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Johnson Products Co. regroups after a family row.

Shareholders and analysts alike are still piecing together the causes and the possible impact of last March's sudden resignation of Johnson Products Co. Inc. (JPC) President and CEO Eric G. Johnson. Observers speculate that Johnson, 40, was actually forced out by his mother, Joan B. Johnson, company chairwoman. But no matter what the reasons, his departure from the nation's third-largest black hair care product manufacturer has prompted speculation that the company's sales, net income and stock price will suffer.

Eric Johnson's departure couldn't have occurred at an odder time. JPC's sales and income were on the rebound. The company, which trades on the American Stock Exchange under the symbol JPC, reported a net sales increase of 19.4% during the first quarter of its 1992 fiscal year.

During most of the 1980s, the $34 million Chicago-based company (No. 26 on the BE INDUSTRIAL/SERVICE 100s) was roiled by business and personal events, which had a corrosive impact on sales, income and share price. The latest rift may have involved Eric's reluctance to move his 27-year-old sister, Joan M. Johnson, into a higher administrative position within the company. Ms. Johnson, who has an MBA from Northwestern University's J.L. Kellogg Graduate School of Management, reportedly felt slighted since joining the company as director of market research and analysis a little more than a year ago.

In a press statement, Chairwoman Joan B. Johnson, who apparently sided with her daughter, treated the issue like business as usual. "Eric Johnson has made a significant contribution at Johnson Products," she stated. "I understand his decision and wish him well in his future endeavors."

The release stated that Eric Johnson had left to "pursue personal business interests" and that an "Office of the President," made up of several unnamed key executives, would run the company. Calls to Joan B. Johnson and Eric Johnson were not returned.

The company's history has been rocky indeed. From 1983 to 1990, JPC's sales plunged from $45.7 million to $34 million. The reasons included: a soft marketing focus; time and expense lost in establishing and then writing off a Nigerian manufacturing plant; the sale of a company-owned chain of beauty parlors; and a dearth of new products. Also, throughout the decade, competitors, such as Soft Sheen Products Inc. (ranked No.5 on the 1991 BE INDUSTRIAL/SERVICE 100s with $92 million in sales) and Revlon Products chipped away at JPC's sales.

In late 1989, then chairman and CEO George E. Johnson gave up control of JPC as part of a sealed divorce settlement. (George Johnson was retained as a consultant to the company.) Consequently, his spouse, Joan B. Johnson, who co-founded the company with him in 1954, gained 61% of the voting stock (she now owns 58.2%) and was elected chairwoman. Their son Eric, who had been chief operating officer, was then named chief executive.

By January, the younger Johnson, who had taken effective day-to-day control of JPC in 1988, turned the company around with a new marketing strategy and expense controls. In 1989, he began by adding JPC's first new products in three years, including the addition of hair-coloring products for gray hair to its popular "Gentle Treatment" line. A year later, he paid Atlanta-based M&M Products $2.5 million for two of its hair care product lines. These actions produced fast results. Sales, which had dipped from $46 million in 1983 to $29 million in 1989, grew to $34 million in 1990 and $44 million by the end of 1991. Net income, which was negative for most of the 1980s, blossomed to $3.2 million ($1.3 million due because of a tax loss carry-forward credit) in fiscal year 1991. And JPC's share price, which had been as low as $1.63 at the end of 1989, ran up to $23.75. It closed at $19.50, off 88 cents, the day Johnson resigned.

So, why did he resign? Some JPC observers say tension existed in the company since May 1991, when Eric Johnson made a $20.6 million bid to take it private. He dropped the plan in June. A director of the company, William R. Giles, stated that the board of directors never voted on the leveraged buyout (LBO). It was dropped by "consensus."

If the LBO had succeeded, Mrs. Johnson would have been majority shareholder initially, but her stake would have been gradually reduced with more going to Eric Johnson and other senior managers.

Since Mrs. Johnson has never run a company, the loss of Eric Johnson may shake investor confidence. Michael W. Ng, who follows JPC for Market Guide Inc., a Glenhead, N.Y.-based financial data based firm says, "Mr. Johnson has definitely made an impact because every quarter, results have gotten better, and [JPC has] come out with more and more products. With this kind of market, I guess his leaving would definitely have a negative impact on the company."

Although Eric Johnson did provide some leadership, Giles says the loss will not be fatal. "The company has been run by a management team all the time," he says. "I don't feel anything lost there.... We are concentrating on the bottom line."

Giles does admit that investors will scrutinize JPC closely for the next few quarters. But more importantly, he believes that "people will look at the [company's] record." Whether investors agree with Giles remains to be seen.
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Author:McCoy, Frank
Publication:Black Enterprise
Date:May 1, 1992
Words:899
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