Head N.V.

views updated

Head N.V.

Blaak 16
3011 TA Rotterdam
The Netherlands
Telephone: (+31) 10-214-1923
Fax: (+31) 10-401-6462
Web site: http:www.head.com

Public Company
Incorporated: 1950 as Head Ski Company, Inc.
Employees: 3,038
Sales: $387.5 million (2002)
Stock Exchanges: New York
Ticker Symbol: HED
NAIC: 339920 Sporting and Athletic Goods Manufacturing

With its headquarters located in Rotterdam, The Netherlands, Head N.V. is a multinational sporting goods manufacturer and marketer. Operations are organized into four divisions: Winter Sports, Racquet Sports, Diving, and Licensing. In addition to the Head brand, which is best known for ski and tennis products, the company also includes Penn, makers of tennis racquetball balls; Tyrolia ski bindings; Mares and Dacor, diving equipment manufacturers; and Blax and Generics snowboard equipment manufacturers. Head N.V. products are sold in more than 80 countries.

1930s Origins

The founder of Head N.V., Howard Head, was a frustrated writer turned engineer who eventually became an entrepreneur. Head was born in Philadelphia, Pennsylvania, in 1914, the son of a dentist. He aspired to become a screenwriter and enrolled at Harvard University to pursue that goal, but in his sophomore year changed his academic focus to engineering. After graduating with honors in 1936 with an engineering degree, Head nevertheless attempted to pursue a writing career, and over the course of the next three years he was fired from various low-paying jobs as a scriptwriter, reporter, and copywriter. He then took an aptitude test and, according to his recollections, suffered further humiliation when he scored the test’s lowest aptitude for creative writing ever recorded. He did, however, earn the highest score then recorded for structural visualization, an ability to think in three dimensions that boded well for an engineering degree. In 1939, he went to work as a riveter for aircraft manufacturer Glenn L. Martin Company before securing a position as an engineer.

Head worked at Martin during the war years, when he became known for his fondness for poker and parties. He was still with the company in 1946 when his penchant for socializing led him to try skiing during an outing to Stowe, Vermont, an event that marked a turning point in his life. Despite being embarrassed by his efforts on the slopes, he was hooked on the sport and determined to improve his skill. Like many a beginner, he blamed the equipment for his poor performance, but unlike the vast majority of skiers, Head possessed the technical knowledge to make a convincing case. Skis at the time were long, heavy, and clumsy; they were also constructed of hickory wood, a material which easily lost its shape and created an unstable ride. Rather than simply devote himself to mastering the use of the traditional ski, Head boasted he could make a better, lighter, more efficient ski using metal and aircraft manufacturing techniques. He reasoned that if wood was such a superior material, why were airplanes no longer made out of it? Head bought a band saw for $250 and began designing skis in his spare time. His concept was not to simply make a metal ski, at which others had tried and failed. Rather, he looked to the metal-sandwich construction method of the aircraft industry, which developed during World War II when chemists created flexible, waterproof glues to bond aluminum and plywood. In 1947, Head launched his “honeycomb” ski project, so called because he envisioned a ski that was constructed of two layers of aluminum bonded to plywood sidewalls that encased a core of honeycomb plastic.

Head was so convinced that his future lay with ski design that in January 1948 he resigned from Martin to devote all his time to the development of a composite ski. With $6,000 in poker winnings, he founded Head Ski Company in Timonium, Maryland, and worked night and day to perfect his vision of the ideal, light-weight ski. The bonding process proved especially problematic, taking Head several months before he developed a technique of boiling the ski in oil in order to set the glue. After a year of effort he finally produced six pairs of composite skis, which he took to a Stowe, Vermont, resort and convinced ski instructors to test. All of his prototypes were broken within an hour on the Green Mountain slopes. Nonetheless, one of the professional skiers he enlisted, Neil Robinson, encouraged Head to keep trying and agreed to test new versions that Head would ship to him throughout the winter. By the end of the season, after Robinson returned a number of broken skis, Head produced a ski that was as strong as wood but at half the weight. It was far from perfect, however, and Head spent another three years engaged in developing the design, which suffered from two major drawbacks: the aluminum froze and collected snow on the bottom of the skis and the edges quickly became dull. To eliminate icing and improve sliding, Head coated the bottom of the skis with a special plastic, which he ultimately used to also cover the top and sides. To provide added strength, he replaced the honeycomb plastic core with plywood. Finally, to solve the problem of dull edges, he inlaid and bonded to the bottom of the ski long, sharp, steel strips. All told, Head worked through 40 different designs by 1950, when he finally watched a ski instructor carve up a hill with his composite skis and knew he had finally succeeded. He named his creation the “Standard,” which he began to produce and sell for $85 a pair at a time when the market price for conventional skis was $25. In the end, his composite skis weighed nearly the same as conventional hickory ones, but they were also stronger, more flexible, and turned better. More importantly, the Standard allowed beginners like Head to participate in skiing, which was no longer the domain of the skilled athlete, many of whom called the Standard “cheaters.”

Incorporation in 1950

In 1950, Head incorporated his business as Head Ski Company, Inc. To raise enough money to stay afloat, he had to sell 40 percent of the company for $60,000. His skis were not quickly embraced by the market, and it took several years of tireless promotion by Head to establish the expensive Standard as a status symbol product. According to company records, Head became the leading brand of ski sold in the United States and Europe by 1955. Convincing world class skiers to adopt composite skis took longer, but significant Olympic victories on Head skis during the 1960s sealed the fate of conventional hickory skis. Moreover, by possessing important patents covering metal ski construction, Head was well positioned to take advantage of the rising popularity of skiing while established ski manufacturers struggled to catch up.

Head attempted to diversify his business during the 1960s, adding an active wear division (Head Ski and Sports Wear) in 1966. In 1969, the company introduced a fiberglass/metal ski. It also became involved in the development of tennis rackets, once again fueled by Head’s interest in a sport in which he hoped to improve his personal performance. As was the case with skis, tennis rackets had been constructed out of wood and not seen a major design change for 100 years. In 1968, Head launched a tennis division at the company, now named Head Sports Inc., and a year later introduced the first metal tennis racket at the U.S. Open. At the same time, Head was coming under pressure from a hostile takeover initiated by AMF Corp., a New York sporting goods conglomerate best known for its bowling products. Head was soon forced to sell his company to AMF in 1969 for $16 million, personally realizing $4.5 million in the deal. In retirement, he focused on his tennis game, which had shown little improvement even with a metal racket and numerous lessons. He bought a ball machine produced by a small Princeton, New Jersey, company named Prince Manufacturing Co. Frustrated with the machine’s performance, he took it apart and assessed its design flaws. He soon purchased a controlling interest in the company and went on to develop the first oversized metal tennis racket, transforming Prince into a major tennis manufacturer and revolutionizing a second sport. Howard Head died in 1991 at the age of 76 from complications following quadruple-bypass surgery.

Under AMF control, Head Sports made two major acquisitions during the 1970s, adding Tyrolia, an Austrian maker of ski bindings and poles, and Mares, an Italian manufacturer of scuba gear. In 1985, AMF was acquired by Minneapolis-based Minstar Inc., controlled by corporate raider Irwin Jacobs, who earned the name “Irv the Liquidator” in the 1970s by dismantling Grain Belt Breweries and W.T. Grant & Co. In 1981, he picked up Minstar, a snowmobile company that had succumbed to bankruptcy after two consecutive years without snow but also included a sideline business in powerboats, which became Jacobs’s focus. Minstar now began acquiring companies with attractive boating assets and in the process sold off non-boating interests to fuel continued growth. The largest of these transactions involved AMF, which in addition to Head Sports, Tyrolia, and Mares owned the Hatteras yacht business. During the four years that it was under Minstar management, Head Sports outsourced marketing and distribution of its products, leaving its Boulder, Colorado, manufacturing facility, where both skis and tennis rackets were produced, as the main operation. In 1987, the company diversified into athletic footwear, introducing a line of tennis shoes. A year later, all manufacturing was transferred from Boulder to a new state-of-the-art plant in Austria, resulting in the layoff of nearly 100 employees.

In March 1989, Minstar sold Head Sports, Tyrolia, and Mares in a leveraged buyout led by senior management of the three companies, backed primarily by Los-Angeles-based venture capitalist firm Freeman Spogli & Co. and to a lesser degree the Japanese firms of Nissho Iwai and J. Osawa & Co. Drawing on the initials of the three companies, the new business was renamed HTM. Head Sports was the largest of the entities, with annual revenues of $150 million, compared to Tyrolia’s $100 million and Mares’s $26 million. The Head Sport Boulder operation was now converted into a marketing and promotion, distribution, and customer service center for all three product lines.

Company Perspectives:

We are a technology driven company, our motto being “Superior Performance Through Superior Technology. “

New Ownership in 1993

Control of Head changed hands once again when in 1993 when Austria Tabak, the Austrian state-owned tobacco monopoly, acquired HTM as part of a European Union mandated diversification effort. It proved, however, to be a short-lived arrangement. Severely burdened by debt from the 1989 buyout, HTM, despite owning several strong brands, posted net losses of nearly $150 million for Tabak. In 1995, Swedish investor Johan Eliasch, known as a turnaround artist, convinced the Austrian government to sell HTM to him for less than $1 million as well as to honor a $120 million bailout package devised for Tabak.

Like Howard Head, Eliasch held an engineering degree, along with a master’s degree from Stockholm Royal Institute of Technology, but unlike his predecessor he had been interested in business from an early age. His grandfather had been a major Swedish industrialist who, because he was afraid that easy wealth would adversely affect his heirs, stipulated that they could inherit their portions of his estate only upon reaching the age of 50, thus forcing Eliasch to earn a living. Both of Eliasch’s parents were doctors, but it was business rather than medicine that held his interest. From the age of 12 he began buying stock. After training for a year with the German conglomerate Siemens in the early 1980s, Eliasch moved to New York, where he realized a quick profit by buying and turning around a small cards company. He then moved to London and along with several partners formed Tufton group, a private equity fund that raised money to buy troubled companies, restore them to financial health, and sell them. Tufton success stories included foot-products firm Scholl and film distributor Guild Entertainment. When his partners elected to become involved in shipping, Eliasch split from Tufton in 1991 and struck out on his own, establishing Equity Partners with minor interests held by Charles and Maurice Saatchi, who were better known for their global advertising business. One of Eliasch’s first acquisitions was London Films, the famed production company founded by Sir Alexander Korda. Aside from a deep interest in cinema, Eliasch was also an avid skier and was well aware of the Head brand. When Head Sports came on the market in both 1989 and 1993, he had attempted to gain control of the business. He was finally successful in 1995.

Eliasch moved quickly to revitalize the fortunes of HTM. He cut overhead, eliminating 1,100 jobs, and discontinued two disappointing product lines, golf clubs and sports wear, which had been responsible for most of the company’s losses. With the product lines more focused, he directed the company’s attention into three areas: winter sports, tennis, and scuba diving. A fourth division, licensing, was subsequently added. As a result of these changes, in 1997 revenues dropped 16 percent over the previous year, but the company was able to post a $4 million profit. Although an impressive start, Eliasch continued to be saddled with oppressive debt. In 1998, HTM defaulted on $190 million in debt, at an 8 percent interest rate, then negotiated a rescue package with Austrian and Japanese banks that forgave $72 million and lowered the interest rate to just 6 percent. Eliasch next floated a $100 million note to gain a financial cushion and began boosting the company’s research and development budget in an effort to spur sales through innovation. In 1997, HTM introduced the first tennis racket made of titanium and graphite, which proved highly popular. It then developed the first computerized tennis racket, named Head Intelligence, which employed sensors to adjust the necessary power and in the process suppress about half of all vibrations, thus eliminating the cause of tennis elbow. On the skiing side of the business, new hourglass-shaped skis, designed to make sharp turns, also found a ready market. In addition, Eliasch looked to grow HTM through external means. In 1998, the company acquired Dacor, a diving industry pioneer, followed by the 1999 addition of Penn Tennis Balls and snowboard makers Blax and Generics.

In 2000, HTM was reorganized as Head N.V. was taken public, its initial offering netting the company more than $135 million. The company’s shares began trading on both the Vienna Stock Exchange and New York Stock Exchange. As Head looked forward, it continued its emphasis on research and development while also pursuing external growth. The hope was to add new product lines to provide some diversification. In particular, management began to consider the fitness, bicycle, golf, and fishing sectors, with the goal of doubling the size of Head within five years.

Principal Divisions

Winters Sports; Racquet Sports; Diving; Licensing.

Principal Competitors

adidas-Salomon AG; Amer Group; NIKE.

Key Dates:

1947:: Howard Head begins designing the first metal ski.
1950:: Head Ski Company, Inc. is founded.
1969:: Head introduces the first aluminum tennis racket; the company is sold to AMF.
1985:: Minstar acquires Head through AMF takeover.
1989:: Management buys out Head, Tyrolia, and Mares, forming HTM.
1993:: HTM is sold to Austria Tabak.
1995:: Johan Eliasch gains control of HTM.
2000:: Head N.V. is formed and taken public.