Thorn Emi Plc

Thorn EMI House
Upper Saint Martin’s Lane
London WC2H 9ED
England
01-836-2444

Public Company
Incorporated: March 3, 1980 as a result of the merger of
Thorn Electrical Industries Ltd. and EMI Ltd.
Employees: 80,484
Sales: £3.316 billion (US$4.769 billion)
Market Value: £1.683 billion (US$2.42 billion)
Stock Index: London

Jules Thorn was born in Austria in 1899, and as a young man attended the University of Vienna, where he completed a degree in business management. During the 1920’s Thorn traveled to England on several occasions as a sales representative for an Austrian gas mantle firm. In 1928, shortly after he moved to England, Thorn established the Electrical Lamp Service Company, which imported light bulbs and radio components from the continent. In 1932 he purchased a controlling share of the Chorlton Metal Company. Thorn operated a radio rental shop, which was established as Lotus Radio in 1933. That same year he purchased Atlas Works, manufacturer of an electric lamp known as the Atlas Lamp. With the profits from these operations, Thorn acquired the Ferguson Radio Corporation in 1936, enabling him to manufacture as well as sell radio sets. The company’s operations were subsequently merged that year under the name Thorn Electrical Industries.

Thorn’s electronic businesses prospered until 1940 when Britain declared war on Germany. As a result of the war, the British economy was severely affected. Virtually all products, including those manufactured by Thorn, fell under a tightly controlled government rationing program.

When the war ended in 1945, Jules Thorn initiated an ambitious expansion of his company’s interests through acquisition. Ecko-Ensign Design and Tricity Cookers, both electrical engineering firms, were purchased in 1950 and 1951, respectively. Throughout the 1950’s Thorn Electrical Industries consolidated a firm position in the field of electronics and electrical appliances. Thorn personally supervised every aspect of his company’s activities, gaining a reputation for hard work and tireless enthusiasm for profit.

By the end of 1961, Thorn had acquired Philco and Pilot, in addition to Ultra Radio & Television, and interests in HMV and Marconiphone. Through its acquisitions that year, Thorn Electrical Industries had become the largest producer of radio and television sets in Britain. In recognition for his contributions to the British electronics industry Jules Thorn was knighted Sir Jules in 1964.

The transmission of television programs in color did not begin in Britain until December of 1967. Jules Thorn recognized that this development would drastically increase demand for color television sets, the technology and patents of which were difficult to acquire in Britain. Thorn arranged for blank tubes to be imported from the United States and coated with the necessary colorsensitive chemicals in his factories. As a result of Thorn’s imaginative and timely solution, Thorn Electrical Industries was able further to consolidate its position in the British television market.

As a result of the merger of Robinson Radio Rentals and Thorn interests, the combined Thorn/Radio Rentals group became the world’s largest television rental company, controlling just under one-third of the 7.5 million televisions in Britain.

Other acquisitions during this period reflected the company’s continued diversification. Metal Industries was acquired in 1967, KMT Holdings in 1968, Parkinson Cowan in 1971, Clarkson International Tools in 1974, and Cleveland Twist Drill in 1976. By far, however, Thorn’s largest takeover bid came in 1979 when an opportunity arose to purchase EMI Ltd., a diversified entertainment and electronic instruments conglomerate.

EMI was itself formed as a result of a merger in 1931, and produced gramophone recording equipment. Over the years, EMI organized a line of sophisticated electronic systems, which included early British radar equipment and the BBC’s first television system. Along a separate line of development, EMI enlarged its position in the recording and music publishing industries in 1954 when a decision was made to take over Capitol Records in the United States. Tremendous growth was experienced in this division a decade later, largely on the strength of record sales by the Beatles.

By the late 1960’s profits from the EMI recording division surpassed those of the electronics division, and enabled EMI to purchase the entertainment organization of Sir Lew Grade, and the cinema business of the Associated British Picture Corporation. As a result, EMI had become one of the largest motion picture entertainment concerns in the world by 1970.

In the early 1970’s, however, EMI was burdened by heavy losses from its Capitol Records operation, and a poorly planned investment in an Italian television manufacturer called Voxson. The most significant development for EMI during this period was the introduction of a revolutionary new Computed Tomographic X-ray scanning device in 1972. The fact that EMI had developed this scanner, with no previous experience in X-ray equipment, caused many seriously to reconsider the company’s prospects.

Profitable sales of the scanner in the United States were drastically reduced after the Carter Administration restricted government aid to hospitals. In addition, EMI failed to anticipate a strong reaction from its competitors. General Electric subsequently introduced a similar but faster model which effectively removed EMI from the market.

By 1977, serious problems with the. medical electronic division caused management to be broken up into three divisions, each responsible for its own profitability. At one point EMI even appeared willing to dispense with its recovering music operations.

Institutional investors, who held a three quarters voting majority in Thorn, expressed concern that a merger of the two companies would be problematic because Thorn and EMI were very different companies. In the event of a merger, Thorn would have to let EMI management run itself, at least for a few years, because it knew so little about EMI’s businesses. Another cause for concern was that EMFs new management team, led by the very capable Lord Delfont, had to prove itself under difficult circumstances.

At the end of October 1979 EMI rejected a £145 million bid by Thorn. The offer was resubmitted the following week for £165 million and accepted. The new company’s name was changed to Thorn EMI on March 3, 1980.

The various divisions within the old Thorn and EMI organizations continued to operate independently of each other and, to some extent, of the central management group. Management re-implemented a planning model developed by the Boston Consulting Group which provided for the development of new enterprises by channeling funds from profitable operations. This had the effect of starving the successful enterprises within the company of funds needed to maintain a competitive product lines. Just as the model failed in the early 1970’s, it was failing again a decade later. Thorn EMI was less like a successful operating company and more like a weak investment portfolio.

In an attempt to raise money and reduce losses during 1980 and 1981, the company sold its medical electronics business, its Hotels and Restaurant division, and parts of the Leisure and Entertainment division. Also at this time, on December 12, 1980 Sir Jules died at the age of 81.

Peter Laister, chairman of Thorn and later Thorn EMI, attempted to create a more efficient operation out of the fragmented organization by acquiring new divisions. Laister wanted to develop an integrated communications and entertainment business with particular emphasis on advanced electronics. INMOS, a microchip manufacturer, was acquired in 1984, but an attempt to purchase British Aerospace that same year failed. Unable to fulfill his plan or shake Thorn EMI out of stagnation, Laister was removed from the board of directors in what was described as a boardroom “coup” in July of 1985.

Laister was replaced by a former non-executive director named Sir Graham Wilkins. Sir Graham advocated a much different approach, emphasizing a return to the basic industries upon which both Thorn and EMI were built: lighting, rental and retail, and various domestic appliances.

According to Sir Graham, the fundamental problem with Thorn EMI at the time was “that it was too broadly based on activities that were loss making and which we could not afford to keep. We had to prune things which had no immediate profit potential.” The divestment of these unpromising operations began in earnest during the 1985-86 fiscal year with the disposal of Thorn EMI Screen Entertainment (the expensive films and cinema division), Thorn EMI Heating Ltd., divisions of Metal Industries which had not already been sold, cable television interests, and á portion of its interest in Thames Television Ltd.

As a result of a general restructuring of Thorn EMI, its operations are presently divided into four main operating groups: rental and retail, technology, music and consumer and commercial products. Each group is further divided into a number of divisions which specialize in particular lines of business.

The rental and retail group encompasses television and video recorder rental, and the retailing of recorded music, home entertainment products and consumer durables. The technology group is responsible for defense electronics and telecommunications systems. Music, mostly through EMI and Capitol labels, covers record and video products as well as music publishing. The final group, consumer and commercial products, produces lighting, appliances, and consumer electronics products through divisions such as Kenwood, Ferguson, and Tricity.

The reorganization has given the company a clearer identity and enables top management to establish a more controllable enterprise. Each division now has more operational responsibility and manages its own debt.

Thorn EMI has emerged with a bias toward consumer products. Two-thirds of its trading profits are derived from its High Street record outlets, the rental outlets, and the Rumbelows retail chain. Research, development and advanced engineering remain priorities of the company’s lighting business, which holds 50% of the British market. New appliances, such as a halogen heating device, and the introduction of an appliance rent-to-own scheme for the company’s 3.5 million credit-tested customers hold great promise for the future.

Under the leadership of Sir Jules, Thorn developed a reputation for developing products without properly evaluating (some would even say ignoring) consumer preferences. Sir Graham, on the other hand, has expressed the need of Thorn EMI “to find out what our customers want and make it for them at a price that gives us a decent profit, and then find out what they are going to want.” The company’s return to the more stable basic businesses it has historically performed well in has enabled it to overcome the problems of its recent past and regain its position as an industry leader.

Principal Subsidiaries

Thorn EMI Ferguson Ltd.; Thorn EMI Television Rentals Ltd.; Thorn EMI Retail Ltd.; Thorn EMI Domestic Appliances Ltd.; Thorn EMI Lighting Ltd.; Thorn-Ericcson Telecommunications Ltd. (51%); Capitol Industries-EMI Inc. (USA); Thorn EMI Records Ltd.; Thorn EMI Electronics Ltd.; AWA-Thorn Consumer Products Pty. Ltd. (Australia) (20%); Glass Bulbs Ltd. (50%); The Gramophone Company of India Ltd. (40%); Stearn Electric Company Ltd. (50%); JZT Holdings B.V. (Holland) (33%); Thames Television Ltd. (46%); Toshiba-EMI Ltd. (Japan) (50%).