Transamerica Chairman Likes Business to Be Dull
Dull is beautiful. Just ask James R. Harvey, chairman, president and chief executive of Transamerica Corp., a once-sprawling conglomerate that is returning to its roots in insurance and financial services.
Harvey’s first major act after being named chief executive in 1981 was to sell Transamerica’s United Artists subsidiary, a studio whose distinguished heritage was tarnished by its embarrassing $40-million investment in the film boondoggle “Heaven’s Gate.” The accountant and engineer promptly used the proceeds to buy several insurance brokers.
Now, Harvey is intent on dealing off other troublesome companies that Transamerica acquired during its 1960s acquisition binge. He has hung “For Sale” signs on Transamerica Delaval, a maker of turbines and pumps, Budget Rent a Car and Transamerica Airlines.
To regular attendees of San Francisco-based Transamerica’s annual meeting, the airline is best known for its disgruntled flight attendants. In what has become a yearly ritual, they picket the gathering and leaflet shareholders to dramatize their contract dispute with management. The airline also made news when one of its cargo planes was shot up by rebels in Angola.
“We’re getting rid of all the exciting businesses,” Harvey said in an interview. The 52-year-old executive looks tanned and relaxed, and why not? Transamerica just sold 6.3 million shares of common stock to the public for $216.7 million, securities analysts are praising his latest plan and the stock is trading near its 52-week high of $38 per share.
“Times have changed,” Harvey said. While diversification was a successful strategy in the 1960s, today’s harshly competitive economic climate forces companies to concentrate their resources on what they do best.
“You’ve got to have much bigger market shares to compete successfully,” he said. Selling off unrelated businesses “will give us the resources to grow insurance and financial services.”
Harvey’s massive restructuring should also ward off any corporate raiders who might have sensed an opportunity to buy the company and bust it up at a profit, analysts say.
Anti-takeover Provisions
“If you just sit there and maintain the status quo, maybe someone will come in and do the job that management should have been doing,” Harvey said.
Just in case, Transamerica will ask its shareholders to enact several anti-takeover provisions at its next annual meeting, to be held at a yet-to-be-determined date this spring. The measures will stagger directors’ terms and require 80% shareholder approval of a hostile takeover. Harvey said Transamerica’s heavy and complicated debt load will also deter raiders.
Harvey said the company has received more than 100 inquiries since announcing its intention to jettison its airline, auto rental and manufacturing units.
He said he would prefer to sell the businesses intact, adding that the manufacturing unit might be spun off to Transamerica’s shareholders.
Ambitious Plans
“The energy business is down, the utility business is down, the marine business is down,” Harvey said, referring to Transamerica Delaval’s major markets. “If we can’t get a good price, we might as well give it to our shareholders and let them get the appreciation in the future.”
Budget Rent a Car, he says, would have a brighter future as part of an airline or a hotel chain. And Transamerica Airlines could either be operated as a stand-alone venture or sell off its planes piecemeal to the highest bidder; it operates three 747s, seven DC-8s and a number of cargo planes.
Harvey has ambitious plans for most of Transamerica’s remaining businesses. “In life insurance, we have some specific acquisitions in mind,” he said. With more than $140 billion in insurance in force, Transamerica is already the nation’s ninth-largest life insurer.
The company’s property-casualty insurance operation ranks 36th, and its consumer finance subsidiary is the nation’s 13th largest. Both areas have been targeted for expansion. In insurance brokerage, Transamerica has a 39% stake in London-based Sedgwick Group, the world’s third-largest broker in terms of revenue.
Analysts say Harvey should be able to boost the company’s bottom line by emphasizing financial services. As an example, they point to the airline operation, which lost $5.5 million last year even though Transamerica had over $500 million in assets tied up in it.
By moving those assets into financial services, where the company enjoys a 15% return on assets, pretax income will increase by some $75 million a year.
‘Marketing Umbrella’
That would mean a significant swing for Transamerica, whose net income in 1985 fell to $145.8 million from $171.5 million in 1984.
Harvey said Transamerica’s “marketing umbrella”--its pyramid-shaped headquarters tower here is a well-recognized corporate symbol--will allow it to increase product offerings in the financial services field. The company recently began joint ventures selling variable universal life insurance and health maintenance organization contracts.
Although the bulk of its operating units will now be located in Los Angeles, Harvey has no intention of moving the holding company’s headquarters to the Southland.
The pyramid is too valuable a symbol, Harvey enjoys living in the Bay Area and besides, “you shouldn’t have your headquarters staff too close to the operating companies,” he said. “You’d start meddling too much.”
