ITT Chairman Rejects Jacobs Plea That Firm Spin Off Some Assets
Dissident shareholder Irwin L. Jacobs appeared here Thursday for his first face-to-face confrontation with ITT Corp. Chairman Rand V. Araskog and was told that his proposal to spin off company assets would leave shareholders vulnerable and would improperly distribute the company’s debt.
At the New York conglomerate’s annual meeting, Jacobs questioned ITT officials about how vigorously they would resist an unfriendly takeover attempt and whether they would accept a buy-out offer.
The Minneapolis investor later declined comment when asked whether his questions meant that he and his associates are considering a friendly or unfriendly takeover bid.
Separately, Araskog predicted a 10% sales growth for ITT this year and reported that first-quarter earnings had grown 44% to $113 million. Revenue increased 0.2% to $4.7 billion.
Plan Called Unworkable
Jacobs said the performance of ITT management has “indeed been poor” and outlined his proposal, first made in March, that the company spin off three or four new subsidiaries that would issue stock. Such a move would bring the value of investors’ holdings more into line with the market value of the company’s assets, he asserted.
Araskog said the plan was unworkable because ITT would be unable to properly distribute its debt among the operating units. Also, shareholders in the telecommunications unit would be vulnerable because most of ITT’s telecommunications assets are overseas, he contended.
Such overseas assets are subject to nationalization and costly labor-relations rules, ITT officials said. “We’ve spent a long time bringing assets over (to the United States) to protect the interests of shareholders,” Araskog said.
The face-off between Jacobs and Araskog was the latest chapter in a drama that began last fall when Jacobs began accumulating ITT stock. Jacobs said he and associated investors control 6.2 million shares of ITT’s common stock, or slightly less than 5% of the total.
Jacobs has already approached ITT officials to press his spinoff plan as a solution to the company’s problems and depressed stock price and has made repeated public statements faulting ITT management.
Last month, ITT officials asked the Securities and Exchange Commission to investigate whether Jacobs and other investors--possibly including the Pritzker and Anschutz families of Chicago--had accumulated ITT stock without necessary public disclosure of their holdings. (Jacobs and the Pritzkers and Anschutzes denied any such violation.)
One analyst, Brian Fernandez of Nomura Securities in New York, said that Jacobs’ purpose in attending the meeting might have been simply to “keep the pot boiling--keep the pressure on management” to accelerate the divestiture program that management has launched to turn around the company’s fortunes.
‘Not a Lost Company’
Araskog again asserted that ITT is well on its way to reshaping itself as a telecommunications and financial-services firm.
“We are not a lost company; we never went through a lost period,” Araskog said.
The key ingredient in ITT’s strategy is an effort to adapt a computer-based telephone switching system called System 12 for the U.S. market.
Araskog said orders for the equipment, including those from two former Bell operating companies, have exceeded expectations this year.
Fernandez said this pickup in orders is “very good news.”
Araskog noted that ITT has sold 18 companies since January for about $700 million. The company has reduced its headquarters staff and reduced its debt level to 37% of total capital from a peak of 46% in 1973. The company’s goal is to bring the debt level to about 30%.
Araskog denied recent Wall Street speculation that the sale of the Sheraton hotel chain is under negotiation. He said the company has “no intention whatsoever” of making such a sale despite “many offers.”
He said that ITT’s first priority is reducing its debt but that a stock buy-back, intended to raise stock prices, “is definitely something for the future.”
Araskog said proceeds from the sale of ITT Rayoneer, the company’s forest-products unit, might be used to buy back stock. But he added that the depressed condition of the forest-products market probably means that such a sale would be years away.
Explaining its quarterly results, ITT said revenue and earnings were up in all four major lines of business.
The company’s telecommunications earnings were helped by a payment of $38 million from the government of Nigeria to settle a longstanding debt.
ITT said its troubled insurance company, the Hartford, saw improved results, but the parent company provided no specifics.
