Turnaround Whiz Moves On Key Tronic Rescue May Be The Last Time Stanley Hiller Answers A Call For Help
Stanley Hiller’s track record of success may have made him as close to a sure thing as any investor could hope to find.
That’s why a lot of shareholders who made a fortune by following Hiller around will be disappointed to know he doesn’t sound like a man in any hurry to find another company to rescue.
He’s not saying so for sure, but Spokane’s Key Tronic Corp. may be the final full-scale corporate reclamation project in his remarkable career.
“I suppose if the right thing came along,” Hiller says, “we would certainly look at it. But after 55 years and almost 30 companies …”
He lets the sentence hang unfinished for a moment and finally says, “You’re better off understanding you can’t go on forever.”
Hiller was in Spokane recently for Key Tronic’s annual meeting and took time to talk about his work here, and his future.
Over the course of his remarkable career, company after company, languishing near death, has been reborn under the 72-year-old Hiller’s guidance. Along this path, which culminated in his rejuvenation of Key Tronic, Hiller made millions for himself and perhaps billions for shareholders.
“If you look back at the Hiller Group track record,” says Robert E. Toomey, a Piper Jaffray Inc. analyst who follows Key Tronic, “in almost every case over a three- to five-year period, there has been a significant increase in shareholder value. I’m talking about quadrupling and quintupling type of increases.”
But today, Hiller spends a lot more time thinking about an aviation museum he’s planning in the San Francisco area than he does about turning around another company.
The project - a museum that will hold Hiller’s collection of historic aircraft - brings his career full circle.
The first helicopter to fly west of the Mississippi was constructed by the Hiller Aircraft Co. when the company’s president and founder was all of 19 years old.
Another museum already has Hiller’s first helicopters on display, but, “We’re going to borrow one of our helicopters back from the Smithsonian to put in the new museum,” Hiller says.
Hiller, who makes his home in Menlow Park, Calif., grew up in Berkeley. He founded his first company in 1937, at the age of 15, when he hired classmates to build gasoline powered model cars in his garage. The company did $100,000 in sales in a Depression economy.
At 18, he was ready for something more challenging. He considered real automobiles or rockets before he settled on helicopters. He hired a mechanic, a shipyard welder and a naval architect and went into business.
He admits none of them knew anything about the fledgling helicopter technology when they started.
“But,” he says, “we were one of four originating companies to start the world’s true production of helicopters.”
When he was 26, the Saturday Evening Post profiled Hiller, calling him “a real-life Tom Swift.” By then, he was well into building Hiller Aircraft into a vast corporation whose products eventually ranged from helicopters to airplanes to sophisticated electronic components for spacecraft.
So were helicopters a lucky choice? Simply a matter of the right product at the right time? Not at all, says Hiller.
The product is almost incidental to Hiller. The business aspect of the venture is what matters. If the business is run right, success will follow.
Hiller was so convinced of that theory that after 25 years, he left Hiller Aircraft and in 1967 founded the Hiller Group. His idea was to seek out companies that had failed, convince the owners to put him in charge, and compensate him with cheap stock options. If he succeeded in turning the companies around, driving the stock value up, he would make money.
While the companies would compensate the Hiller Group for its expenses, Hiller would draw no salary for his work.
Hiller can look back on a virtually unblemished record of success. His first project, the G.W. Murphy Co., saw its stock value increase six-fold in three years. At Baker Oil Tool Company, Hiller produced a similar increase over five years.
The Hiller Group took over The Bekins Co. in 1979. By 1983, the stock value had quadrupled. York International was the most spectacular. His option in 1986 was for 20 percent of the company’s stock at $12 per share. When York was sold in 1988 the stock price topped $50. The Hiller Group’s stock was worth about $100 million.
That was the portfolio Hiller brought to Key Tronic in 1992.
Founded in 1969, the computer keyboard manufacturer grew to one of Spokane’s largest manufacturing employers by the mid-1980s before it fell on hard times.
In 1992, the company was at the brink of failure. Its stock was trading below $2.50 a share, and analysts said at that price, shareholders would get a better return if the company was liquidated.
Responding to a request from Key Tronic’s board, Hiller became chief executive officer and board chairman. He acquired options to purchase 2.4 million shares of stock at $4.50 per share, and another 750,000 shares at $7 per share.
He rebuilt the company on fundamentals.
“He laid a very good foundation based on some very logical common sense approaches to managing the business,” says Toomey. “He focused on better products, improved manufacturing efficiency, and improving the overall level and quality of management.”
Hiller’s restructuring was hardly painless.
He dismantled many of Key Tronic’s operations, turning to outside suppliers who could provide the same keyboard components more cheaply. He acquired a Juarez, Mexico, manufacturing facility, and shut down higher cost manufacturing operations here. True to his prediction, though, employment here has been rebuilt as the company has grown.
He said when he started that the turnaround would double shareholders’ value each year over a three-year period.
And sure enough, the stock price peaked at almost $18.25 a share in the middle of 1995. But the computer market has become increasingly difficult and Key Tronic’s stock price retreated since then to the $8 range today.
Piper Jaffray, however, continues to rate Key Tronic as a strong buy for aggressive investors, anticipating the stock will return to the $12 to $15 range during a one to two-year time frame.
Hiller withdrew from day-to-day involvement in the company a year ago, hiring Fred Wenninger as CEO and president. Hiller remains chairman of the board.
“The Key Tronic project took longer than I would have liked,” Hiller says. “With the Japanese really coming after the U.S. share of the industry with their absurdly low prices, it took longer than any of us would have hoped.”
But, he added, “This is a very strong organization today, run by fine people.”
Key Tronic’s strengths, he said, are its ability to provide innovative engineering solutions to customers’ requirements, and get those products from concept to production as quickly as any competitor.
He says the Juarez manufacturing facility allows Key Tronic to compete on a cost basis anywhere in the world. He says the company is doing a good job of diversifying its manufacturing base, and seeking out joint ventures that will keep it competitive in the world market.
Key Tronic, he says, continues to command his attention, but from the distance that should properly be observed by a board member.
Clearly, he now wants the freedom to direct most of his attention to the museum.
Funded through a trust established by Hiller, the museum will look back at the history of aviation in Northern California. Hiller says about 300 people are involved in the museum, which should open on the San Francisco peninsula at the end of next year.
His aircraft collection includes the plane that made the first successful powered flight in the United States. Built in 1869 by a Gold-rush era San Franciscan named Marriott, the unmanned Avitor flew one mile.
But Hiller wants the museum to convey more than what’s happened in the past.
“This museum will look back 127 years, but it will also look forward 100 years,” Hiller says.
With that, Hiller launches into an explanation of his view of a future in which aviation links to the Pacific Rim will make the West Coast the new center of North American finance, trade and commerce.
If the museum does preclude Hiller’s involvement in another corporate rescue mission, Hiller says he’s structured The Hiller Group so that it can go on without him.
And if that is the case, Hiller leaves a legacy of which he is proud.
“When you look back,” he says, “and see the tens of thousands of people who have been put back to work in these companies, and the billions of dollars that have been returned to shareholders, you get a sense of The Hiller Group’s contributions.”
, DataTimes ILLUSTRATION: Color Photo