Borden Faces Facts: It's Time To Shed The Flab

A few weeks back, when Borden Inc. invited analysts to St. Louis to show off its new $50 million pasta plant--North America's largest--it was a prime opportunity for Chief Executive Officer Anthony S. D'Amato to trumpet the successes of his first 10 months on the job. In addition to opening the pasta "hyperplant," where 300 workers produce 250 million pounds of noodles a year, D'Amato had expanded Borden's international operations while slashing the size of its troubled dairy business by 30%.

But instead of gloating, D'Amato was all humility. Borden's poor performance in the fierce price wars in processed cheese, snacks, and dairy products forced him to deliver a sobering recitation of all that ails Borden: ineffective marketing, anemic earnings, slipping sales, and evaporating market share. Borden, D'Amato said, is "a fragmented, out-of-date organization that is not up to the increasing pressures of today's economy."

On Oct. 28, D'Amato took action. He announced a complete overhaul of the company. In coming months, 10 plants will close, 3,000 employees will be slashed from the payroll, four food divisions will fold into one, and parts of Borden's sickly snack operation will get the ax. This comes just after it already spent three years cutting 53 other plants and 6,100 workers.

CRUNCHY STUFF. D'Amato's makeover promises to be costly. Borden took a $642 million pretax restructuring charge, resulting in a third-quarter loss of $377 million. The charge, an accounting change, and subpar performances in most divisions added up to a $468 million loss in the first nine months of 1992, compared with a $252 million profit in the same period a year ago. In supposedly recession-resistant businesses, Borden now hasn't posted a gain in quarterly earnings since 1990's fourth quarter.

D'Amato stresses that the restructuring's objective is not meant to reduce overhead alone. That's what Borden's 1989 revamping aimed to do. Rather, he intends to transform the way Borden brings its myriad products, ranging from industrial resins to Cracker Jack, to market. The company will discard marginal brands and redesign the packaging for all the remaining products. The logo, with its "If it's Borden, it's got to be good" inscription, also will be added to all products. And its long-out-to-pasture spokescow, Elsie, will be brought back to hawk dairy products. "It is a solution, a necessary solution, but it shows you the weakness of the company," says Goldman, Sachs & Co. analyst Nomi Ghez.

For the past few years, Borden has been under siege, losing market share to PepsiCo Inc.'s Frito-Lay and Anheuser-Busch Cos.' Eagle Snacks in snack foods and to the Kraft General Foods division of Philip Morris Cos. in processed cheese. Increases in food prices of just 1% this year--the smallest hike in 25 years--give Borden no breathing room.

Borden's woes spring largely from the rush of acquisitions it made in the late 1980s. Founded in 1856 as a purveyor of condensed milk, by 1985 Borden had evolved into a large chemical company with an eclectic mix of niche grocery items and a sizable dairy operation. Then, under the stewardship of former CEO Romeo J. Ventres, Borden began snapping up scores of regional snack-food and pasta makers around the country. Between 1986 and 1991, Borden spent $1.9 billion on 91 acquisitions.

NOODLING AROUND. Unfortunately, Ventres failed to integrate Borden's new subsidiaries into a single, cohesive network. Instead, he maintained regional brands. The acquisitions were intended to turn Borden into a national powerhouse in packaged goods. D'Amato says the strategy worked in pasta, where Borden boasts the national brand Creamette and 21 regional brands. But in snacks, Borden never got around to integrating its new products. As one top executive of a major supermarket chain puts it: "It's really difficult to understand what business Borden is in today when you look at the number of items they have." A distant second to Frito-Lay in snacks, Borden has 2,800 items of varying sizes and flavors in North America. Frito-Lay has only 445.

None of this is any surprise to D'Amato, who pledges to cut the number of snack items by at least half. For the future, D'Amato has high expectations for growth in domestic pasta and international grocery products, as well as a national Borden-brand snack line that will be launched next year. His candor is already winning plaudits from analysts. "I knew Borden had problems. I didn't know they had this many problems," says John McMillin, an analyst at Prudential Securities Inc.

Wall Street analysts still insist that Borden must shed a division or two--either snacks or the profitable but peripheral packaging-and-industrial division. D'Amato avers that he has no plans to sell anything right now--while refusing to rule out an eventual sale of the snack division. Instead, he maintains that his strategy will put Borden back on track by next year. But even with Elsie back in the fold, Borden may not be able to afford any sacred cows.

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