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The Hoover Company

 


Address:
101 E. Maple Street
Canton, Ohio 44720
U.S.A

Telephone: (216) 499-9200
Fax: (216) 996-5439


Statistics:
Wholly Owned Division of the Maytag Corporation
Incorporated: 1910 as Hoover Suction Sweeper Co.
Employees: 10,560
Sales: $1.5 billion
SICs: 3635 Household Vacuum Cleaners


Company History:

A division of the Maytag Corporation, Hoover is probably best known for the line of vacuum cleaners it markets in the United States and Canada. However, the company also produces and sells high quality washers, dryers, dishwashers, and other products primarily in the United Kingdom and continental Europe. Maytag acquired The Hoover Company in 1989, providing Maytag an important foothold in the highly competitive international appliance market. In the mid-1990s, Hoover conducted business through two separate divisions, which reported separately to Maytag: Hoover North America, with headquarters in North Canton, Ohio, and Hoover Europe, with headquarters in Merthyr Tydfil, Wales. Manufacturing facilities in the United States, Canada, and Mexico were part of Hoover North America, while manufacturing facilities in the United Kingdom and Portugal were part of Hoover Europe.

The company's roots date to 1827, when Henry Hoover established a tannery near Canton, Ohio. More than 80 years later in 1908, W.H. Hoover and his son began selling vacuum cleaners from the family business after purchasing the rights to an electric suction sweeper invented the year before by Murray Spangler, an inventor by profession who was moonlighting as a janitor at a local department store. From a soap box, fan, sateen pillow case, and broom handle, Spangler assembled a crude machine to vacuum the dust that aggravated his asthma when he swept carpets with a broom. On realizing the product's sales potential, Spangler began a search for investors and found one in his cousin's husband, W.H. "Boss" Hoover. Hoover bought Spangler's patent in 1908, kept Spangler as a partner, and hired six employees to produce the machines in his tannery. Initially called the Electric Suction Sweeper Co., the company was incorporated in Ohio on December 6, 1910 under a new name, the Hoover Suction Sweeper Co.

Soon thereafter, Mr. Hoover began marketing the sweeper in stores throughout the country. His strategy relied on a small magazine ad, which ran in the Saturday Evening Post, offering a free ten-day trial period to those who wrote and requested it. Customers would then be directed to a nearby store that had agreed to stock the Hoover sweeper for the duration of the ad. Mr. Hoover's idea was to have selected stores distribute the machines to customers, allow the stores to keep the sales commissions, and then to invite them to become dealers for the company's product. This strategy proved remarkably effective, and the company eventually established a chain of 5,000 reputable dealers from coast to coast. Mr. Hoover's early success relied on door-to-door salesmen who represented each local store; that store, in turn, lent its name for a share of the sale. Hoover also stationed salesmen in dealer showrooms to give free product demonstrations.

Domestic sales aside, Hoover found new markets for the electric sweeper abroad. In 1911, he opened a Hoover plant in Canada and an office in England in 1919. By 1921, Hoover was selling the product worldwide, and by 1923 sales reached $23 million. Also during this time, Hoover began an engineering and development program to design better machines. In 1926, a breakthrough innovation with the "beater bar" utilized the memorable advertising slogan: "It beats as it sweeps as it cleans." The beater bar worked by thumping the carpet to loosen dirt which was then swept up into the bag by a bristle brush aided by strong suction. The company improved on the beater bar with the Quadraflex agitator, which doubled the brushing action and continued as a feature of Hoover vacuum cleaners into the 1990s. Hoover made numerous other innovations, including such convenience features as disposable paper bags, the vacuum cleaner headlight, and the self-mounted attached hose feature which was patented in 1936.

In 1942, the company turned its manufacturing facilities to the war effort, producing plastic helmet liners and parachutes for fragmentation bombs, as well as four components for the proximity fuse. With the end of the war came new changes for the company. Although Hoover had always prospered with door-to-door selling, changing times made it increasingly difficult to hire these salesmen. As housewives gained employment outside the home, they were no longer the promising sales prospects they had been. Moreover, the advent of the shopping center, greater mobility by automobile, and the explosion in commercial advertising via radio, television, magazines, and newspapers lured the public directly to retailers, undercutting the door-to-door sales system.

Hoover also met with heightened competition. When other companies, including General Electric, began selling through corner appliance stores, Hoover began to feel the pinch. Other companies, such as Electrolux, established Hoover-like sales forces, which also undercut profit margins. By the time Herbert Hoover, Jr. (no relation to the former U.S. president) succeeded his father, H.W., as chief executive in 1954, profits represented a mere three percent of sales, and the company's market share had fallen. As a result of declining market share, the company jettisoned door-to-door sales marketing, as well as its retail policy. Hoover then expanded its number of U.S. dealers to nearly 30,000. Under Herbert, Jr., the company also set up a subsidiary called Hoover Worldwide in New York to expand the company's management beyond Canton, Ohio.

In 1966, as a result of a proxy battle to oust Herbert Hoover, Jr., Felix N. Mansager became chief executive of the company. Mansager had started with Hoover in 1929 as a door-to-door salesman and rose to become sales manager of Hoover's North and South Dakota sales force. Realizing the obsolescence of door-to-door sales following World War II, he had abandoned the technique in favor of forming a cadre of dealer-supervisors to oversee and train retailers. The plan proved highly effective and was expanded nationwide. This accomplishment won him a position as Hoover's worldwide marketing vice-president in 1959.

While the balance sheet appeared respectable enough, the company suffered from declining market share, lagging domestic sales, and an exceedingly narrow product line. At the time, Hoover essentially produced only two products--vacuum cleaners in the United States and washing machines and vacuum cleaners in England. In the early 1950s, market share precipitously dropped to nine percent, and for almost a decade domestic sales barely budged from $51.7 million in 1953 to only $54.9 million in 1962. When compared to overseas volume, Hoover's domestic sales were anemic at best. In 1963, a full 55 percent of the company's $242 million in sales came from England, a consumer market considerably smaller than that of the United States. Another 20 percent came from its other overseas operations.

As executive vice-president, Mansager had moved to expand domestic growth through product diversification and acquisitions. With Herbert Hoover, Jr.'s consent, he had added new products, including toasters, irons, and hair dryers, putting the company in direct competition with the likes of Westinghouse and Sunbeam.

Mansager's rise to the top post represented the first time in 58 years that the company's management was dominated by nonfamily members. As the new chief executive, Mansager immediately announced a $20 million expansion of the North Canton plant. He also moved to address the imbalance between domestic and foreign sales through more product diversification and pushing stronger U.S. sales. As a result, by 1971, Hoover sold more than one-third of all vacuum cleaners in the United States, forcing competitors Westinghouse and General Electric to quit the floor-care market. The company also was selling many products in other markets, ranging from electric fondue pots to washing machines. This product diversification stemmed partly from Mansager's 1969 acquisition of Knapp-Monarch, a producer of small kitchen appliances. In 1971, stronger U.S. sales amounted to 37.8 percent of the total.

These promising developments were short-lived, however. In 1974, Hoover's earnings collapsed from $33 million to only $8.7 million, as a result of an overcrowded appliance market. Mansager then retired in 1975, eight months before reaching the mandatory retirement age of 65. His replacement by Merle Rawson heralded a more conservative direction for the company. In 1977, Rawson sold the small appliance unit to focus exclusively on Hoover's core products. He also moved Hoover Worldwide from New York back to North Canton, bringing with him only the remaining key personnel. By 1977, earnings had risen again, albeit not to earlier levels. Although Hoover's one-third share of the domestic vacuum cleaner market had barely moved since 1971, the company remained profitable enough. Its stock had already peaked years ago and now stood at around $11 per share.

In 1979, enticed by Hoover's low stock price, quality products, and its worldwide name, J.B. Fuqua, owner of the Atlanta-based conglomerate Fuqua Industries, targeted the company for a takeover bid. Fuqua's conglomerate specialized in making acquisitions, having purchased about 40 such firms in as many years. In building his conglomerate, with sales totaling $1.6 billion in such diverse areas as trucking, lawn mowers, and photo finishing, he preferred making quiet deals with major stockholders to launching hostile takeovers. What appeared to be an easy and lucrative acquisition, however, turned hostile when the small town family business resisted his overtures. Fuqua's strategy was to get a controlling share of Hoover stock directly from family members by offering $22 a share and then to acquire the rest by offering Fuqua stock and debentures.

Fuqua appeared assured of gaining a significant controlling interest, as Herbert was eager to sell his huge share of stock to Fuqua. On leaving the company, however, he had signed an agreement requiring him first to offer Hoover the option to match any buyout offer. Fuqua bet that the company would not borrow most of the needed $24.2 million and risk the lawsuits that would inevitably follow. He had miscalculated, however, and in the ensuing court battle initiated by Hoover, a federal judge ruled that Fuqua's bid by letter to family members rather than to stockholders constituted an illegal tender offer. Hoover's victory, however, came at a price. At $22 a share, Fuqua's bid was attractive to shareholders. When the deal fell through, angry stockholders filed three suits against management: two class action complaints charging that management improperly used company funds to block Fuqua's offer through purchase of Herbert's shares, and a third filed by family member Frank Hoover, who first opposed the buyout and now sought to force its acceptance. To appease litigious stockholders, Hoover promised to look for other buyers and to explore financial alternatives.

Nevertheless, just six years later in October 1985, Hoover received another unsolicited $40-a-share acquisition offer from the Chicago Pacific Corporation. Formed in June 1984, Chicago Pacific emerged from the bankruptcy reorganization of the Chicago, Rock Island & Pacific Railroad Company. In 1975, the railroad company (chartered in 1847) entered proceedings for reorganization under section 77 of the Federal Bankruptcy Act. On January 25, 1980, a federal district court ordered that the railroad begin liquidation of its rail assets. With more than $450 million in cash and huge tax credits from the sale, Chicago Pacific began searching for a substantial acquisition. After two failed efforts in 1984 to purchase Textron, Inc. and Scovill Inc., Chicago Pacific focused on Hoover, whose large domestic and overseas markets and its famous brand name made it an attractive target. Given the bid of $40 per share, Hoover's board rejected the offer, directing the company's management to seek other interested buyers to maximize value for shareholders. In October, news of the move sent Hoover's stock up more than seven dollars in over-the-counter trading to around $43 per share. The tender offer was set to expire on November 1, but in last minute negotiations, Chicago Pacific signed a definitive agreement to acquire Hoover for $534.6 million. The key to the deal stemmed from Chicago Pacific's willingness to raise the bid to $43 a share, which Hoover's board of directors accepted. The agreement continued a trend on Wall Street that witnessed the takeover of several consumer product companies.

At the time of acquisition, Hoover's net income totaled more than $40 million, up from just $28 million in 1983. Its business consisted of producing and distributing electric vacuum cleaners and accessories, electric floor polishers, and other floor care appliances and supplies, as well as laundry equipment, including washers and dryers. Hoover also had subsidiaries in England, Canada, Mexico, Colombia, Australia, France, South Africa, and Portugal.

In January 1989, Chicago Pacific was acquired for $1 billion in a friendly buyout by the Maytag Corporation, a producer of microwave ovens, refrigerators, washers, dryers, and other appliances. The combined sales of the two corporations was expected to exceed $3 billion. Both companies made the deal for similar reasons. Chicago Pacific's efforts to evade a hostile take over by an investment group prompted it to look for a friendly buyer. Maytag also sought to avoid corporate raiders in the quickly consolidating international appliance market. As the fourth largest producer after General Electric, Whirlpool, and White Consolidated Industries, Maytag seemed an appealing acquisition. The purchase of Chicago Pacific not only would ward off corporate raiders by adding $500 million in debt to its balance sheet, but also would expand its markets overseas with the lucrative Hoover franchise. Maytag had no presence in the international market, while Hoover had 13 plants in eight countries that manufactured and distributed washers, dryers, refrigerators, dishwashers, and microwave ovens.

The acquisition gave Maytag the foothold in the international market that it needed. In 1991, Hoover reorganized its operations in the United Kingdom and Europe into Hoover Europe, which was responsible for all manufacturing and marketing throughout the region. To increase Hoover Europe's competitive position, $25 million in capital improvements were made to the plant in Wales, which began producing new washers and dishwashers. In 1993, Hoover also consolidated all vacuum cleaner production in Europe at its facility in Scotland, closing its manufacturing facilities in France. This restructuring of the company along pan-European lines produced a minor international row between France and Britain.

The French foreign minister, Roland Dumas, denounced the reorganization resulting in the loss of 600 jobs as a "serious incident." The French government then asked the European Commission to investigate whether the assistance offered by Britain to transfer the operations constituted a violation of EC rules. Accusations were also made that Britain was engaged in "social dumping"--attracting foreign investment through eroding workers' rights. In light of Europe's slow economic growth and rising unemployment, the free flow of capital and labor across international borders was a sensitive issue for nations experiencing job losses at home. To remain competitive in the fast emerging global business, Hoover found that it had to concentrate its production facilities in one European plant. The company also reasoned that Scotland would provide a more flexible work force--an important competitive advantage in many industries--than could be had in France.

In the mid-1990s, Hoover was the 68th most recognized brand name in the world. Its successful expansion into new markets during this time boded well for its future as a continued leader in floor care.





Further Reading:


"The Challenger from North Canton," Forbes, June 15, 1972, p. 60.
Crudele, John, "Hoover Accepts New Offer," New York Times, October 30, 1985, p. D1.
"Filling a Power Vacuum at Hoover," Business Week, October 21, 1967, pp. 84-88.
Gillman, R. W., "One Man's Theory Opens a New Door," Nation's Business, January 1970, pp. 84-85.
Greenhouse, Steven, "Hoover Rejects Takeover Bid," New York Times, October 16, 1985, p. D5.
Holt, Donald, "Fighting Off Fuqua Was an Unsettling Victory for Hoover," Fortune, October 22, 1979, pp. 139-140, 144.
"In the Nick of Time," Forbes, September 1, 1968, p. 46.
Salpukas, Agis, "A Chief is Elected By Chicago Pacific," New York Times, April 21, 1984, p. I31.
Siler, Julia Flynn, "$1 Billion Merger in Appliances," New York Times, October 25, 1988, p. D1.

Source: International Directory of Company Histories, Vol. 12. St. James Press, 1996.




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