Amf (a)

Abstract

This background case traces the origin and growth of this leisure conglomerate through the point when it was the victim of a hostile takeover by Irwin Jacobs. The case covers the mechanics and terminology of takeovers, and the exhibits contain enough financing information to allow students to evaluate AMF's operating performance and attractiveness as a takeover. The B case (OM-0638) covers the leveraged buyout of AMF Bowling. (Follow-up cases are OM-0639 and OM-0640.)

Excerpt

UVA-OM-0637

AMF (A)

Origin, Diversification, and Growth

American Machine and Foundry, Incorporated (AMF), was founded in 1900 when American Tobacco Company lost an antitrust suit and was ordered to spin off a group of patents and engineering divisions. Originally a manufacturer of machinery for weighing, sorting, and packaging tobacco, AMF diversified into automated equipment for the bakery, food service, apparel, and tire industries.

In the early 1950s, AMF engineers developed a machine that revolutionized bowling and helped launch a bowling boom on an international scale. Known as the “automatic pinspotter,” this device replaced pin boys by automatically picking up bowling pins and setting them back down again. This bowling segment formed the core around which a major leisure conglomerate was formed.

Rodney C. Gott, as chief executive officer, guided AMF through this growth stage. Gott pushed for large increases in earnings and set his long-term goal at $ 1 billion in revenues. Profits from the bowling business were used to acquire other leisure companies, as AMF expanded to encompass such well-known brands as Head skis, rackets, and sportswear; Ben Hogan golf equipment; Voit balls; Hatteras yachts; Harley Davidson motorcycles; and Roadmaster bicycles. AMF reached $ 1 billion in sales in 1974. Unfortunately, 1974 was also the year that a recession clobbered industry earnings, and AMF faced a dangerous debt load.

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Keywords: service industries, management of, takeovers, valuation