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Leading the way
Terry Hall doesn't seek controversy, but finds it while radically reshaping GenCorp

Sacramento Business Journal
December 31, 2004

2004 brought dramatic moves in the restructuring of GenCorp Inc. -- dramatic enough to make some shareholders squawk and prompt one to launch a short-lived takeover attempt.

Company chairman, president and CEO Terry Hall, who has overseen and helped engineer the transformation of GenCorp from an industrial conglomerate to an aerospace and defense specialist with valuable land holdings, wasn't looking for drama. But he rolled with it.

"It's not my interest to be controversial," Hall says. "I just want to do what's right for all the constituents of the company."

That's part of being a CEO, and being a CEO is a goal that Hall has kept in his sights for more than 20 years.

Hall, 50, led the corporate parent of Rancho Cordova mainstay Aerojet through acquisitions, divestitures and a controversial financial retooling. On his watch, the company sharpened its focus, dumped its money-losing auto parts business, took steps to convert its valuable land holdings to cash and boosted its share price more than 75 percent in less than eight months -- all among the reasons the Business Journal chose Hall as the Executive of the Year for 2004.

Late in 2004, Hall engineered a series of financing moves that put the company crosswise with two of its biggest institutional investors: Steel Partners II LP, a New York City hedge fund, and New York-based Gabelli Asset Management Inc. Steel sent a public letter in early November to GenCorp's board questioning plans to sell millions in new stock and convertible debt, framing the move as another in a series of blunders and saying it would unnecessarily dilute shareholder values. The fund offered to buy the company at $17 a share.

"I would resign, if I was Terry, for doing what he did," said Mario Gabelli shortly after the buy-out offer was made. "Maybe we should listen as to why they think this company is worth $17 a share."

Hall and GenCorp rejected the $17 offer and Steel Partners withdrew it after selling some stock, but investors have cast their own votes on GenCorp's value -- shares this week closed north of $18.

Gabelli wasn't available for comment for this story. Steel Partners also had no comment.

Hall's actions continued a course set by his predecessor, Bob Wolfe, to trim GenCorp down to two units seen as having the most potential for profit: Aerojet, which has a piece of the reviving aerospace and defense industries, and a new unit to handle the development of its vast real estate holdings -- at 12,700 acres about the size of Manhattan.

The plan is to make any strategic acquisitions that can help Aerojet's profits, and to profit from the development of its land for decades to come.

'A little upset'

Hall is matter-of-fact about the recent flak from Steel Partners and Gabelli. "They didn't like the fact that we sold equity," he says. "We felt we needed to in order to prosper. Our stock price is up 70 percent in the last 12 months; it was even going up after we issued equity."

Another sore spot with Steel and Gabelli was the loss taken when GenCorp sold its money-losing GDX Automotive division, which had produced a lot of sales but little or no profit in recent years. The company took a $261 million charge on the sale; critics said the loss was closer to $300 million.

GDX, says Hall, couldn't make much money and had dim prospects. Eighty percent of the unit's business in automotive seals came from General Motors, Ford and Volkswagen. "None of those companies are doing well," he says. Costs for materials and a pension plan were high. "We just didn't see a bright future. It was time to get out. It was not a hard decision. It was hard to find someone who would buy."

Wolfe says such dust-ups are just part of the territory for the CEO of a publicly traded company.

"You try to please all your shareholders," he says. "At the same time you have to set what you and the board think is proper strategy going forward. Obviously, we had a couple of shareholders that were a little upset."

The moves shouldn't have been a surprise to Steel, adds Wolfe; the strategy has been discussed at every shareholder meeting since 1999. A long-term game plan isn't likely to be reworked because some investors want a short-term payoff.

When he took over as GenCorp CEO in July 2002, Hall announced plans to double Aerojet's market in three years. He did it within a year by making a pair of quick but key acquisitions: a General Dynamics unit in Redmond, Wash., for $90 million, which added 300 employees and $60 million in annual sales; and the $133 million buy of the Virginia-based solid-rocket propulsion business of Atlantic Research Corp., adding 900 employees. The deals double Aerojet's revenue to $440 million.

To strip away the less lucrative business units, Hall in 2004 sold GDX to a turnaround specialist and put the profitable Aerojet Fine Chemicals up for sale. That unit is expected to sell soon and could fetch more than $100 million.

Starting with the law

Hall, a native Minnesotan, earned a degree from the University of Minnesota School of Law. In 1978 he started his career as an assistant city attorney and prosecutor for the city of Rochester, Minn., but quickly bored of "putting people in jail for a living."

Corporate law was his next stop, as senior counsel for Republic Airlines. It was soon bought out by Northwest Airlines, and Hall became general manager and chief operating officer of a subsidiary, making deals to buy and sell fleet aircraft.

By the summer of 1990 Hall left for New York City, hired by United Airlines' employee stock plan to make a deal to purchase the airline. The attempt failed, and United CEO Stephen Wolf -- the former Republic CEO, who knew Hall's work -- hired him as a vice president and treasurer, handling billion-dollar fleet acquisition deals and financing of United's new terminal in Denver.

By early 1993 he jumped to Tyco International -- a New Hampshire-based company with units from healthcare to fire protection -- as chief financial officer. Irving Gutin, Tyco's senior vice president of mergers and acquisitions, hired Hall.

"He came from United Air Lines where he was very instrumental in the growth of the company," says the now-retired Gutin. But Hall left after two years when he found out he had no chance to become CEO, returning to Minneapolis to become CFO at glass maker Apogee Enterprises Inc.

Airlines called again in 1998; Wolf was CEO of US Airways and Hall became CFO, but left that year when he was passed over in the succession plan. It had its upside. "The airline industry looked dubious," he says, "to say the least."

On the path

Hall landed in finance at GenCorp in Fairlawn, Ohio, and found the road to the top job. In 1999 the company spun off part of its business as Omnova, and moved headquarters to Greater Sacramento. That opened up the GenCorp CFO job, since the company CFO prior to the split remained in Ohio with Omnova.

Bob Wolfe was tapped as GenCorp's new CEO, and the job included finding his successor. "In my interview with Terry it became very clear to me he was the best applicant," he says. Wolfe knew a lot of Hall's old bosses and liked his airline industry experience.

Hall became GenCorp's chief operating officer in 2001, adding experience in manufacturing, research and development, and sales to his financial savvy. By July 2002 he was CEO, and in July 2003, as planned, he became chairman.

Jim Martineau, who met Hall at Apogee, says he mapped his path in advance. "Terry has a very strong finance background," says Martineau. "When he joined Apogee he wanted to become a CEO." People with CEO ambitions and a finance background, he notes, need operations management experience. "He was dedicated to doing that. That was his plan."

Now, says Martineau, we're seeing Hall's experience in action. "He's a well-rounded business strategist in a changing world," says Martineau. "He's able to look at a company and say, 'Hey, we should look at this new area.' " On top of that, he says, Hall "does it in a prudent, systematic way. He's a very honest guy with a lot of integrity."

Retired Tyco executive Gutin, a former boss and personal friend, gives his take on Hall. "He's the result of that sturdy Midwestern stock, where people are understated, very solid, very honest and easy to get along with," says Gutin. "He's very smart and very quick to pick up on things."

The Midwest also marked his taste in sports; a lifetime hockey fan, he backs the Chicago Blackhawks but confesses he's been to just one San Jose Sharks game.

The man with a plan

Hall sits down at a small meeting table in his airy, neat-as-a-pin office at GenCorp's HQ near Rancho Cordova. A north wall of windows lights up the room. Friendly, sans tie but businesslike, Hall comes off as a quiet thinker who is singularly focused on ways to steer GenCorp on its current course.

"For a lot of reasons, we have to make sure Aerojet is prosperous and becomes stronger than it is," he says. With an efficiency that he's known for, he recites them:

- Environment: Aerojet and the federal government are paying to clean polluted groundwater at its site. If Aerojet isn't making money, that can't happen.

- Aging workers: Aerojet's engineering work force has an average age of 55. Most worked on NASA's Apollo and space shuttle programs. Now Hall wants to attract a new generation of engineers and "to attract talented employees, we have to have an interesting environment, with a lot of different projects to work on," he says. "The real bright people are the future of this business." But Hall has enormous respect for his current engineers, who remain excited and eternally childlike when testing rockets. "Whenever I get depressed, I go down and hang out with the Aerojet guys," he says.

- Competition: Aerojet is in a mature rocket propulsion market with no new players. Both the solid and liquid propulsion markets are dominated by a handful of big players, and Aerojet has a slice of each. "We have to get into other areas," says Hall.

Hall sees daylight for the company in chasing new government contracts for propulsion research and development. Other opportunities are coming via contracts for national missile defense, and for small tactical missiles as the Department of Defense pushes for faster, lighter weapons systems.

Hall sees space exploration as another emerging market for Aerojet technology. Aerojet dominates the market for space vehicle thrusters, and demand for those engines is expected to rise after the shuttle program is retired in 2010.

Land, brainpower is gold

Long-term contracts could be balanced with revenue from one of GenCorp's biggest assets -- its land. When Aerojet bought its Rancho Cordova property in 1952, it paid a bargain rate: $52 an acre. Much of the land had been strip-mined for gold, which left acres churned into piles of dirt and rock, but it gave Aerojet the huge buffer it needed for rocket testing.

During the Cold War, Aerojet conducted one or two tests daily. Now, because of surrounding development, big tests are done at Edwards Air Force Base in the Mojave Desert.

Over the decades, GenCorp watched the value of its land rise as development pushed outward. While the site represents a big chunk of cash, it won't come all at once. Hall says the land assets will pay returns for years ahead. About 5,700 acres is awaiting entitlements for development, with 7,000 more surplus acres in reserve for later.

"It takes awhile to monetize 5,700 acres," he says.

Meanwhile, to meet federal mandates, the company is conducting groundwater cleanups in wells on the property's boundaries to take out perchlorate and NDMA, pollutants from rocket fuel.

And despite its land development plan and outside testing, Hall figures Aerojet's local manufacturing will stay put, despite its less expensive sites in Arkansas, New Mexico, Virginia and New Mexico.

"It doesn't make sense to move brainpower around," he says. "The brainpower's here."