124 Bridge Road
Chertsey, Surrey KT16 8LZ
(01932) 573 700
Fax: (01932) 573 782
Incorporated: 1996 Employees: 18,183 Sales:£l.25 billion (US$2.04 billion) (1998) Stock Exchanges: London NASDAQ Ticker Symbol: THRNY
SICs: 6719 Offices of Holding Companies, Not Elsewhere Classified; 7299 Miscellaneous Personal Services, Not Elsewhere Classified; 7389 Business Services, Not Elsewhere Classified
Thorn pic is an international rental and rent-to-own group whose various chains rent electronics, personal computers, appliances, telephones, furniture, and jewelry. Thorn’s customers are predominantly individual consumers but also include hotels and educational institutions. In the United Kingdom, Thorn runs four primary chains: Radio Rentals, Easiview, DER Direct, and Crazy George. Thorn’s overseas operations were put up for sale in mid-1998 and include the Rent-A-Center and other chains in the United States, as well as operations elsewhere in Europe and in the Asia-Pacific region. In its present form, Thorn pic was incorporated in 1996 when Thorn EMI pic “demerged,” becoming Thorn pic and EMI Group pic, nearly 17 years after they had merged.
Roots in Electrical and Electronics Businesses
Jules Thorn was born in Austria in 1899, and as a young man attended the University of Vienna, where he completed a degree in business management. During the 1920s Thorn traveled to England on several occasions as a sales representative for an Austrian gas mantle firm. In 1928, shortly after he moved to England, Thorn established the Electrical Lamp Service Company, which imported light bulbs and radio components from the continent. In 1932 he purchased a controlling share of the Chorlton Metal Company. Thorn operated a radio rental shop, which was established as Lotus Radio in 1933. That same year he purchased Atlas Works, manufacturer of an electric lamp known as the Atlas Lamp. With the profits from these operations, Thorn acquired the Ferguson Radio Corporation in 1936, enabling him to manufacture as well as sell radio sets. The company’s operations were subsequently merged that year under the name Thorn Electrical Industries.
Thorn’s electronic businesses prospered until 1940 when Britain declared war on Germany. As a result of the war, the British economy was severely affected. Virtually all products, including those manufactured by Thorn, fell under a tightly controlled government rationing program.
When the war ended in 1945, Jules Thorn initiated an ambitious expansion of his company’s interests through acquisition. Ecko-Ensign Design and Tricity Cookers, both electrical engineering firms, were purchased in 1950 and 1951, respectively. Throughout the 1950s Thorn Electrical Industries consolidated a firm position in the field of electronics and electrical appliances. Thorn personally supervised every aspect of his company’s activities, gaining a reputation for hard work and tireless enthusiasm for profit.
By the end of 1961, Thorn had acquired Philco and Pilot, in addition to Ultra Radio & Television and interests in HMV and Marconiphone. Through its acquisitions that year, Thorn Electrical Industries had become the largest producer of radio and television sets in Britain. In recognition for his contributions to the British electronics industry Jules Thorn was knighted Sir Jules in 1964.
The transmission of television programs in color did not begin in Britain until December 1967. Jules Thorn recognized that this development would drastically increase demand for color television sets, the technology and patents of which were difficult to acquire in Britain. Thorn arranged for blank tubes to be imported from the United States and coated with the necessary color-sensitive chemicals in his factories. Because of Thorn’s imaginative and timely solution, Thorn Electrical Industries was able to further consolidate its position in the British television market.
As a result of the merger of Robinson Radio Rentals and Thorn interests, the combined Thorn/Radio Rentals group became the world’s largest television rental company, controlling just under one-third of the 7.5 million televisions in Britain. Other acquisitions during this period reflected the company’s continued diversification. Metal Industries was acquired in 1967, KMT Holdings in 1968, Parkinson Cowan in 1971, Clarkson International Tools in 1974, and Cleveland Twist Drill in 1976.
Thorn EMI Forms in 1979
Thorn’s largest takeover bid by far came in 1979 when an opportunity arose to purchase the financially ailing EMI Ltd., a diversified entertainment and electronic instruments conglomerate. Jules Thorn had retired earlier in 1979; his domineering personality had squelched a proposed merger between the two firms a few years earlier. (Thorn died on December 12, 1980, at the age of 81.)
Institutional investors, who held a three-fourths voting majority in Thorn, expressed concern that a merger of the two companies would be problematic because Thorn and EMI were very different companies. In the event of a merger, Thorn would have to let EMI management run itself, at least for a few years, because Thorn knew so little about EMI’s businesses. Another cause for concern was that EMI’s new management team, led by the very capable Lord Delfont, had to prove itself under difficult circumstances.
At the end of October 1979 EMI rejected a £145 million bid by Thorn. The offer was resubmitted the following week for £165 million and accepted. The new company’s name was changed to Thorn EMI pic on March 3, 1980.
The various divisions within the old Thorn and EMI organizations continued to operate independently of each other and, to some extent, of the central management group. Management implemented a planning model developed by the Boston Consulting Group which provided for the development of new enterprises by channeling funds from profitable operations. This had the effect of starving the successful enterprises within the company of funds needed to maintain competitive product lines. Just as the model failed in the early 1970s, it was failing again a decade later. Thorn EMI was less like a successful operating company and more like a weak investment portfolio. In an attempt to raise money and reduce losses during 1980 and 1981, the company sold its medical electronics business, its hotels and restaurant division, and parts of the leisure and entertainment division.
Peter Laister, chairman of Thorn and later Thorn EMI, attempted to create a more efficient operation out of the fragmented organization by acquiring new divisions. Laister wanted to develop an integrated communications and entertainment business with particular emphasis on advanced electronics. Inmos, a microchip manufacturer, was acquired in 1984, but an attempt to purchase British Aerospace pic that same year failed.
Unable to fulfill his plan or shake Thorn EMI out of stagnation, Laister was removed from the board of directors in what was described as a boardroom “coup” in July 1985.
Thorn EMI Restructures in 1985
Thorn EMI’s new chairman, Graham Wilkins, handed Laister’s managing director position over to Colin Southgate, who had been in charge of the company’s information technology division. Southgate advocated a much different approach than Laister’s, emphasizing a return to the basic industries upon which Thorn and EMI had been separately built: lighting, rental, and retail as overseen by Radio Rentals, Rumbelows electronics stores, and HMV music stores; technology, including computer software, defense electronics, and security businesses; and music.
Southgate quickly initiated a dramatic program of rationalization, divesting—by the end of the decade—more than 50 noncore operations, bringing in more than US$700 million. The divestment of these unpromising operations began in earnest during the 1985-86 fiscal year with the disposal of Thorn EMI Screen Entertainment (the expensive films and cinema division), Thorn EMI Heating Ltd., divisions of Metal Industries that had not already been sold, cable television interests, and a portion of its interest in Thames Television Ltd. Southgate took the cash generated from these sales and plowed them back into the company’s core areas. The first major purchase for Thorn EMI in the Southgate era came in late 1987 when Wichita, Kansas-based, 700-store Rent-A-Center, Inc. was acquired for £371 million (US$594 million). The purchase gave Thorn EMI 50 percent of the rental market in the United States and made the company the largest rental company in the world. Acquisitions of lighting fixture makers in France and Sweden made Thorn EMI the leader in lighting in Europe. Additional acquisitions bolstered the music operations, most notably the 1989 acquisition of SBK Entertainment World, Inc. for £165 million (US$337 million), which added the 250,000-song catalog of CBS Records to EMI Music Publishing. In July 1988 Southgate became CEO of the company upon Wilkins retirement.
In the early to mid-1990s Southgate further focused the company’s interests until there were only two: the rental business and music. The software business was disposed of in 1991, and two years later Thorn EMI sold its lighting division, the business upon which the Thorn side had been founded. Over the course of several years and several transactions, the company’s defense businesses had been divested by 1996. In 1994 Thorn Security was jettisoned. (In each of these cases, Thorn EMI at least initially kept a minority stake in the disposed unit.) Also divested was the troubled Rumbelows chain, which was closed down in February 1995; one month later, 231 of the former Rumbelows were sold to Escom, a German computer manufacturer and retailer.
During this time, an article in the September 22, 1993 Wall Street Journal accused the Rent-A-Center chain of a variety of improprieties, most notably claims of questionable sales practices and of strong-arm tactics used to deal with customers who were late in making rental payments. Thorn EMI quickly set up an independent investigation headed by former U.S. senator Warren Rudman. In February 1994 the investigation issued a report that largely cleared the Rent-A-Center name. Despite this publicity setback, Thorn EMI continued to invest in its U.S. rental operation, acquiring U-Can-Rent Inc. and its chain of 83 rental stores in small cities of the southeastern United States in August 1995.
Thorn EMI also poured money into its music operations in the early to mid-1990s. In 1990, 50 percent of Chrysalis Records was purchased, with the other half acquired two years later. Virgin Music Group Ltd. was bought for £510 million (US$957 million) in 1992, a deal that included both record labels and publishing catalogs. Sparrow Records, the largest Christian music label in the United States, was added in 1992, while In-tercord, a leading independent record company in Germany, was acquired in 1994. Thorn EMI also entered into joint ventures that launched the VIVA and VIVA2 music television channels in Germany, as well as the Channel V music channel in Asia. In 1995 a U.K. bookstore chain called Dillons was acquired and was added to the HMV division.
1996 Demerger of Thorn EMI
By mid-1996 Thorn EMI essentially consisted of two strong divisions—music and rental—both world leaders. They had little in common, however, leading to the long-anticipated August 29, 1996, demerger of Thorn EMI, out of which arose Thorn pic and EMI Group pic, both initially headed by South-gate as chairman. EMI Group included all of Thorn EMFs music-related operations: music recording, publishing, and retailing, as well as investments in the music channels. It also included the Dillons bookstores, which continued as part of the HMV Division. Several noncore businesses—Central Research Laboratories, Thorn Secure Science International, Thorn Transit Systems International, and a holding in Thorn Security—that EMI retained after the demerger were divested less than a year later.
Thorn pic, meanwhile, debuted as an almost exclusively rental company (a consumer electronics and music retailing subsidiary in Denmark was sold for £76 million [US$122 million] in November 1997). In the United Kingdom it had several chains, including Radio Rentals, Crazy George, Easiview, and DER Direct, which rented telephones. U.S. operations included the Rent-A-Center, U-Can-Rent, and Remco chains. Thorn also ran additional rental businesses on continental Europe and in Australia.
Unfortunately, Thorn almost immediately ran into serious troubles in its newly independent guise. At home the rental business was experiencing a sharp downturn, leading to the February 1997 announcement that 90 Radio Rentals shops would be closed. The company’s European chains were losing money, too, resulting in the closure of rental operations in France, the Benelux countries, and Finland, a move announced in July 1997. In the United States, Thorn faced the prospect of losing several class-action lawsuits brought against Rent-A-Center, lawsuits that accused the chain of employing rental contracts that charged more interest than allowed by law. In September 1997 a court in New Jersey ruled against Rent-A-Center in a class-action suit that Thorn estimated could cost it £75 million (US$120 million). Similar suits were pending in Minnesota, Texas, Pennsylvania, and Wisconsin. Thorn announced it would appeal the New Jersey judgment.
For the fiscal year ending March 31, 1998, Thorn saw its revenues fall two percent to £1.25 billion (US$2.04 billion), while profits fell 30.9 percent to £118.2 million (US$193.3 million). The month prior to making these dismal results known, Thorn announced that it had been approached by an unnamed suitor about a takeover. Then, after the 1998 results were announced, Thorn in late May 1998 put up for sale all of its non-U.K. businesses: Thorn Americas (Rent-A-Center and the other U.S. chains), Thorn Nordic, Thorn Asia Pacific, and a business-to-business rental operation in Europe. Provided that a buyer or buyers could be found for all the units—and Thorn Americas was going to be a tough sale because of the pending litigation—Thorn pic would be left with its four U.K. chains, which it could focus on for a possible turnaround. After 70 years that encompassed an amazing variety of businesses in numerous countries, it appeared that Thorn’s immediate future—as an independent company or not—would focus on a single type of business in a single country.
Thorn Business Communications Ltd.; Thorn Nordic; Thorn Americas Inc. (U.S.); Rent-A-Center, Inc. (U.S.); Thorn Asia Pacific.
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Clark-Meads, Jeff, Adam White, and Don Jeffrey, “Thorn EMI Demerger Proceeding Smoothly,” Billboard, August 31, 1996, pp. 1, 127.
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Hollinger, Peggy, “Thorn Sells Majority Stake in Security Arm,” Financial Times, May 28, 1994, p. 10.
_____, “Thorn Shares Tumble on Warning,” Financial Times, January21, 1997, p. 21.
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_____, “Thorn and EMI Prepare to Dance to Different Tunes,” Financial Times, July 22, 1996, p. 23.
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_____, “Thorn Looks for Disposal Opportunities,” Financial Times, November 16, 1997, p. 26.
—updated by David E. Salamie