935. Harold Boeschenstein agreed, and the joint venture began developing new products and technologies immediately, including the first continuous filament fibers in 1937.
In October 1938, a new company was formed from the joint venture. It was called Owens-Corning Fiberglas and its mission was to manufacture glass-fiber products, market them to homes and industry, and develop new related technologies. Some of the technologies were implemented during World War II, when OCF manufactured insulation and fireproof materials for ships and aircraft. Harold Boeschenstein, OCF’s director, served on President Franklin D. Roosevelt’s War Production Board. The most important use of glass fiber was, of course, in fiberglass, a glass-fiber-reinforced resin product.
After the war business boomed. The company built two new plants and rehabilitated or converted four more from a war footing. Construction products—together with a technological leading edge that no other competitor could match— became a mainstay of its overall strategy. The company expanded into many aspects of new home construction with its distribution of Kaylo fiberglass pipes, and it developed a new process for manufacturing building insulation. Its “Comfort Conditioned Home” was a major national marketing effort in 1957, which promoted fiberglass insulation in homes. OCF led the way with its involvement in the first glass-fiber-reinforced automobile body, Chevrolet’s Corvette in 1953. The company also produced many new components for industry, including a wide array of acoustical materials and industrial and automotive insulation.
OCF was so successful that in 1949 Owens-Illinois and Corning Glass works were accused of illegally monopolizing the fiberglass industry through their joint control of the company. Under a court-mandated consent decree in 1949, OCF was required to license its patents to competitors, and both parent companies were forced to relinquish control of what had been their subsidiary for 14 years. As a separate entity, OCF went public in 1952 when it put one-third of its shares on the New York Stock Exchange.
In the 1960s, OCF expanded even more, building plants in Texas, at Waxahachie and Conroe; Indiana; and Georgia, as well as embarking on new construction for its subsidiary company in Bogota, Colombia. The company at this time was moving ahead in three broad areas: new products, new technology, and remarkably efficient marketing techniques.
Among the new products in the 1960s was a new glass-fiber yarn, called Beta, with superior flexing and handling characteristics, and the development of the glass-fiber-reinforced-plastic (FRP) underground storage tank. The development and marketing of this tank underscored the success of OCF in developing new products and in getting them accepted in the market place. Indeed, OCF has created markets for many of its innovative products. Until the late 1960s, steel underground storage tanks—such as those used by the oil industry—were the standard. OCF developed the first FRP tank, which was lighter and stronger than steel, but they were also more expensive. The tank’s noncorrosive properties would be the key selling point, long before governmentmandated codes for such tanks, which today are utilized not only for petroleum storage, but for toxic chemicals and a wide variety of industrial and agricultural uses. By 1970, 10,000 FRP tanks were in use in the United States, and in the 1980s the company developed the first double-walled storage tanks. By 1985, OCF had sold 100,000 fiberglass underground fuel storage tanks.
The company had pioneered the use of fiberglass in the recreation industry. By the late 1950s, more than 90% of all fishing rods in the United States were made of glass-fiber-reinforced materials, and by the late 1960s, FRP components were common in new cars. The company was also heavily involved in producing components for fiberglass pleasure-boat hulls.
In the 1970s and 1980s, the company enjoyed its market dominance and continued its diversification. It expanded into Europe, Asia, and South America, furthering its technological and marketing lead. New plants were opened in Bakersfield, California, and New York State, as well as in Texas, Pennsylvania, and Florida. The market, research, and product diversification was reflected in OCF’s complex organization. By the mid 1980s, the company was split into 11 different divisions, employing some 29,000 persons.
One of OCF’s hallmarks has been its intent to dominate any new market that it enters. To this end it uses innovative products, superb communications with retailers, and an overwhelming marketing presence. When successful, the company enjoys tremendous vertical integration in those areas in which it chooses to compete. Two examples illustrate this successful OCF strategy in the 1970s and 1980s. As with FRP storage tanks, fiberglass roofing shingles were met initially with skepticism. Contractors, used to cheaper organically-composed shingles, were reluctant to use the unfamiliar fiberglass products. An aggressive marketing campaign, however, stressed the much greater strength and longevity of the product. This campaign, together with the company’s purchase of Lloyd A. Fry Roofing and its subsidiary, Trumball Asphalt in 1977, gave OCF a commanding position in both new home roofing and re-roofing of older homes. In 1980, only 20% of the domestic home roofing consisted of fiberglass shingles, but by 1986, the figure stood at 77%. The downside of this tremendous change was, as one analyst with Salomon Brothers pointed out, a resultant glut in the roof shingle market; because fiberglass shingles are easier and speedier to produce than felt shingles there was a consequent shut-down of many manufacturing facilities nationwide.
The second major example of its marketing genius was the four-to-one brand preference among consumers for Owens-Corning fiberglass blanket insulation over the nearest competitor. OCF’s 50% market share of domestic home insulation eclipsed its major competitors such as CertainTeed, Manville, Knauf, and Guardian. This brand preference, for an often-more-expensive product, was furthered in the 1986 by a U.S. Court of Appeals ruling that granted OCF a trademark on a color—pink—for its exclusive use in fiberglass insulation and advertising. The court ruling paralleled OCF’s exclusive rights to United Artists’s Pink Panther cartoon character for its advertising and promotions. The word “Fiberglas” is also a company trademark. Through a sophisticated computer network, “Pink Link,” it can keep track of inventory, and communicate with its retail dealers nation-wide, thus diminishing the need for outlets to store large inventories of Fiberglas insulation. OCF’s sales force is conceded to be among the best in the business. The company further enhanced its name recognition in 1981 by underwriting the TV program “This Old House.”
The 1970s and 1980s saw not only the proliferation of OCF products and an aggressive marketing strategy, but also heavy investment in research and development, forays into new and sometimes unproven technologies, and acquisition of subsidiaries. These activities emphasized the long-term, and saw the company develop expertise in a number of fields that had little resemblance to its core areas of construction products and industrial materials. Primary among these acquisitions was the aerospace and strategic-materials group from Armco, in 1985. The intent was primarily to take control of Armco’s high-technology and composites subsidiary, Hitco. Hitco was responsible for research into visionary carbon-based composite materials used in such applications as missile nose cones and light-weight armored plating for army vehicles. OCF was now on the cutting edge of future technologies and product applications that could not be foreseen. The consumer housing market was leveling off; the company was looking ahead to new areas for expansion. Just as in the early 1930s, when Owens-Illinois and Corning Glass delved into a highly speculative joint venture, OCF was again placing its bets increasingly on long term, costly research.
The year 1986 brought the most significant—and traumatic—changes for OCF in the company’s history. In early August, Wickes Companies, a Santa Monica, California-based building materials retailer, announced a tender offer to buy up OCF’s public stock at $74 a share. Wickes chairman Sanford Sigoloff had already bought almost 10% of OCF’s shares earlier and now was out to capture the company to expand Wickes’s operations into roofing and insulation. Wickes was on the rebound from bankruptcy proceedings and looking for acquisitions. At a tense meeting in OCF’s New York offices, chairman William Boeschenstein, son of the former chairman, rejected Sigoloff’s offer and, according to affidavits filed later by Wickes, countered by threatening to “make a substantial financial investment in Wickes,” which Wickes labeled the “Pac-man defense.”
OCF urged its share-holders not to accept the takeover bid of $74 a share, more than twice the New York Stock Exchange value prior to the bid, while it studied its options for survival. The company was also hoping for a buy-out from a friendly suitor, but this was not forthcoming.
The company chose as its most viable strategy for survival as an independent company a leveraged buy-out, borrowing huge sums of money to recapitalize. After borrowing $2.5 billion from Drexel Burnham Lambert and others, it was able to offer its share-holders a package including $52 a share on its stock plus a junior subordinated debenture, with a face value of $35, but which was valued at issue at half that amount, and one share of newly issued stock. Wickes was forced to withdraw its offer, and walked away with over $30 million in profit by selling its OCF stock. Other share-holders were happy with the windfall. The company that emerged, however, was laden with debt and was almost unrecognizable in terms of organizational structure and goals.
In 1990, OCF bore little resemblance to its former self. Its goal could be put succinctly: retire the debt. The company set about doing that in two ways. It had economized and instituted massive layoffs, early retirement, and mothballed or closed plants in several locations. From a mid-1986 employee roll of 29,000 the company in 1987 had only 17,000. The second strategy was to sell the company’s many subsidiaries that were not immediate profit generators. OCF thus sold ten companies in very short order, including Hitco and the entire aerospace and strategic-materials group, Olympic Fastening Systems, the glass-fiber-reinforced-plastic-components division, and Performance Contracting, Inc., which was the largest specialty contracting firm in the United States. Four entire divisions, out of 11, were sold off, accounting for roughly $1 billion in annual sales.
There were enormous cutbacks in long-term research and development. Virtually overnight, OCF transformed itself from a company known for its long-range research-and-development work—fiberglass itself had been 20 years in development before market applications bore fruit—to a “cash machine,” spitting out profit to pay its creditors. In its research-and-development division, the company laid off nearly 50% of its work force or lost them through divestiture of assets. In 1986, before the takeover bid, OCF spent $63 million on research and development. In 1987, this figure had been slashed to $29 million.
Long-term research projects with little hope of short-term profit or even markets are difficult to justify in publicly held corporations. OCF had, for instance, been developing liquid crystal polymers, for which no application could be foreseen at the time. The cost and lead-time for such a project require a large research investment, patience, and creative vision, three areas in which the “new” OCF cannot afford to indulge. The project was sold to an Italian company after the recapitalization.
The company did a solid job of retiring the debt. By early 1990, total indebtedness had been reduced to less than $1.5 billion, and the company was generating profit beyond all expectations. Indeed, in the wake of several leveraged cash-outs in the late 1980s, the OCF example had become a textbook example of how to survive. Earnings were solid enough in 1989 to allow it to buy up the 50% share of Fiberglas Canada that had been owned by PPG Industries, a major competitor. Costs were down and profits were generally up, but the company still had a negative book value, that is, its debt outweighed its assets.
After the restructuring, the company emerged as a leaner, more centralized concern with a profit and structural emphasis on its leading cash generators. OCF had organized its remaining divisions into three major units: Construction-products division, industrial-materials division, and international division, which consists of overseas operations exclusive of Europe. The industrial materials division might soon account for the lion’s share of OCF’s net sales—in 1989 it was more profitable than the construction products division, $183 million as compared to $277 million.
The cyclicality of the housing market and the overall slowdown in housing starts affected the company’s profitability in 1989-1990, although the industrial materials division accounted for more and more of OCF’s earnings. The “soft” nature of the housing market had affected sales and profitability in the wake of the restructuring, although re-roofing, not affected by housing starts, accounted for 75% of the demand for shingles. Net income and operating profit were both down in 1989 compared with the previous year. Profit in 1988 was $477 million, with 1989 at $430 million. Net income in 1988 was $189 million and $172 million in 1989. The economic slowdown in 1989 and 1990 especially had cut into the company’s construction products, automotive, and pleasure boat components.
The former European divisions had been absorbed into the construction-products and industrial materials divisions, primarily due to the similar consumer and industrial purchasing patterns. The emphasis in the international division was on the smaller but growing markets in the developing world. The Asia-Pacific area was the fastest growing, with automotive manufacturing and electronic equipment providing the largest markets. OCF had affiliates—less than 50% ownership—or subsidiaries—more than 50% ownership—in Japan, South Korea, and Taiwan. Latin America was another area of expansion, with OCF manufacturing auto component parts in Brazil, for example. Brazil’s unstable fiscal condition, however, was eroding the viability of OCF investments there.
By 1990 OCF’s future concerns included asbestos litigation and world petroleum prices. The threat of class-action litigation stemmed from large suits brought against manufacturers and distributors of asbestos products in the 1970s and 1980s. Prior to October 1988, all claims against various asbestos manufacturers were handled through a joint claims facility, set up by 55 corporations that contributed funds to its accounts. The funds were used to pay meritorious claims. On August 6, 1987, OCF notified the joint Asbestos Claim Facility’s trustees that it intended to withdraw from the organization. Most of the outstanding claims had been brought by litigants who had been employed by the tire and rubber industry and who worked with asbestos brake linings. The company maintained that it had little involvement in these industries, and would not contribute to the payment plan in the future. In 1990, OCF had roughly 84,500 asbestos-related lawsuits pending against it, but it looked to its liability insurance to handle those matters.
As the end of the 20th century approached, OCF was the dominant manufacturer of fiberglass products in the world. It was exerting tighter control over its foreign affiliates and subsidiaries, such as controlling 100% of Fiberglass Canada, and concentrating on retiring its still considerable debt. The company showed in the 1990s every indication that it would emerge debt-free and refocused on a profit-generating business. William Boeschenstein, chairman and CEO, stepped down in 1990, ending the family dynasty, which guided OCF to its preeminent position in home and industrial fiberglass and polyester resins. OCF President Max O. Weber became chairman and CEO. While cutting back its long-term research, the company could continue in its role as an innovator in products in its chief areas of competition. Few companies are recession-proof, however, and a rise in oil prices combined with a severe cutback in new housing starts might slow growth for OCF and hurt its profitability.
American Borate Corporation; Barbcorp, Inc.; Eric Company; Fiberglas Canada Inc.; Karlcorp; Matcorp, Inc.; N.V. Owens-Corning S.A. (Belgium); OCFIBRAS Limitada (Brazil); O/C/FIRST CORPORATION; OCFOGO, Inc.; OCFSC, Inc. (U.S. Virgin Islands); O/C/SECOND CORPORATION; O/C/Tanks Corporation; Owens-Corning Cayman Limited; Owens-Corning Fiberglas España, S.A. (Spain); Owens-Corning Fiberglas France, S.A.; Owens-Corning Fiberglas (Italy) S.r.l.; Owens-Corning Fiberglas Netherlands B.V.; Owens-Corning Fiberglas (U.K.), Ltd.; Owens-Corning Real Estate Corporation; Palmetto Products, Inc.; Roscorp, Inc.; Scandinavian Glasfiber AB (Sweden) Veroc Technology A/S (Norway); Willcorp, Inc.
Focus, Toledo, Ohio, Owens-Corning Fiberglas Corporation, October 1988.
—Karl F. Rahder