Allied-Signal Expected to Reorganize : Write-Downs, Layoffs and the Sale of Some Operations Likely
Allied-Signal Corp. is expected to announce today a far-reaching restructuring that analysts said would trim about $2 billion in annual revenue but could add about $2 billion in cash to the newly merged conglomerate.
The restructuring plan, which includes layoffs, was expected to be hammered out during a marathon Allied-Signal board meeting late Tuesday night in New York. The plan would eliminate industrial, health-care and other operations that fall outside of the giant company’s aerospace, automotive, chemical and electronics businesses.
Concurrently, the company is expected to announce an agreement in principle for an out-of-court settlement with a group of dissident shareholders. The shareholders filed suit to block a compensation plan included in the merger deal that would pay about $106 million to 150 Signal executives.
Allied Corp. of Morristown, N.J., and La Jolla-based Signal Cos. merged in September.
Press Conference Set
Although Allied-Signal officials would not comment on the board meeting, an Allied spokeswoman said that Chairman Edward Hennessy will discuss the board’s actions during a press conference this morning in New York.
The restructuring could include “a bunch of write-downs, divestitures and some discontinued operations,” said Laurence Lytton, a securities analyst with Drexel Burnham Lambert in New York.
“It’s conceivable that we could see the divestiture of $2 billion in revenues over the next couple of years,” he said. The write-downs could amount to “several hundred million dollars . . . during the fourth quarter,” he noted.
Analysts said such write-downs could eat into the company’s earnings for the year.
But Lytton also said that cash accumulated during the restructuring would put Allied-Signal in a “cash-rich” position that might bring a wave of acquisitions not unlike those initiated following Allied’s acquisition of Bendix Corp. in 1983.
“Allied-Signal is under-leveraged and . . . has significant borrowing power,” Lytton said.
As much as $2 billion in cash could be generated from a “significant” restructuring, according to Katherine M. Stults, vice president of research with Dean Witter Reynolds in New York. “We’ve seen a lot of little (operations) disappear . . . but it might be time to take the (necessary) write-downs” that would make businesses outside of Allied-Signal’s four chosen areas more attractive to buyers.
Allied-Signal’s stock closed Tuesday at $47.625 in trading on the New York Stock Exchange, up 50 cents from Monday and up more than $2 since Friday.
Allied’s Fisher Scientific, Instrumentation Laboratory, Allied Health & Science and Amphenol divisions are likely candidates for divestiture, according to analysts. In addition, analysts suggested that Signal’s real estate and credit operations, as well as its minority holdings in other companies, would likely be divested in the reorganization.
Analysts were uncertain about the status of Allied-Signal’s engineering and construction operations. “They seem to be something that President Mike Dingman would want to keep but that Ed Hennessy might want to drop,” Lytton said. Dingman was president of Signal before the merger; Hennessy was chairman of Allied and is chairman of the combined company.
Other sources suggested that Dingman and other Signal executives might remain with the operations that are divested.
Allied-Signal first sparked talk of significant diversification in a joint proxy statement that was mailed in August, a month before the merger. The proxy suggested that the company might undertake “significant” divestitures of “unrelated businesses which fit in only marginally” with aerospace, automotive, electronics and chemicals.
Dissident Signal shareholders threw a wrench in the otherwise smooth merger when they sued to block executive compensation payments and so-called golden parachutes that were triggered by the Allied merger.
A definitive settlement agreement is expected to be negotiated later this week and presented to a San Diego Superior Court judge next week.
Earlier this month, Judge Jack Levitt extended indefinitely a temporary restraining order that has to date stalled the initial payment of the executive compensation package.
Terms of the settlement will be announced after the court approves the agreement, according to sources close to the case.
Attorneys for the shareholders based their suit on the certainty of Signal executives’ keeping their posts after the merger.
Ironically, fear of layoffs ran rampant Tuesday at Signal’s lush corporate headquarters in La Jolla as word of the impending restructuring spread.
“There’s typical gallows humor here,” one executive said. “People who worked for Signal for 20 years aren’t used to polishing their resumes, but that’s what they’re doing today.”
The potential for layoffs didn’t seem to surprise the 170-member Signal corporate staff, many of whom have realized that “you don’t need two of everything,” one Signal source said.
“Allied was overstaffed, and it didn’t make sense to place people from here back there,” said one Signal executive.
What will become of Signal’s sprawling, 87,000-square-foot, two-story Spanish-style corporate headquarters remains uncertain, according to several Signal sources.
Following Signal’s merger with Wheelabrator-Frye in 1983, Signal’s corporate staff grew steadily from 100 to about 170. That prompted the company earlier this year to begin construction of a nearly 50,000-square-foot facility next door.
