GE Betz - Recent History

Recent History

After observing the inauguration of Betz de Mexico, L. Drew Betz retired as chairman of the board of directors on the same day he turned 71. Following L. Drew's retirement, John Drew assumed the title of chairman and a young executive by the name of John J. Maguire, who was not a family member, was promoted to executive vice-president. Only two years later Maguire assumed the position of company president, with L. Paul Heim still serving as president and chairman of all European (international) operations, signifying the end of the founding family's traditional tenure in this position.

Under the new president's leadership, industry observers watched the company consolidate its newly initiated European operations established under the leadership of the young executive, L. Paul Heim (including a joint venture with the British B.T.I. Chemicals Limited and a marketing office established in Belgium) into Betz International, Inc. This wholly owned subsidiary held the responsibility of guiding Betz's entrance into the international market. By 1972 Betz International established operations in Central and South America, the Caribbean, Africa, the Middle East, and parts of Asia. In addition, an office was established in Austria for the purpose of penetrating communist bloc countries in Eastern Europe, and an office was established in Taiwan to arrange for Betz products to enter the market of the Republic of China. During this time of massive international and domestic growth, L. Paul Heim, a man with deep ties to the Nixon administration, released his considerable holdings in Betz Int., after declining an offer from the Board to serve as International President and Chairman. Mr. Heim now lives in Southern California and heads a private mergers and acquisitions firm.

The company's consulting business, operating under an independent division, similarly experienced a period of expansion during the later 1960s and early 1970s. First acquiring Albright & Friel, a consulting firm with over 75 years of experience, and then purchasing Fridy-Gauker & Fridy, a planning and architectural company, Betz's consulting services grew to achieve industry prominence. So important did this aspect of Betz's operations become that it was consolidated in 1971 into Betz Environmental Engineers, and later cited as a catalyst in the company's ability to secure customers. While Betz's product line consisted in commonplace bulk chemicals, its marketing of the uses and benefits of these products tallied the figures of the company's success.

By 1975 consolidated sales surpassed $100 million as compounded annual earnings growth reached 20 percent. The company's success was due not only to increased foreign operations and expanding services but also to a highly favorable economic and political climate. The enactment of the 1971 Clean Air Act, as well as the summit accord reached between U.S. President R. Nixon and Soviet Premier L. Brezhnev to cooperate on environmental protection issues, created a constructive environment for the pollution control industry. With estimates high for domestic expenditures needed to protect national resources, the government searched for ways to defray costs. These attempts included tax relief incentives for industry to regulate itself, tax-exempt pollution control bonds, and federal legislation. In addition, the high price of oil served to bolster Betz's profit margins. Scale deposits on boilers increased fuel bills; Betz's products removed scale deposits and therefore decreased the cost for maintenance.

While Betz continued to control an impressive 18 percent market share during 1984, fluctuations in the economy reflected a changing market configuration. The company, on the whole, operates independently from the drastic effects of economic cycles; no matter how much industry suffers through a recession, few companies would forgo the cost of basic maintenance. Yet fundamental changes in the economy demanded a realignment of Betz's customer base. 75 percent of the U.S. market for water treatment chemicals can be attributed to under 12 companies. The reason for this market dominance was because these customers represented four heavy industries, including oil refineries, petrochemical plants, and steel and paper mills. Yet production overcapacity in both the petrochemical and paper industries as well as the virtual disappearance of many domestic steel companies and oil refineries found Betz searching for new customers.

Much of John F. McCaughan's tenure as Betz's chief executive officer focused on this issue of securing new markets. Despite the difficulties surrounding Betz's four major industry customers, McCaughan pointed to the company's success in consolidating business in the 'middle' market, such as the auto and textile industries. Similarly, Betz executives emphasized the fact of dropping levels of water tables as an incentive for future growth. Since water represents a finite resource, some industries find themselves searching for alternative coolants, including the use of treated sewage water. Furthermore, an innovative new product called Dianodic II, an organic water treatment compound, entered the marketplace in a company effort to conform with the Environmental Protection Agency's policy on discontinuing the use of allegedly toxic chemicals contained in some water treatment compounds.

McCaughan's company achieved an important industry standard in 1992, when all 12 of its U.S. plants earned the International Organization for Standardization's (ISO) 9002 certification in only eight months. ISO sanction usually took 24 months. It was hoped that conforming to these primarily European criteria would boost Betz's international business, which had grown from $6 million in annual revenues to over $160 million. (Many overseas operations had previously been certified.) The company invested over $750,000 to bring its operations up to standard, but industry observers emphasized that certification sanctioned the company's quality claims, thereby opening new opportunities to the company. For example, Senior Vice-President B. C. Moore told Business Week in 1993 that two U.S. companies had placed sizable orders specifying that their water treatment systems be manufactured by an ISO-9000 certified plant. Annual savings of $100,000 in manufacturing costs were icing on Betz's cake.

In 1993, Betz sales and pretax earnings decreased, from $706.97 million to $684.87 million and $82.05 million to $65.52 million, respectively. Company executives blamed a $16.2 million pretax restructuring charge for the deficiency. The charge reflected personnel reductions, facilities consolidation, divestment of unproductive assets, and the cost of reorganizing global marketing efforts. A key aspect of the reorganization was the decentralization of the company's largest operating segment, Betz Industrial. The subsidiary was split into four separate technology divisions: refining and chemicals; pulp and paper; power industry; and manufacturing industries.

Betz also cited 'sluggish growth in the industrial sector of the economy, particularly the chemical, refining, and paper industries, our major customers,' for its first decline, and raised its dividend regardless. John F. McCaughan resigned the chief executive office at the end of 1993 in favor of accepting the chairmanship. William R. Cook, who had joined Betz in 1972, added the responsibilities of CEO to his role as president.

In spite of Betz' slide, the outlook for companies in the water treatment business remained positive. According to Rick Mullin, writing for Chemical Week magazine, the proliferation of water treatment regulations, combined with the sheer volume of water used in the United States, would expand the $3 billion domestic market by six to eight percent during the mid-1990s. As the second largest player in its industry, Betz Laboratories' positioning as an environmental 'guidance counselor' to industry promised to help it recover from its sales and earnings lapse.