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Where Next?
It's a sorry end for Hutchings, who turned Tomkins from a tiny belt manufacturer into a business worth £4.5b at its peak. But unfortunately for his shareholders, Hutchings continued to build his diversified conglomerate long after the company had past its stock market "sell by" date.
Lessons from Lord Hanson
Hutchings cut his teeth at Hanson (LSE: HNS), the pioneer of the corporate "growth by acquisition" philosophy, during the seventies and early eighties. The rationale for the corporate strategy was simple. Underperforming businesses were bought, and after applying a large dollop of hard-nosed management, excess costs were removed and a turnaround in profitability would be achieved. Typically funded by share issues, the acquisitions would underpin the purchaser's future earnings growth. And as investors recognised that earnings growth and pushed the purchaser's share price higher, so more and more acquisitions could be made...
Back in 1980s, investors clamoured for the "acquired growth" approach. They were especially enthused by profit streams from assorted businesses, because downturns in one industry could be balanced, in theory, by income from other markets. Fifteen years ago, diversity was the stock market watchword. Alongside Hanson and Tomkins, BTR and Williams (LSE: WLMS) were also famous proponents of the diversification theme.
Guns, buns and awful puns
Hutchings joined Tomkins in 1983 and quickly followed the Hanson approach. Purchases of Hayters, a lawnmower manufacturer, Smith and Wesson, a gun-maker, and Rank Hovis McDougall, a bread business, all took Tomkins to the FTSE 100 in 1992.
However, it was at around the time Tomkins joined the top tier that investors began to lose their enthusiasm towards the conglomerates. With acquisitions becoming more expensive, and needing to be ever larger to just keep the growth momentum going, the stock market could sense the beginning of the end for diversification.
And not only were suitable purchases harder to find, but questions were, finally, starting to be asked about the business fundamentals of a conglomerate. The synergies to be had by making gardening equipment, pistols and bread have never been entirely clear. Moving into the early 1990s, the share prices of conglomerates began to stall. Acquisitions and growth, therefore, inevitably stalled soon after.
For Sale
Lord Hanson, who largely established the concept of the diversified conglomerate, was the first to recognise that its day had passed. During 1996, he oversaw the dismantling of his company into four separate, but focused, business divisions. Williams also began to divest its extraneous businesses a few years ago, to concentrate on security and fire equipment. BTR, on the other hand, merged with Siebe in 1999 to form Invensys (LSE: ISYS). And conglomerate profit troubles still haunt Invensys today.
Hutchings and Tomkins are, perhaps, the last to throw in the conglomerate towel. This year, the group put "For Sale" signs over a variety of subsidiaries, including Smith & Wesson and Rank Hovis, and declared a shift of focus towards its car component engineering companies. That move satisfied some of Tomkin's critical shareholders, who had seen their shares lose over 40% in the last year, but others were still uncomfortable.
Boardroom upheaval
Corporate governance was never regarded as a strong point at Tomkins. Hutchings had the dual role of Chairman and Chief Executive and was widely considered as answering to nobody. Earlier this year and under pressure from institutional shareholders, Tomkins appointed non-exec David Newlands as Chairman and installed Sir Brian Pitman as a non-executive. It was anything but a cosmetic move, as Newlands quickly instigated a boardroom investigation.
And so, rumours of Hutchings' undisclosed related party transactions prompted Monday's "certain board practices" announcement, and no doubt today's resignation.
So what now for Tomkins? The company was very much a one-man band and now looks without direction. With that in mind, there's a distinct possibility that the company could be dismantled entirely. Alongside the other parts already on offer, the poorly regarded car component subsidiaries could all go too and the company may disappear totally. And that would be a sad end to a company which, just like Hutchings, rather overstayed its stock market welcome.