1000 Winter Street
Waltham, Massachusetts 02154
Telephone: (617) 890-0400
Fax: (617) 890-8585
Sales: $303.5 million (1996)
Stock Exchanges: New York Pacific
SICs: 3600 Electronic & Other Electrical Equipment
Oak Industries Inc. is a leading supplier of components to manufacturers and service providers in the communications industry. Two niche markets generate the company's revenues: communications components and controls components. The communications components divisions consist of Gilbert Engineering, a manufacturer of cable connectors; Laserton Inc., a manufacturer of active fiber optic components; and Oak Frequency Control Group, a manufacturer of quartz-based crystals and oscillators. The communications components are used mainly in communications networks, including telephone service, cable television, and cellular communications. The controls components divisions consist of OakGrisby, a leading manufacturer of switches and encoders for use in commercial, medical, and military applications; and Harper-Wyman, a major supplier for the gas range industry. In 1996, the company was in a strong financial position for growth in their industry segments; in fact, some analysts predicted double digit growth.
Edward F. Bessey founded Oak Industries in 1932 as a manufacturer of radio sockets, switch and dial lights, and screw shell socket assemblies. Twelve years later, the company completed its first public offering of stock, and by 1967 the company's stock was listed on the New York Stock Exchange. Within its first half-century of operation, Oak Industries had become a significant player in three industry segments: communications, which made up 41 percent of sales; components, which made up 37 percent of sales; and materials, which made up 22 percent of sales. In 1980, Oak Industries' sales had reached $386 million, and it employed more than 11,000 people.
The communications segment had developed, among other things, decoding, broadcast scrambling, and related computer equipment for its over-the-air subscription television services (STV). It also provided community antenna television (CATV) systems and financing services for the communications industry. The components segment made rotary as well as other switches, controls and components for gas and electric appliances, and frequency crystals, oscillators, and potentiometers. The Harvard Business School Case noted that Oak was the largest U.S. manufacturer of rotary switches in 1980. The materials segment made laminates and specialty materials for printed circuit board applications. Oak ranked as the third largest laminate producer in the United States and led the competition in Taiwan and Korea, according to the Harvard Business School Case.
Growth in the 1980s
In 1980 Oak began exploring opportunities for expansion through acquisition. Within two years, Oak had acted on its intentions and boosted sales in the communications segment by 96 percent. Nevertheless, by 1985 the company was experiencing significant operating losses, including losses in the communications segment from discontinued operations. The company was close to defaulting on its $230 million in outstanding debt. To ameliorate the situation, the company issued new notes, common stock, and warrants to retire some of its debt. In addition, Oak began to divest itself of outdated and money losing operations, ridding itself of its STV division, its Adec energy management control systems business, the Mexican division of its gas and electric control business, and its South American electrical equipment manufacturing business. These measures helped Oak's immediate bottom line. In 1986, when Allied-Signal agreed to purchase Oak's materials division for $160 million and pay $15 million for ten million shares of Oak with an agreement to buy more at an adjusted price by February 1, 1991, Oak gained the financial stability to reorganize its operations.
Oak decided growth for the company could come from emphasizing its components segment. With its long-term debt cut to $36 million, Oak entertained the possibility of growth through acquisition, planning to look for companies with components products complementary to Oak's main line of products and also for well-run companies in unrelated industry segments but with good growth potential. Within one year, Oak had used cash to buy Electronic Technologies, Inc. (ETI) and Nordco, Inc. ETI manufactured electronic components that complemented Oak's existing business. Nordco made rail-bed maintenance equipment, which did not complement Oak's core business but was expected to provide a source of unrelated income for the company.
By mid-1989, however, Oak's finances had again begun to crumble. The shares purchased by Allied-Signal had been sold many times in the previous years, but were held in 1989 by INVESCO MIM Management Limited (MIM), a fund manager based in the United Kingdom. In addition to the Allied-Signal shares, MIM bought seven million shares of Oak for 75 cents each and had warrants for three million more shares for $1.20 per share. MIM thus had become the financial protector of Oak, owning 24 percent of its stock and having $40 billion in assets from which Oak could potentially borrow for its acquisition strategy.
Management Changes in 1989
MIM and some Oak board members questioned whether Oak's existing management had the ability to stabilize and grow Oak's operations. The existing management had turned the company around in the mid-1980s, but the operating losses that were expected in 1989 signaled the need for new vision for the company. On June 6, 1989, a new board of directors and the chairman of MIM took charge. The chairman of MIM acted as chairman and CEO of Oak, and a temporary president and CFO were soon in place to guide the company while an executive search was begun.
By December 1989, William S. Antle III agreed to become president and CEO of Oak. Antle had spent the previous nine years at Bain and Company, Inc., a worldwide consulting firm with 1300 employees. With an MBA from Harvard, Antle had risen from manager to executive vice-president responsible for one of the company's five operating groups, management of other vice-presidents and clients, and Corporate Human Resources and the Bain Advanced Manufacturing Group. By mid-1989, discouraged by the structured environment at Bain, Antle left the company to start up the Hadleigh Group as a turnaround consulting firm. His plans to be an entrepreneur lost their luster when an executive search firm told Antle of the opportunity to reorganize Oak.
Within the month Antle had selected William C. Weaver as CFO. Weaver had been the CFO at Kennametal Inc., a company providing tools, tooling systems, supplies, and services to the global metal working industry. Antle was impressed with Weaver's experience at cost accounting and implementing performance measurement systems. The two men also shared a military history; Weaver had been a lieutenant in the army in the 1960s, and Antle had gone to the U.S. Naval Academy in Annapolis, Maryland, and worked as a division officer on a nuclear-powered Polaris missile submarine, as well as a special assistant to the Chief of Naval Operations in Washington, D.C.
At the time the new management was being selected, Oak Industries had nine operating divisions: Oak Communications, Inc., Diamond-H Controls Ltd., Harper-Wyman Company, Oak Switch Systems, Inc., McCoy Electronics, Ovenaire-Audio-Carpenter, Croven Crystals, Houston Electronics, and Nordco, Inc. Oak Communications, Inc. developed cable television equipment. Diamond-H controls, Ltd. made electric range components sold in Britain and Europe. Oak Switch Systems, Inc. made low-power rotary, push-button, and solenoid switches for the commercial as well as military markets. Oak Frequency Control Group encompassed the operations of McCoy Electronics, a builder of high reliability quartz crystals, quartz crystal oscillators, and quartz crystal filters for military, aerospace, and industrial uses; Ovenaire-Audio-Carpenter (OAC), which made and distributed crystal ovens, ovenized crystal oscillators, and temperature compensated crystal oscillators; Croven Crystals Ltd., an international supplier of high frequency, high precision quartz crystals; and Houston Electronics, which made hermetically sealed glass to metal holders for the quartz crystal industry. Nordco, Inc. was a company in the unrelated field of railways; it made products for the construction, maintenance, and repair of railway tracks.
When Antle arrived on the job he had about eight weeks to devise an appropriate course of action for Oak before it had depleted all its cash reserves. To assess the company's position, Antle toured all nine divisions of the company to review their 1989 results and plans for 1990. He found that all the divisions had failed to reach their year-end forecasts for 1989. The divisions had not just barely missed their targets; some had been off by 40 percent. Antle realized the divisions lacked operating discipline, effective management, and financial controls. While Antle made plans to save some of the company's operations, he asked a team from the Hadleigh Group to make liquidation plans for each of Oak's divisions in case the company had to divest itself of all its operations to remain solvent.
On February 15, 1990, Antle presented his strategy to the board. His plan addressed the potential he saw for seven of the nine divisions, the poor morale of the employees, an acquisition strategy for growth, and proposed a $14 million write-off. He suggested the immediate divestiture of Oak Communications and Diamond-H Control; neither of these division had much opportunity for future growth and both had especially weak competitive positions. Though he noted that the other divisions had high costs, many loss-generating product lines, and bad competitive positioning, he thought their industries were stable and highly fragmented with the potential for good profit margins but not much growth. To reach growth objectives for 1990, he proposed that the company should follow its previously stated acquisition strategy, to buy related companies with good growth opportunities, as well as new businesses. In an imaginative move, Antle proposed to cope with the company's low morale by moving the corporate headquarters to Boston. He thought that many of the management staff, who had been struggling with Oak's difficulties for nearly 10 years, would not make the move from San Diego and that a new management team would enliven the company.
New Management Direction Brings Results in the 1990s
By 1992, Antle's strategic plan seemed to be working. Revenues for the year increased 15 percent, operating income jumped 45 percent, a number of new products graced the company's lines, and the acquisition of Gilbert Engineering Co., a leading manufacturer of cable television connectors, gave Oak entrance into a high growth industry. The internal workings of the company demonstrated more effectively the efficiencies Antle had initiated. Sales per employees rose 11 percent, overhead expenses dropped 12 percent, inventory turns increased 33 percent, and days of sales outstanding decreased nine percent.
The wisdom of Oak's acquisition of Gilbert Engineering was proven with the operating results of 1993. Oak reported a 53 percent increase in revenue and net income rose to $26.7 million, an 85 percent increase over 1992. While Gilbert won much of the praise for the operating results, Oak's acquisitions of H.E.S. International and Spectrum Technology had also increased the communications component sales, and cost reductions, productivity improvements, and new product introductions also strengthened the bottom line. The financial performance of Oak continued to improve throughout 1994, with sales, gross margins, and operating profits all showing increases. Revenues increased 13.4 percent over 1993.
Oak entered 1995 planning to find another large acquisition like Gilbert. In addition, it planned to increase sales and profitability in its existing businesses by investing in product development, automation, and off-shore manufacturing, as well as the acquisition of smaller compatible businesses. Sales increased 11.1 percent, and the gross profit margin rose 40.1 percent from 1994 to 1995. Sales for the communications segment alone increased 28.5 percent. In addition, within that group, Gilbert Engineering and the Oak Frequency Control Group had record years as cable television customers upgraded networks and worldwide investment in wireless communications systems for cellular telephone, paging, and personal communications systems increased. The Oak Controls Group suffered as demand for gas ranges decreased, however. Nevertheless, the group increased its profitability over 1994 even though sales dropped 12.6 percent.
Although results for 1996 did not meet expectations, Oak prepared for the future by doubling its spending on new product development and investing in new facilities and equipment to increase capacity, improve quality, and reduce lead times. Oak believed the markets for its communications businesses would grow at double digit rates. The company focused on the growth of international markets, which it noted in the 1996 annual report had increased "significantly over the last five years." Oak targeted Europe, Asia, and Latin America for its international communications markets and Latin America for its controls components. With plans to acquire a company that would contribute significantly to Oak's bottom line, further touches to existing operations, and the firm hand of William Antle and his management team, Oak looked confidently into the future.
Principal Divisions: Gilbert Engineering Co., Inc.; Oak Frequency Control Group; Laserton, Inc.; Harper-Wyman Company; OakGrisby Inc.
Hurlock, Burton C., "Oak Industries Inc.," Harvard Business School Case, September 19, 1993.
Source: International Directory of Company Histories, Vol. 21. St. James Press, 1998.