Morton-Norwich Products Inc. is best-known for its salt: The royal blue package, the little girl with the yellow slicker and the umbrella -- and, most of all, the slogan, "When it rains, it pours" -- stand for the company that is No. 1 in the salt business.
Thiokol Corp. makes rockets. Rockets for the space shuttle, rockets for the MX missile, rockets for the Trident submarine missile. It's safe to say that Thiokol is to rockets what Morton-Norwich is to salt.
But what are they to each other?
Barring a last-minute hitch, Morton-Norwich and Thiokol will merge next month to create Morton-Thiokol, maker of salt and rockets with projected combined sales approaching $2 billion. On the face of it, that's an odd combination.
But, as in any partnership, the chemistry is the thing.
Both Morton-Norwich and Thiokol, you see, also make specialty chemicals. Put them together and you have a company whose biggest part is a $600 million specialty chemical business. And company officials believe that by investing the considerable profits from salt and rockets, the new company can make a full-scale assault on the specialty chemical industry.
Morton-Norwich began gearing up for the battle earlier this year when it purchased Philip Morris Inc.'s specialty chemical division. In contrast to the competitive, high-volume commodity chemical industry, which has been buffeted in recent years by rising petrochemical prices and the roller-coaster economy, the specialty chemical business, which produces compounds used for specific industrial applications, has stayed strong. Earnings of Morton-Norwich's specialty chemical business grew 32 percent in the year ended June 30, on a 7 percent increase in sales.
Morton-Norwich Chairman Charles S. Locke, whose office is dominated by a grand mural of clouds and sky, thinks the joining of Morton-Norwich and Thiokol is a marriage made in heaven. "It really does make a tremendous amount of sense," he says. "It's a very strong company that's going to be able to finance anything within reason it wants to do."
Analysts concur. Although they think Morton-Norwich is paying alot -- $540 million in all -- for Thiokol, they generally favor the merger. "It seems to me Morton-Norwich is getting a good deal," says Thom R. Brown, an analyst at the Philadelphia securities firm of Butcher & Singer Inc. "They've been trying to diversify."
Indeed, the planned merger with Thiokol caps several months of wheeling and dealing by Locke and other Morton-Norwich executives that has resulted in a major revamping of a company that had been something of a hodgepodge of consumer and pharmaceutical products.
The latest venture extends a process that began in the middle of the last decade, when Morton-Norwich shed, among other things, lines of French cosmetics and fashions.
"We've been seriously shaking our tree, if I can express it that way, in Morton-Norwich for some period of time," Locke says. "We have been evaluating the businesses we were in -- what made sense, what we were being successful in and what we were not being successful in."
The major victim of the latest evaluation was the Norwich side of the company -- a pharmaceutical business whose products included Pepto-Bismol, Chloraseptic, and a variety of other medicines.
Morton added Norwich in 1969, and then embarked on a series of small acquisitions, particularly overseas joint-venture agreements, in an effort to expand the business. But, says Locke, "All of those efforts really weren't producing much." The division's recent results "really weren't too exciting," he says, and Norwich's research and development pipeline, which is crucial to the drug business, had slowed to a trickle.
The remedy, according to Locke, would have been injections of huge amounts of money into a division dwarfed by its competitors. Although he describes the drug business as "one of the most exciting and best industries I can think of," Locke did not believe Morton-Norwich could be competitive in it.
"We eventually concluded we were not going to be successful in the ethical pharmaceutical business," Locke says. "We decided to find out if our ethical pharmaceutical business was worth more to somebody else than it was to us. It was."
Procter & Gamble Co. bought the division in June for $371 million, helping Morton-Norwich clear up another corporate problem. In 1978, Morton-Norwich had signed an agreement with Rhone-Poulenc S.A., a French pharmaceutical company, to exchange research and to market each other's products over the next decade. Rhone-Poulenc got a 20 percent share of Morton-Norwich in the bargain.
The deal never quite took. "The relations between the managements of the two companies were so acrimonious that they were unable to do anything," says James D. Dougherty, an analyst who follows Morton-Norwich for F. Eberstadt & Co.
Last summer, Rhone-Poulenc put its stake in Morton-Norwich up for sale, leading Morton-Norwich to sue the French company for breach of contract. The companies discussed settling the issue by exchanging the Norwich division for Rhone-Poulenc's holding in Morton-Norwich and cash, but Procter & Gamble made a better offer for the drug division.
That aggravated the problem -- if Morton-Norwich sold the Norwich division to Procter & Gamble, Rhone-Poulenc asked, how could Morton-Norwich live up to its side of the drug research and marketing agreement with the French company? That, concedes Locke, was "a fair premise." So the companies struck a deal: the agreement was broken, Procter & Gamble got Norwich, and Rhone-Poulenc got $135 million from Morton-Norwich for the 20.3 percent stock holding.
Morton-Norwich took the remaining cash and went shopping. It didn't have to look far before finding Thiokol. Locke and Thiokol Chairman Robert E. Davis had first discussed some kind of combination last September, when Davis contacted Locke about the possibility of buying Morton-Norwich's specialty chemical business.
The companies each had a similar problem -- despite some diversity, each was reliant on one major product line for the majority of sales and earnings. "Too large a percentage of his company was devoted to government systems, and a very large percentage our company was devoted to salt," Locke says. "By putting the two together you solve that."
More important, the combination matches complementary specialty chemicals businesses. Although the two companies' chemicals operations serve some of the same markets, they make almost completely different products. Locke likens the fit to an interlocking grid of products rather than to a merger that combines similar lines of products to increase market share.
Morton-Norwich, for instance, makes the epoxy molding compounds that are used to encapsulate electronic silicon chips. Thiokol makes the chemicals used in etching circuit boards. By merging, they will gain access to each others' markets in the electronics field, an entree they might not have gotten on their own. Through Morton-Norwich's contacts with chip makers, for example, Thiokol can sell products used in making silicon chips -- right now a tiny part of its business.
Locke admits that the specialty chemicals business is not an easy one, because each product is virtually custom-made. "It's just like making a tailor-made suit or a hand-carving -- something for a special, specific purpose," Locke says. "The user sometimes has to be told what to do with these chemicals."
Morton-Thiokol's specialty chemical operations, with $600 million in sales, will account for about one-third the revenues of the new company, with salt, rockets, and Morton-Norwich's other consumer products -- including Spray 'n' Wash and Fantastik cleaners and Yes laundry detergent -- splitting up the rest. Locke sees the sales of the chemicals division growing quickly to $1 billion and expects chemicals to account for about half of Morton-Thiokol's business before long.
"We will certainly feed that business to the extent that it is able to digest it," he says. "The financial strength of the company that emerges is going to be tremendous.
"We've got a vehicle that produces cash like crazy," he adds. "What are we going to do, sit there and count it? We're not a bank."
And although Locke says the latest round of revamping at the company is over, he doesn't rule out future changes as management fine-tunes the company.
"I would see us continuing to acquire, on a less grand scale, probably, and I would see us continuing to divest," he says. "I don't think you're ever at the end of moving and shaking."