Allied-Signal Will Put 30 Units in New Firm, Lay Off 3,000 Workers
Allied-Signal Inc. said Wednesday that it plans a restructuring in which it will reorganize around its four principal businesses, spin off 30 peripheral units into a new company and trim its payroll by about 3,000 positions and $250 million annually.
The company, which inherited a grab bag of marginal and unrelated operations in September’s merger of Allied Corp. and Signal Cos., said the yet unnamed new firm will have annual sales of $3.1 billion, assets of $3.2 billion and a work force of 24,000. The spinoff will be the largest since American Telephone & Telegraph was forced to shed its operating companies in January, 1984, officials said.
The restructuring will combine an almost equal number of former Allied units and former Signal businesses into the new company. Michael Dingman, former president of Signal Cos., will be chief executive of the new firm, which is informally being called “Newco.”
New Company’s Operations
Largest and most profitable of the new company’s operations will be Fisher Scientific, a maker of medical products, and Kellogg-Rust, an industrial construction firm. Also among them will be Signal Landmark, a La Jolla-based real estate development concern with 30 residential and commercial projects in Southern California.
Spinning off the business units will leave Morris Township, N.J.-based Allied-Signal concentrated in aerospace, automotive products, electronics and chemicals--including former Signal operations that were involved with aerospace, automotive and electronics. The company will have annual revenue of $10.8 billion, assets of $11 billion and 140,000 employees.
Among Allied-Signal’s largest units are Garrett Corp., an aerospace company based in Los Angeles, Bendix Aerospace, Allied Chemical and Allied Automotive.
Shareholders Get 70%
Allied-Signal shareholders will receive 70% of stock in the new company, while the remaining 30% will go to Allied-Signal.
Separately, as reported, Allied-Signal said it has reached an agreement in principle for an out-of-court settlement with shareholders who sued to keep 150 Signal Cos. managers from receiving $106 million in compensation from the merger of Allied and Signal. The agreement will trim the compensation by $20 million, according to William Lerach, an attorney representing the group.
At a morning presentation here, Allied-Signal Chairman Edward L. Hennessy said a four-month-long company study concluded that a spinoff of the 30 units would yield more for shareholders, demand less of top management’s time and do more to maintain morale in the units than a divestiture program in which all the units would be sold.
It would have taken “a lifetime to dispose of” the 30 operations in such a divestiture, Hennessy said.
He and Dingman said the new company would be managed to give quicker returns for shareholders than could be realized by growing each of the units. The company might sell some assets and return a cash dividend to shareholders. Or it might merge them with other companies in a spinoff or expand them to a size that would give them the “critical mass” needed to produce a high return on investment, Hennessy said in an interview.
Although they said the program’s aim was to quickly transfer the assets’ value to Allied-Signal shareholders, Dingman and Hennessy insisted that liquidation was not the ultimate goal of the program. “This company may be around for a long, long time,” Dingman said in an interview. “It depends on how we find we can best convert (the company) to value for the shareholders.”
The company will reduce its work force through attrition and retirement incentive programs as well as layoffs. Officials said they could not estimate how many of the 3,000 job cuts will be through layoffs or from which units they may be cut.
In California, where Allied-Signal has 22,000 employees, the number of jobs would be reduced by “at most hundreds, and I mean a few hundred,” Dingman said.
The newly created company temporarily will have its headquarters in New York, but Dingman said he might ultimately move its executive offices to La Jolla, where he has a home.
Cutbacks Begin This Quarter
The cutbacks, including the work-force reductions, will begin this quarter and will be concluded next year, officials said. Allied-Signal will also take a charge against earnings in connection with the cost-cutting program, said Hennessy, who declined to say precisely how large the charge would be.
Officials said the units of the new company are collectively operating at close to the break-even point. Even after the one-time charge, Hennessy said, the spinoff would raise Allied-Signal’s per-share earnings by about 15 cents a share.
The stock market reacted unfavorably to the news, dropping Allied-Signal stock by $2.75 to $44.875 a share in heavy trading on the New York Stock Exchange. Analysts speculated that the decline reflected disappointment among investors who expected a quicker payoff from the company’s restructuring.
Analysts speculated that the stock might also have been hurt by Hennessy’s comment to analysts that he would not approve the company’s planned 25-million-share buy-back while the stock is at its current high level.
Nonetheless, several analysts had praise for the planned spinoff. “What they’re doing makes a lot of sense,” said Katherine Stults, vice president of Dean Witter Reynolds in New York. “The continuing businesses get managed as such, and Dingman has a great record of turning companies around and taking out the best of things.”
Formation of the new company also puts an end to plans for Dingman to succeed Hennessy at the helm of Allied-Signal. Some interpreted Dingman’s reassignment as a sign of discord at the newly merged company.
“It’s a little startling that the honeymoon was so short,” said Laurence W. Lytton, an analyst with the brokerage firm Drexel Burnham Lambert. “The separation, or divorce, took place only two months into the marriage.”
Times staff writer Paul Richter reported from New York and staff writer Bill Ritter reported from San Diego.
