Transamerica, returning to its roots as an insurance and financial-services concern, said it plans to withdraw from the air travel, automobile rental and manufacturing businesses in a massive restructuring.
The company, once the archetype of the 1960s conglomerate, will divest its Transamerica Airlines, Budget Rent a Car and Transamerica Delaval units. Together, they have assets of $1.15 billion, representing more than 9% of the total, and accounted for 19% of Transamerica's operating income last year.
Transamerica said it expects to report a gain on the disposal of the businesses. The company did not say how much it hopes to raise on the sale, but the businesses have a combined book value of $380 million. Proceeds will finance acquisitions or internal growth in insurance and financial services.
Separately, Transamerica filed a registration statement with the Securities and Exchange Commission for a proposed public offering of 5 million newly issued shares of Transamerica common stock.
The offering, planned for mid-February, would raise another $171.2 million, based on Transamerica's closing price of $34.25 a share Thursday on the New York Stock Exchange. The restructuring and proposed offering were announced after the market had closed. Transamerica currently has 65.6 million shares of common stock outstanding.
James R. Harvey, Transamerica's chairman, president and chief executive, said Transamerica has concluded that the companies to be divested, while "successful and soundly managed . . . do not fit with our long-term plans."
Acquired Under Predecessor
The companies were all acquired during the long reign of Harvey's predecessor, John R. Beckett. Harvey's first major move after being named chief executive in 1981 was to dispose of another Beckett acquisition, United Artists Corp., then reeling from its disastrous investment in the film "Heaven's Gate." UA was eventually acquired by Metro-Goldwyn-Mayer. Beckett, who remains on Transamerica's board, could not be reached for comment Thursday.
Harvey said the divestitures will be handled "in a deliberate, orderly way" and "may involve the sale of stock, sale of assets or, in the case of Transamerica Delaval, possible spinoff to Transamerica Corp.'s stockholders."
Transamerica's move is in line with a "back to basics" trend at other major conglomerates. Conglomerates, which were in vogue on Wall Street during the 1960s, have fallen from favor in recent years as the "synergies" promised by their managers failed to materialize.
Moreover, securities analysts, who generally specialize in specific industries, complained that such corporate mishmashes were almost impossible to follow.
In recent years, for example, Transamerica and its subsidiaries have sold insurance, made loans, developed snapshots, moved furniture, flown airplanes, rented cars, manufactured turbines, leased containers and distributed major motion pictures.
After selling off United Artists, Transamerica had tried to make sense of what was left by lopping off small businesses and grouping its remaining companies into three general areas: insurance and financial services, transportation and manufacturing.
But Wall Street continued to have reservations. Moreover, recent reverses at Transamerica Airlines, Budget Rent a Car and Transamerica Delaval, which makes pumps, turbines and other products, apparently provided further impetus for Harvey's plan to shed peripheral businesses.
"We've fallen on kind of hard times recently," said Howard K. Howard, president and chief executive of Transamerica Airlines, which specializes in charter flights.
Net income for travel operations, which includes the airline and Budget Rent a Car, plunged to $700,000 in the fourth quarter of 1985 from $8.5 million a year earlier. Budget, the world's third- largest auto rental company, was hurt by increased insurance costs and widespread price cutting in the auto rental industry.
Transamerica Delaval, the manufacturing unit with 30 plants in the United States, Canada and Europe, also did poorly in the fourth quarter, with net income of $2 million, compared to $6.7 million a year earlier.
Transamerica's biggest and most successful unit remains its life insurance company, which is based in Los Angeles and which posted fourth-quarter 1985 net income of $30.7 million, up from $23.3 million a year ago.
Transamerica also has interests in insurance brokerage, title insurance, property/casualty insurance, consumer lending and equipment leasing. Total assets at Sept. 30, 1985, were $13.6 billion.