TRW to Restructure in Bid to Hike Stock Price
TRW said Friday that it is selling two major units and buying back as much as 22% of its common stock in a restructuring designed to shed less profitable low-technology operations and boost the price of its shares.
The Cleveland-based diversified manufacturer said the units to be spun off--industrial products and aircraft components--represent $700 million in annual sales and 10,800 employees, 11% of TRW’s total work force of 93,000. No buyer has been found for the units, the company said.
None of the operations to be divested is based in California and employment here will not be affected, TRW spokesman Mike Jablonski said. About 25,000 people work for TRW in California, primarily in the company’s electronics and defense divisions.
TRW asked at midday Friday that trading be halted in its shares pending the restructuring announcement, after the price peaked at $82 a share, up $5.125, on heavy volume. A company spokesman said the firm released the news Friday rather than Monday as planned because news of major changes had apparently leaked.
The company will take a $170-million after-tax charge in connection with the restructuring. TRW estimated that third-quarter earnings will fall about 25% from the same period a year ago, when the company reported profits of $78.4 million. The firm predicted that fourth-quarter earnings would rebound to year-ago levels of about $60 million.
The move will result in the abandonment of the firm’s industrial and energy sector, which makes bearings, pumps, tools, turbines and propellers for the petroleum, nuclear power and aircraft industries. Remaining units in that sector will be transferred to the automotive group or report directly to the chairman’s office.
The industrial and energy sector last year was the least profitable of TRW’s three main operating units. In 1984, it contributed 23% of sales and 22% of profits. Manufacturing facilities for the industrial products and aircraft components units are primarily in the Midwest and South.
“These actions are evidence of our continued commitment to increasing shareholder value by concentrating our resources on our most promising businesses,” TRW Chairman Ruben F. Mettler said.
“The decision to repurchase shares is based on management’s belief that TRW’s common stock represents an attractive investment for the company at current market prices, given the prospects for our businesses,” Mettler said. He added that the stock buy-back--valued at between $176 million and $193 million--would be funded from existing cash and short-term credit.
Although a number of recent share repurchases at other corporations have been inspired by fear of corporate raiders, TRW officials said that, to their knowledge, the firm was not a takeover target.
TRW said it would begin a tender offer for up to 8 million of its shares, representing 22% of its 36.5 million common shares outstanding, on Tuesday. The company will pay between $80 and $88 a share for the shares under an auction system.
