Demergers and the Hanson experience. Part one: The prelude

In September 1996, the acquisition-led, diversified industrial holding company, Hanson plc, announced the four-way demerger of its £12 billion gross turnover conglomerate. The announcement followed a period of several years during which it fell out of favour with investors and analysts, and its share price plummeted. Part One of this Case Study charts the early growth years of Hanson and compares its staying-power with other conglomerates. Despite good theoretical reasons for corporate diversification, the early business environment deteriorated from the mid-1980s onwards, and many conglomerates reassessed their previous strategy. By the 1990s, there was evidence that many conglomerates had reached the limits of diversification and were destroying value. Extensive restructuring to refocus on core business took place in an attempt to increase profitability and restore market value. However, Hanson's individual management style had multiplied the negative effects of the changed business environment, leaving it less well prepared than most of its counterparts to adapt. Its short-term focus on earnings, pattern of acquisitions and disposals, lack of direct internal investment, obsessions with high dividends, labyrinthine accounting and tax management, and culture of financial engineering, brought it to a relatively weak pre-demerger position in 1996. Questions about its true valuation at this point became critical.