Alibrandi Taking Another Shot at Reshaping Whittaker
Since it began making aircraft valves in 1942, Whittaker Corp. has changed directions more times than a commuter flight. The Westwood company even operated under a different name for a while.
Most of the reshaping of recent years has been conducted by Chairman Joseph F. Alibrandi, who slimmed down a conglomerate grown corpulent on the diversification wisdom of the 1960s.
Now he’s at it again.
Last week, Whittaker announced that it is unloading health-care and other operations that account for nearly two-thirds of its sales and is focusing on its technology and chemicals businesses. Whittaker also plans to buy back a big chunk of its stock, perhaps as many as 6 million shares--nearly half of the company.
Whittaker contends that the company that emerges will be a much smaller but potentially more profitable concern.
Analysts generally consider the restructuring a positive move that has been too long in coming. But some question the 57-year-old Alibrandi’s strategy and wonder if the latest remaking of Whittaker might be just another example of Alibrandi’s roving corporate eye, which has resulted in some bad investments since 1980.
“It’s kind of tough to know where you stand on Whittaker because it changes every third week,” joked Robert Hanisee, president of Seidler Amdec Securities in Los Angeles.
The most recent re-cobbling must seem small scale to Alibrandi, who was charged with the task of devising a strategy to cure the ailing company when he joined Whittaker in 1970 as executive vice president.
Whittaker had spent the 1960s--part of the time under the name Telecomputing Corp.--acquiring companies. By the decade’s close, Whittaker was in all sorts of businesses, including concrete, commercial printing, fashion fabrics, mining equipment, railroad freight cars, lawn furniture and carports.
“I had 147 different bricks and no building,” Alibrandi said.
The company was smothering in debt--roughly $4 of debt for every $1 in tangible equity--and “I had a whole bunch of banks screaming to get paid,” said Alibrandi, who became president after only three months at Whittaker. The banks accepted Alibrandi’s plan to sell most of the businesses that did not fit into Whittaker’s future.
Then, in 1974, the same year he became chief executive, Alibrandi took Whittaker into Saudi Arabia to manage hospitals. Those contracts brought the company millions of dollars over 10 years and allowed Whittaker to rebuild.
But in 1984, the Saudis saw the need to cut costs as oil revenue declined, and they put the contracts out for competitive bids. Whittaker lost.
“We could have chosen to take business at prices that didn’t make sense and lose money for years,” Alibrandi said. “Everybody says, ‘My God, that’s terrible, it ended.’ Well, sure it’s bad, but does that say you shouldn’t have done it?”
Surprising Retreat
The latest change announced by Whittaker represents a surprising retreat from the company’s commitment to the last of its health-care business. Although the company announced plans in February to sell its health maintenance organization operations to Travelers Corp., Alibrandi as recently as the May 2 annual meeting told shareholders that health care, which the company calls life sciences, would continue to be one of Whittaker’s core businesses.
But last week Whittaker said it would get out of health care and reiterated its plans to sell its marine and metals operations as well as a hydraulic equipment manufacturer in France. The company will keep a small biomedical products operation and an aluminum engine parts business.
Although the life sciences division was identified publicly as a core business, Alibrandi said, Whittaker “set a bunch of targets” for the business if it were to remain a strategic area. After the sale of the HMO business, there was no “synergistic advantage” to keeping the other health-care operations, he said.
The Whittaker that will remain after the restructuring will derive about two-thirds of its sales from its technology operations and the rest from specialty chemicals. Those segments make up only about one-third of Whittaker’s current sales but account for the bulk of its profits.
The technology operations make primarily defense-related products, such as devices that fool enemy radar into thinking the target is somewhere else.
The specialty chemicals segment produces adhesives, sealants and paint coatings for metal that are used in such things as cars and appliances. The company also makes extruded plastic parts that are used in industry as well as in Parker Bros. board games.
“One of the major objectives is to focus the company on strength,” Alibrandi said.
The restructuring “is something I have been urging Alibrandi to do for a long time,” Seidler Amdec’s Hanisee said. The move eliminates many of the company’s most cyclical businesses, but what remains is not immune from cyclical ups and downs in earnings, he said.
“I really don’t see any down side in this,” Hanisee said. “They basically are getting rid of businesses that have caused them problems over the years and kept the ones that have been good to them.”
Larry Selwitz, an analyst with Bateman Eichler, Hill Richards, called the overhaul “a move toward a company that’s understandable and gets a decent return on shareholders’ equity and asset base.”
He added: “I think it’s something that had to be done, but it was a long time coming.”
Others are less appreciative of the restructuring.
“What it boils down to in my opinion is Joe has made a lot of acquisitions, none of which were synergistic,” said Steve Reid, an analyst with the Wedbush, Noble, Cooke securities firm in Los Angeles.
“Joe Alibrandi had a string of successes in the ‘70s and now he’s had a string of failures,” Reid said. In addition to losing the Saudi contract, Whittaker:
- Tried to take over Brunswick Corp. in 1982 but failed when the company adopted a “scorched earth” strategy of selling the assets that Whittaker wanted most.
- Lost more than $26 million when it sold its 8.3% holding in Smith International, an oil services firm that is operating under bankruptcy court protection.
- Failed to unload a Fort Worth pipe firm that services the oil industry even though the oil business was heading for hard times.
Whittaker posted a $4.5-million loss in the second quarter primarily because of a $12-million writeoff associated with an oil and gas venture. For the fiscal year ended last October, Whittaker reported a $19.9-million profit on sales of $1.13 billion, a sharp decline from previous years, primarily because of the loss of the Saudi contracts.
Harry S. Derbyshire, former executive vice president and chief executive of Whittaker, said Alibrandi has done a “terrible” job with the company. Derbyshire retired last year after a disagreement with Alibrandi over company strategy. He is now a consultant.
“The company made a tremendous amount of money in Saudi Arabia and there’s nothing to show for it. All his strategies have gone wrong,” said Derbyshire, who describes Alibrandi as “extremely pleasant, courteous, considerate, motivational.”
Although Derbyshire didn’t want to comment on the planned restructuring, he added: “I don’t believe they have a strategy now. That’s why I left.”
Alibrandi said the changing focus of the company comes from seizing opportunities and then abandoning them when market conditions change. He added: “We’ve made some investments along the way that didn’t turn out the way we wanted, and we’ve made some investments that turned out fantastic.
“Nobody bats a thousand.”
THE SHIFT AT WHITTAKER Business mix in 1976 . . . Based on sales that year of $713.77 million. 10% Life Sciences 8% Chemicals 58% Other businesses 24% Technology . . . and after proposed divestitures Based on sales of $189.7 million for six months ended April 30, 1986 37% Chemicals 63% Technology
