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FeedRecalling Hercules
The once-mighty chemical company has been gobbled up by another interest. What that means for Delaware remains to be seen.
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Hercules, Inc. president and CEO Craig Rogerson can easily recall his company’s darkest day.
The Wilmington-based chemicals manufacturer, created in 1912, had just about imploded by 2001.
“The company was paying out $300 million in interest payments alone,” Rogerson says. “We were operating right at the edge of the debt covenants we had made with the banks, which brought us to the doorstep of foreclosure. We had significant legacy liabilities due to pension obligations that were underfunded. To top it all off, we had been drawn into the then-current wave of asbestos litigation, as a result of earlier acquisitions.
“At that 2001 annual meeting, the board was considering just shuttering our doors.”
The company did not close. It instead restored fiscal viability, paid up its pension and reduced its debt. It was a remarkable comeback, but more important for Delaware, it is an example of good corporate citizenship in an environment of slash-and-burn capitalism.
Unfortunately, the story of Hercules came to an end in July, when the 96-year-old company announced its planned acquisition by Ashland Chemical.
Industry watchers were not surprised.
“A $2.5 billion dollar chemical company simply cannot exist independently in a market accustomed to explosive growth,” says former Hercules CEO Werner Brown.
Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware, believes it simply made sense for Hercules to become part of a larger operation. “The company was not a consolidator itself, but one destined to become a consolidation,” Elson says. “Hercules has not been a player for a long time.”
Yet there was a time.
DuPont acquired the trade name Hercules during a consolidation of regional explosives manufacturers after the Civil War. In 1906 a former employee complained to the U.S. Department of Justice that DuPont had acquired a monopoly in the making of military smokeless explosives. In 1911 DuPont was forced to split its powder holdings. One became Hercules Powder Company in 1912.
World War I in 1914 proved to be lucrative for Hercules and drove its research into new areas of chemistry. Between the world wars, the company grew through development of cellulose-based formulations. After World War II, it expanded into manufacturing pesticides, synthetics, paper chemicals, petrochemicals and plastics.
At its peak, Hercules grew to 8,000 employees and $3.2 billion in annual sales. Yet during the merger and acquisition frenzy of the 1980s and ’90s, Hercules found its Achilles heel.
“The company had gone through a period of divesting various businesses in an effort to improve its shareholder value,” Rogerson says. “But we had reduced the company’s size to a critical mass, where we had to begin to get bigger through acquisition.”
Hercules bid unsuccessfully on a couple entities. By the time a Pennsylvania-based water treatment company, BetzDearborn, went on the market, Hercules was determined not to be outbid again.
“We actually got emotional over the deal, bid against ourselves and overpaid for Betz by 100 percent,” Rogerson says.
The company paid for Betz in cash, believing its own stock to be undervalued. Yet over the next couple of years, Hercules saw just how undervalued its stock could become when it plunged from a high of $55 to a low of $7. Then an investor and corporate raider initiated a proxy battle for control. Efforts to sell the company to a more sympathetic suitor failed. A succession of six CEOs during the period led to a showdown with the raider.
“One of those six, Bill Joyce, came in and immediately took the company off the market,” Rogerson says. “Then came the pain. In a redesign of the company’s work-process structure, he reduced the workforce by about 20 percent. Then Joyce began looking at the business units that could be sold off to generate sufficient cash to maintain operations.”
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