HAROLD HOOK: A HUNTER WHO FEELS HUNTED
His acquisitive insurer, American General, goes on the defensive
When Harold S. Hook makes an acquisition, he quickly puts his stamp on it. The chairman of American General Corp. imposes his methods on virtually every area--from administration to marketing--and on the way people talk about them. The key element of his management system is "Model-Netics," a collection of 151 buzzwords, symbols, and axioms he developed in the early 1970s to describe his strategies. The "Northbound train" for example, is AG's strategies and goals: If you don't agree with them, hop off. "It's a lot like the military," says Thomas D. Barrow, a longtime director. "There's a rule and method of doing everything."
Hook's rules and methods seemed to fail him last year, though. After quintupling the insurer's assets, to $34 billion, through takeovers in the 1980s, the acquisitive chairman almost saw his own company taken over. The predator was rival Torchmark Corp., whose $50-a- share offer in March, 1990, sent AG's stock soaring and led to a proxy battle. Hook won the fight by promising to do better for his shareholders. Then he stunned them by putting the company up for auction. But with financing dried up for big deals, no takers came forward--not even Torchmark. By the time he took AG off the block in December, seven months later, the stock was dragging near a six-year low (chart).
MARGIN PRESSURE. Now, Hook, 59, is back where he started--only this time, the executive renowned for his tough offensive tactics is on the defensive. Torchmark has said that it will stay away, but there are plenty of other problems. Hook is grappling with some operational weaknesses in AG's core business, home-service life insurance. The unit, which sells low-cost life insurance door-to-door, compares poorly with competitors. Its expenses are nearly double those of Torchmark's home-service unit.
Pressure to improve margins there is especially great, since Hook could have sold the business to Torchmark last year. After getting no takers for the whole company, he agreed to sell portions of it in September. Yet he rejected Torchmark's $3.6 billion bid for home service as too low. Says one Torchmark executive: "He went through the motions, but it was all intended to keep control of his company." Hook denies any deception.
AG's numbers remain discouraging, too. While earnings were up 21% in 1990, to $562 million, they were still well below their 1986 high of $669 million. AG's stock has gained 30%, to around 40, in this year's bull market--but it's still far short of Torchmark's bid. Grouses analyst Sarah Velz of the Teacher Retirement System of Texas, which owns 715,000 shares of AG: "It's going to be a long time before they earn enough to justify $50 a share again."
'SURVIVOR.' Hook is doing what he can to change that. In March, he consolidated two major operations in AG's biggest area of sales, home service, by laying off 550 of 650 employees and folding a Jacksonville (Fla.) center into its Nashville operations. Cost cuts last year have already boosted operating earnings at some noncore units. Operating profits in consumer finance rose 42%, to $125 million, helping boost overall operating profits 16%, to $446 million. "They're still not efficient enough," says Thomas G. Richter, an analyst at Robinson-Humphrey Co., an Atlanta brokerage. "But they're headed in the right direction."
Hook is even talking acquisitions again. AG's debt is a healthy 26% of capitalization, and a 1990 cash flow of about $2.5 billion puts Hook in a good position to keep enlarging AG. "Companies will have to acquire or be acquired," he says, "and we plan on being a survivor."
That notion of survival is a leitmotif for Hook. His chief passion is the Boy Scouts, which he joined in 1943, attracted by the military-style drills and stress on survival skills. He eventually became an Eagle Scout and years later joined the national board, serving as president of the organization in 1988. On the job, Hook has a favorite phrase to talk about survival: "the cruel sea." Drawn from his Model-Netics lexicon, it refers to the Darwinian harshness of the business environment. Sometimes the sea behaves in strange ways: As part of a streamlining in 1989, Hook downgraded managers' titles companywide. For example, senior vice-presidents became vice-presidents. Turnover among high-ranking executives has been high in recent years, as those who don't produce are quickly shoved out. At AG, says a former executive, "the cruel sea works a little too well."
Hook has been navigating the choppy waters of insurance for more than 35 years. The son of a Kansas City dairy farmer, he studied business and accounting at the University of Missouri at Columbia, spent three years in the Navy, and then went into insurance. By 31, he was already president of a small life insurer. A decade later, when he was president of California-Western States Life Insurance Co. in Sacramento, American General bought the company, and he came on board. He was made president of American General in 1975 and chairman and CEO in 1978.
RAISED EYEBROWS. At the time, AG was struggling to digest several acquisitions and boost falling earnings. Hook began whipping it into shape, consolidating units and cutting costs. He also shook the genteel industry with his aggressive acquisition strategy. Some 80% of American General today has been acquired since 1982. Hook's $1.5 billion hostile takeover of NLT Corp. in 1982 and his $1.2 billion purchase of Gulf United's insurance operations in 1984 remain the largest buyouts in the industry. AG is now composed of nine subsidiaries, the largest being home-service life insurance. Other large AG units include consumer finance and retirement annuities.
Hook's investment strategy is an area of some strength. He has steered AG's $23 billion portfolio clear of junk bonds and other high-risk investments: Total nonperforming bonds and mortgages at AG are only 1%, down from 1.3% a year ago and well below that of many competitors. Just before the market plummeted last fall, he sold 90% of AG's $1.1 billion common stock portfolio, making a profit of $176 million after taxes.
By the time the market turned up again, he was back in, bargain hunting. In January, Hook divulged that AG bought a less-than-5% chunk of troubled insurer Travelers Corp., with strength in property/casualty lines. The purchase raised some eyebrows, but Hook says it is for investment purposes only and denies interest in buying the whole company. A more likely takeover candidate would be a consumer finance company, though Hook won't name any targets.
Meanwhile, Hook has to wonder when AG will show up in another acquirer's sights. Despite recent improvements, AG's shares trade just barely above book value, compared with the more-profitable Torchmark's share price of three times book. If he can't keep AG's stock moving upward, Hook could wind up with a mouthful of "the cruel sea."Mark Ivey in Houston