Westinghouse Plans to Sell Cable-TV Unit and Buy 14% of Own Stock

Westinghouse Electric said Wednesday that it will seek buyers for its giant Group W cable-TV unit, the nation’s third-largest cable operator, and repurchase up to 14% of its stock as part of its continuing corporate restructuring effort.

The Pittsburgh-based manufacturer, which has long struggled to raise its profitability and stock price, said it hopes that the growing demand for cable properties will help gain a top price for the system, which has its largest single base of subscribers in Southern California. Group W has 140 systems in 33 states, with 365,000 of its 2.1 million subscribers in the region between Santa Ana and Simi Valley.

The company said it hopes to find a single buyer for the system, which analysts speculated might fetch between $2 billion and $2.5 billion. The company is the largest cable system ever put up for sale, according to company officials.

In a statement, Westinghouse Chairman Douglas D. Danforth said the company would finance the repurchase of as many as 25 million of its shares using “existing cash, internally generated funds and short-term debt.”

May Buy More Shares

At the current market price, the purchase of that many shares would cost Westinghouse nearly $1 billion. The company has 175 million shares outstanding.

He said the company expects to sell Group W by next year and will spend the proceeds to complete its restructuring and pay off short-term borrowings used to finance the stock buy-back. Depending on the price and “market conditions,” the company may decide to purchase additional shares, Danforth said.

Investors gave a warm reception to the announcement, and Westinghouse shares rose $4.75 a share to close at $38.25 on the New York Stock Exchange. The company’s stock was the second most active issue on the Big Board as 3.86 million shares traded.

Westinghouse, with 1984 revenue of $10.3 billion, makes such diverse products as electrical generation equipment, aerospace, defense and nuclear energy systems equipment.

Since assuming Westinghouse’s top post in January, 1983, Danforth has repeatedly declared that the company intends to increase profitability by moving out of some slow growing, basic manufacturing businesses into higher growth areas that include high-technology products and services enterprises. In the last 2 1/2 years, Westinghouse has announced 20 acquisitions and joint ventures and 12 divestitures.

Anti-Takeover Move

Analysts said that, while Westinghouse has not been widely viewed as a takeover candidate, the restructuring may be intended in part to protect the company from such a threat. At its annual meeting last spring, the company adopted measures, including staggered terms for its board members, that were intended to reduce the threat of unfriendly takeover.

Most of Westinghouse’s cable operations were purchased from Teleprompter in 1981. Westinghouse officials have acknowledged that the system’s problems were greater than they had anticipated. Analysts say the company lost $50 million on the system in its first three years, and achieved profitability on cable operations only last year.

But Westinghouse officials insist that Group W’s prospects are bright, and they say it intends to sell the unit only because it does not fit the company’s needs.

“This has nothing to do with our view of the cable business,” Daniel L. Ritchie, chairman of Westinghouse Broadcasting & Cable, said in an interview. He said that, although cable operations generate large amounts of cash, they also have required huge cash outlays, and Westinghouse is currently looking for businesses that generate more profit.

He added that Westinghouse has already approached several possible purchasers and found “real interest.” He did not identify any of the parties that have been approached.

Westinghouse also owns five television stations and 12 radio stations, which are not for sale. In his statement, Danforth said the planned sale “in no way dampens our enthusiasm for the commercial broadcasting business.”

Last year, the cable operation accounted for about $450 million of the $985 million in revenue of the broadcast and cable unit. Nicholas P. Heymann, analyst with Drexel Burnham Lambert in New York, said the cable unit has been profitable for four quarters and this year will earn about $25 million on revenue of $600 million.

Despite slowing growth in the number of cable subscribers, cable properties have recently attracted new interest and higher sale premiums. Such interest is in part because many cable firms have already made the intensive capital investment needed to create their networks and also because of the continuing deregulation of cable rates.

Paul Bortz, a partner at the media consulting firm of Browne, Bortz & Coddington in Denver, said cable properties have recently sold for as much as 11 times their annual cash flow, compared to prices that have historically averaged eight to nine times cash flow. Deregulation has enabled systems that were charging $8 or $9 for basic cable service to increase their rates to $15 a month without a drop-off in subscribership, he noted.

“The effect of that, and the general interest in media properties, has really affected prices and should benefit Westinghouse as well,” Bortz said.

Analysts speculated that existing cable companies may be most interested in the planned sale, including No. 1 ranked Tele-Communications of Denver and Bala Cynwyd, Pa.-based Comcast Communications, which has declared an interest in further acquisitions.

Bortz speculated that Westinghouse might want to use some proceeds of the sale to expand its highly profitable network of television and radio stations.

Ritchie said Westinghouse has invested over $700 million to upgrade and expand Group W since 1981. In trying to improve the system, the company faced longstanding complaints of poor service, which Ritchie contended have now been overcome.

Group W network also serves large numbers of subscribers in Florida, Seattle and the northern half of Manhattan. Ritchie noted that the unit’s Southern California franchises cover a number of high-income areas, such as Bel Air, Beverly Hills, Brentwood and Santa Monica.