Public Holders at Unicoa Fight Teledyne’s Grip
Teledyne Chairman Henry Singleton has often been called a genius on Wall Street for his deft handling of Teledyne’s financial affairs, but he receives few accolades from Alfred J. Rubellke.
Rubellke, 67, of St. Paul, Minn., is a small player in stocks who says his largest single investment has flopped because of what he calls Singleton’s “tight-fisted” financial policies at Teledyne.
Rubellke and a loose network of small investors, mostly retired, have waged a long and largely unrewarding fight against Los Angeles-based Teledyne over their rights as minority shareholders of a Teledyne subsidiary.
The subsidiary is Unicoa Corp., a publicly traded, insurance holding company in which Teledyne owns 98.4% of outstanding shares and exercises management control.
No Cash Dividend
The balance of Unicoa stock--just 66,043 shares--is held by 1,449 public shareholders, according to the companies’ financial reports.
Minority shareholders complain that their Unicoa investment has paid no cash dividend for 16 years and has left them at a major handicap in liquidating their investment. They appear to exercise little, if any, influence over Unicoa management. Unicoa’s directors are Singleton, Teledyne President George Roberts and Teledyne Vice President Jerrold Jerome.
Although Unicoa is a largely unknown entity, it accounted for 29% of Teledyne’s 1984 profits. Unicoa operates the Chicago-based United Insurance Co. of America, a major life underwriter and a highly profitable firm.
On the basis of its earnings, Unicoa should be fetching a significantly higher price for its stock than is quoted by market-makers, according to shareholders, financial analysts and insurance industry experts. But with such a small public stock float, trading in Unicoa shares is close to nil, limiting the liquidity of the shares and thus depressing their value.
“If you have a stock for which there is no market and which pays no dividends, you have what is known as an illiquid dog of an investment,” says Harvey Pitt, a Washington attorney and former general counsel of Securities and Exchange Commission.
Unusual Arrangement
The ownership arrangement between Teledyne and Unicoa is extremely unusual, if not unprecedented, according to Pitt and other securities analysts and lawyers. Indeed, the situation provides a graphic illustration of the potential hazards of holding stock as a minority shareholder.
“The rights of a minority shareholder in this situation are very badly protected,” says Frank Wheat, a securities lawyer at Gibson, Dunn & Crutcher, a large Los Angeles law firm. “It isn’t a situation where you have a clear opportunity to force dividends to be paid. I haven’t ever run across a situation like this.”
Pitt also says the Unicoa situation is “bizarre,” because the expense and effort of meeting federal securities laws and reporting requirements generally push corporations to buy out minority shareholders and put an end to the public status of subsidiaries.
“Why are they keeping the company public? What possible rationale could they have for perpetuating this situation? It is unfathomable,” Pitt said. “It is a sad story. I have seen similar stories, but not as bad as this.”
Can’t Find Reason
Indeed, analysts who have followed Teledyne for years are hard pressed to find any reason or advantage that Teledyne gains for bearing the additional expense and effort of maintaining Unicoa as a public company.
“It seems like such a nuisance that it would be worth it to buy back those shares,” says Robert Hanisee, an analyst at Seidler Amdec Securities of Los Angeles. “Dr. Singleton operates in ways that are strange to us, but he is a very rational thinker. I would presume there is a rational reason for this.”
Whatever that may be, Singleton isn’t saying publicly. He and other Teledyne and Unicoa officials declined to be interviewed. Singleton has granted few interviews in recent years and has said little to Unicoa shareholders about their concerns.
For instance, when Rubellke stood up at the Teledyne annual meeting in Beverly Hills last April, the fourth consecutive such meeting he has attended to lobby for a dividend or a buy-out, he was politely told by Singleton that he was out of order.
Singleton suggested that it would be more appropriate for Rubellke to take up his complaint at the Unicoa shareholders meeting, not the Teledyne one. However, Unicoa was holding its meeting that very same day in Carson City, Nev. Apart from the conflict in timing, some shareholders think the location also discourages attendance.
Difficult to Get There
“You can’t even fly to Carson City,” says Ronald Brugh of Atlantic City, Fla., who was one of the few shareholders to attend. “We had to fly to San Francisco and then take a flight to Reno. We rented a car in Reno and drove to Carson City.”
What Brugh said he found was an annual meeting held in an office smaller than his living room and attended by only two Unicoa executives and four shareholders. The Unicoa executives were the firm’s general counsel and assistant general counsel.
“They bring in a fist full of proxies and do whatever they want,” said Teril Rose Watson, another shareholder at the meeting.
Although Teledyne exercises control over Unicoa, it is far from clear that it is deliberately trying to be unfair to the minority shareholders, one analyst says.
“Singleton will stick to the books and do what the law requires,” says Laurence Lytton, an analyst at Drexel Burnham Lambert. “He is a fair man and if there is an inequity he will try to correct it.”
Securities attorneys say that Teledyne could easily acquire Unicoa by simply proposing a merger and putting the matter a vote of shareholders, which they would be guaranteed of winning. The company could even avoid that technicality by simply executing a so-called “short form” merger that requires a filing with the Securities and Exchange Commission and shareholder notification.
Began Buying in 1967
Teledyne started buying into Unicoa in 1967, as part of a broad acquisition and merger strategy that built the company into one of the premier conglomerates in the United States. It acquired majority control of Unicoa in 1969 and added to its percentage of ownership in several subsequent tenders and debt swaps by Unicoa in the early 1970s.
The current public shareholders are the ones who never sold out, convinced through decades of stock ownership that United Insurance would one day prove to be their best investment. Now, many of those shareholders are elderly or the shares have been passed on to survivors.
“I plan to outlive Henry Singleton, but many of the shareholders have substantial amounts of their assets tied up in Unicoa and they are all in their 70s,” says Dr. Burton Blackman, a Los Angeles investor who received his 36 Unicoa shares from his father. “There is a principle involved here. I am really annoyed at the way the public shareholders have been treated. Unicoa is really serving the interest of Teledyne and not the interests of all the shareholders.”
Their experiences have made many Unicoa shareholders distrustful of Teledyne. They pressed a class-action federal suit against Teledyne, Unicoa and former Unicoa officials in the early 1970s, charging fraud in connection with a tender offer by Teledyne in 1968. The case was settled and about 18,000 former United Insurance Co. shareholders received settlements reportedly totalling $1 million.
Stock Undervalued
Meanwhile, the shareholders say the public market for Unicoa shares is not valuing the stock at a fair price.
The stock was quoted by various Unicoa market-makers at anywhere from $67 to $92 per share, far under what some independent analysts believe is a fair price.
Unicoa does not have a trading symbol and is not listed on any exchange, even the over-the-counter exchange. Thus, the major national brokerages are not directly involved in trading Unicoa stock. Instead, several small regional brokerages make markets in Unicoa.
“It hardly ever trades,” said Mike Kinsella, a trader at Hopper Soliday & Co., a Philadelphia firm that makes a market in Unicoa. “I had a couple of trades a few months ago. Somebody dies and a few shares trade.”
“The problem is that it is probably worth more than $90 a share,” Kinsella said.
Unicoa shares appear to be undervalued based on at least two different measures.
Unicoa posted a book value of $198 per share on December 31, 1984, up 72% in the past three years. With no dividend to pay, Unicoa plows all of its earnings and capital gains back into its balance sheet.
Life insurance companies typically sell at an average of 94% of their net worth, according to Value Line, a stock market advisory service. On that basis, Unicoa shares should be fetching at least $186 per share and probably more, because Unicoa is a highly rated company. Top-rated insurance companies trade at anywhere from 100% to 131% of their book value, according to information in Value Line.
Lends to Teledyne
Not only is Unicoa virtually debt-free, it is a significant lender of cash to Teledyne. At the close of 1984, Unicoa held long-term debt of only $19.4 million. Meanwhile, Unicoa held notes and other securities issued by Teledyne subsidiaries worth $256.7 million, up $110 million from 1983, according to the Unicoa annual report.
(At the close of 1984, Unicoa held notes worth $64 million, issued by MIC Investments Inc., a subsidiary of Argonaut Insurance Co., which is owned by Teledyne. Unicoa also held notes worth $143.5 million issued by UIC Investments Inc., which is 80% owned by Trinity Universal Life Insurance Co., a Teledyne subsidiary. The other 20% of UIC is held by Unicoa.)
In addition to the book value measure of the company’s worth, Unicoa has established a record of profitability in an industry where many firms have faltered.
“Operations have been highly profitable,” according to Best’s Insurance Reports, a leading insurance industry rating publication. “It (Unicoa) ranks among the 35 largest stock life insurance companies in the nation when ranked by admitted assets.”
The company earned $74.08 per share in the first six months of 1985, including substantial non-operating gains on investments. In 1984, it earned $40.99 per share, also including substantial non-operating gains on investments.
A composite of insurance industry stocks were selling at a multiple of 7.5 times their earnings in 1984, according to Value Line.
Squeezing Shareholders
“I am certain in my own mind that Teledyne has been squeezing shareholders of Unicoa and holding down the price of the shares,” said Blackman, the Los Angeles investor. “Any company that earns $40 per share, even if it includes extraordinary income, and doesn’t pay a dividend--there’s something wrong with that.”
“I think the stock is underpriced,” adds Andrew Delaney, vice chairman of American General Corp., a large insurance holding company based in Houston. “The value of the company has been going up and up, but the market hasn’t recognized that. It has just been forgotten.”
An investor group led by Delaney offered to buy Unicoa shares for $75 in October, 1984. Delaney said he was seeking to buy 6,666 shares for about $500,000 for investment purposes. His group did buy some shares but not as many as it sought.
“Teledyne has tendered several times for those shares and they will again. I just think they haven’t gotten around to it,” Delaney said.
Nevertheless, some analysts don’t believe that Unicoa is undervalued at all. Discounting Unicoa’s extraordinary income and tax credits, the company only earned about $13 per share, says Hanisee, the analyst at Seidler Amdec Securities. He believes $90 per share is a fair price.
Could Sell Shares
“The fact is that those shares have tendered for five or six times and any one who owned Unicoa has had ample opportunity to sell their shares,” Hanisee says.
After Teledyne gained majority control of Unicoa in 1969, Unicoa held several additional tender offers for its own shares, including at least one which offered a debenture of $35 per share, maturing in 1999.
But some shareholders feel the previous tenders have been inadequate.
“Maybe I’ll go to my grave with it, but if they want my 136 shares they are going to pay full value for them,” Rubellke said. “Unicoa is a cash cow. If they put it up for sale, they would get a huge amount of money.”
Rubellke has held on to his Unicoa shares, which date back to an initial investment in 1949, in the conviction that he will someday realize a large gain.
“Most of the time, my investments bomb, but the one time I got a good company I haven’t gotten anything out of it,” Rubellke says. “America shouldn’t let it happen.”
