Primark Corp.

views updated

Primark Corp.

1000 Winter Street, Suite 4300N
Waltham, Massachusetts 02154
U.S.A.
(617) 466-6611
Fax: (617) 890-6190

Public Company
Incorporated: 1981
Employees: 4,200
Sales: $477 million
Stock Exchanges: New York Pacific
SICs: 4581 Airports, Flying Fields, & Services; 7373 Computer Integrated Systems Design; 6719 Holding Companies, Not Elsewhere Classified

Primark Corp. was emerging as a leader in the global information services industry in the mid-1990s. Through its four major divisions, the company focused its information services on financial, weather, and information technology markets. Primark also provided miscellaneous transportation and financial services. Primark was basically a utility company until 1987, when it exited that business and forged into information services.

Primark originated from the early 1980s spin-off of Michigan Consolidated Gas by American Natural Resources. At the time, American Natural Resources was operating two primary subsidiaries: Michigan Consolidated Gas, which was a distributor of natural gas serving the Detroit area, and a sister company that operated an interstate gas pipeline. Although the two companies seemed to complement each other, regulatory constraints were stifling potential synergies. The gas pipeline company, which was regulated at the federal level, was highly profitable. In contrast, Michigan Consolidated had long suffered from tepid earnings and thin rate increases. The main problem was that Michigan regulators had been unsympathetic to rate hike requests because American Natural Resources generated so much profit from its gas distribution company.

Frustrated with the situation, American Natural Resources decided to jettison its lagging Michigan Consolidated Gas subsidiary in 1981. The new enterprise formed the basis for the creation of Primark Corp., which became the parent of Michigan Consolidated Gas in 1982. The new company was initially headed by Robert Stewart, who stayed with the spun-off subsid-iary as chairman. Under his direction, Michigan Consolidated thrived. Its early success was primarily the result of rate hikes; Michigan regulators were forced to give Michigan Consolidated rate increases that would allow the company to survive on its own. Although the company continued to churn out sales of about $1.1 billion annually, its profits began to rise. By 1984, in fact, Michigan Consolidated was approaching the maximum return on equity allowed by state regulators.

Stewart recognized early that Michigan Consolidated’s prospects for growth were limited. So he formed the holding company Primark as part of his long-term diversification strategy. He planned to use excess cash from Michigan Consolidated to fund acquisitions of non-gas companies that would boost Primark’s overall profits. To that end, Stewart and his fellow executives engineered the buyout of several companies in different industries during the early 1980s. They purchased a small California thrift, for example, and a couple of small insurance companies. Among their most notable buyouts was Hospital Satellite Network, a satellite broadcasting service for hospitals that arranged teleconferences and provided medical training programs. Primark bought that start-up company in 1983 with the intention of using its deep pockets to fund its rapid growth.

Although management of those diversified holdings by a gas company seemed like a stretch to some observers, Stewart cited the very strong numbers orientation of his management team. Furthermore, Primark was selective about its acquisitions. In 1984, for instance, the company considered but rejected a proposal to buy Continental Health Care Systems, a producer of mini-computers for hospitals. The end result of Stewart’s overall strategy was that sales and profits rose, and Primark’s stock price increased sharply between 1981 and 1985. Encouraged by gains, Stewart pursued more acquisitions, beginning with the 1985 buyout of The Aviation Group, a company that provided pilots and maintenance personnel to package air carriers like United Parcel Service, Emery Air Freight, and Purolator Courier. Other major buys included Telerent, which leased televisions, receivers, and satellite equipment to the hotel industry.

By 1987 Primark’s portfolio of holdings consisted of Michigan Consolidated, an aviation group that provided cargo aircraft operations and maintenance services, Hospital Satellite Network, and a financial division with leasing, mortgage, and insurance operations. Unfortunately, Stewart’s diversification plan began to sour. During the first nine months of 1987, in fact, only Michigan Consolidated and the financial division were profitable. Among other setbacks, The Aviation Group lost its major customer, UPS, which accounted for about 50 percent of that subsidiary’s sales. That blow resulted in a $64.4 million restructuring charge related to the division late in 1987. And, while Hospital Satellite Network had a lot of potential, the venture was still in the early stages of growth and was consuming relatively large amounts of capital for expansion.

Primark managed to capture about $1.6 billion in revenues and $51.7 million in net income during 1986. But profits began to slip in 1987 and the company’s stock price plunged—the stock dip was also the result of the 1987 stock market crash. Critics charged that Primark’s diversification strategy lacked direction, and that the company was failing to realize any benefits from investing excess cash from Michigan Consolidated in its acquisitions. Even Stewart conceded that his plan was not working as he had hoped it would. Stewart had planned for non-gas acquisitions to eventually represent about one-third of the company’s profit. By mid-1987, however, they were making up less than ten percent.

To give Primark some direction, the company’s board brought in Joseph Kasputys to take control of the operation as president. The 51-year-old Kasputys came to Primark from McGraw-Hill, where he had engineered a huge, two-and-one-half year merger and acquisition campaign that put the company near the top of its industry. Even before his work at McGraw-Hill, Kasputys had demonstrated his abilities in a number of situations. Kasputys was born and raised in New York. He attended Brooklyn College, served in the Navy during the Korean War, and got his master’s degree from Harvard in 1967. From Harvard, Kasputys went to work for the Pentagon during the Vietnam War before returning to Harvard to obtain his doctorate in business. He returned to Washington in 1972 and, among other distinctions, served as assistant secretary of the Commerce Department. Throughout the period, he managed to complete 20 years of service in the Armed Forces and retire in 1976 with the rank of Commander. Kasputys would prove to be just as successful in the private sector.

Kasputys took the lead at Primark in August of 1987; Stewart remained as chairman. Less than six months later, Kasputys and the Primark board surprised analysts with the announcement that Primark was going to spin off its core unit, Michigan Consolidated. The idea was to sell Michigan Consolidated, streamline Primark’s existing group of companies, and use cash from the sale to acquire new companies. Existing Michigan Consolidated head Alfred Glancy III remained at the helm of his company and was free to focus all of that organization’s energy on the gas distribution business. The 63-year-old Stewart retired, and Kasputys became chairman (and, later, chief executive and president) of the slimmed down Primark. The spin-off was completed in may of 1988.

Michigan Consolidated stayed in its home state after the breakup, while Primark’s headquarters stayed in McLean, Virginia; they were later moved to Waltham, Massachusetts. Primark’s work force shrank from more than 5,000 to about 1,500 following the sale of Michigan Consolidated, and the resultant holding company was reduced to annual revenues of about $100 million. However, the sale left Primark with about $110 million in cash that Kasputys believed he could use, with the help of some lenders, to purchase at least $1 billion worth of new companies. To add to the cash hoard, moreover, Kasputys jettisoned several Primark subsidiaries that did not fit in with his information services focus. He decided to dump Telerent, for instance, and later sold some of the mortgage and insurance businesses. Investors reacted to the split and reorganization positively, as evidenced by a stock price gain of 75 percent during Primark’s first year after the sale of Michigan Consolidated.

During 1989 and 1990 Primark dabbled in a number of different industries in an effort to develop some sort of focus. It continued to operate its hospital satellite network but was also engaged in businesses ranging from trucking and aircraft maintenance to gas storage and insurance. Beginning in 1990, though, the company began a concerted effort to focus on one key industry; information services. Kasputys believed that the information services industry offered strong growth potential. To succeed, moreover, Primark would have to target all or most of its investments in that direction. To that end, Primark discontinued its Westmark Mortgage Corp., Triad International Maintenance Corp. (TIMCO) (TIMCO), and General Transport Services subsidiaries in 1992; Primark eventually retained TIMCO as one of its few non-information subsidiaries. Then, in 1993 and 1994, Primark liquidated its remaining life insurance interests.

As Primark jettisoned its holdings, it drew on its hefty cash reserves to begin building itself into a leading information services company. Importantly, Primark purchased Analytical Sciences Corp. (TASC) in 1991 for $167 million. TASC was a Massachusetts-based research and technical services company serving both government and commercial markets. The company was among the leading global providers of advanced, high-end information gathering systems that were purchased by entities like intelligence agencies and military forces. Sales to defense and intelligence communities, in fact, accounted for the bulk of the company’s sales. In addition to its core market, TASC also provided systems for various commercial markets, including the airline industry, weather forecasters, and environmental data and surveillance organizations. Furthermore, the company was using its advanced research operation to develop new document imaging systems and software products related to its information markets.

Primark followed the TASC acquisition with the 1992 buyout of Datastream International Ltd. for $191 million. The London-based Datastream was founded in 1964 and was a subsidiary of Dun & Bradstreet Corp. before Primark purchased it. Data-stream provided financial information services to investment bankers, brokers, pension fund managers, and insurance companies in 36 countries. Kasputys hoped to use the company to capitalize on the growing trend toward global investing by portfolio managers and other investment professionals. Because most of Datastream’s revenues came from outside the United States, Kasputys believed that strong domestic growth opportunities existed. He was also interested in getting the company’s giant database of global financial data on, for example, emerging economies. During 1992 and 1993 Datastream posted steady gains under Primark’s umbrella. By 1994, in fact, Data-stream was providing global financial information and software services to institutional investment and money management professionals in 1,500 organizations in 41 countries on five continents.

In 1994, Primark added another, smaller business to its burgeoning information services portfolio when Datastream purchased Vestek Systems, Inc., for $6.9 million. Founded in 1983, Vestek provided investment information services and software to about 200 organizations in the United States and Canada. Investment professionals used Vestek products and services to construct investment strategies and to help with reporting tasks. Customers included mutual fund managers, bank trust departments, insurance companies, and financial consultants. Before Primark bought it, the San Francisco-based Vestek posted sales of $7 million and employed about 45 people. Kasputys hoped to integrate Datastream’s and Vestek’s competencies to create a whole that was greater than the sum of its parts. Evidencing that intent was the introduction of Primark’s Global Asset Allocation Model in 1995, which was the first product sold as a result of cooperation between Datastream and Vestek; the model was designed to help money managers allocate funds across different asset categories and geographic markets.

Primark was enjoying steady improvements in its information services businesses going into the mid-1990s. Although its chief subsidiary, TASC, was suffering from a downturn in its core defense and intelligence markets, the subsidiary continued to post relatively healthy sales and operating profit growth. Datastream and Vestek posted much stronger gains. Even Primark’s major non-information subsidiary, TIMCO (9.7 percent of Primark’s 1994 revenues), was enjoying profit increases. Overall, Primark revenues exploded from about $10 million going into the 1990s to $444 million in 1993 and then to $477 million in 1994. More importantly, net income climbed to nearly $14 million in 1994. Meanwhile, Kasputys and his fellow executives hunted for new additions to the Primark information services group.