Henley Group Going for Bigger Chunk of SFSP : La Jolla Firm Seeking Up to 25% of Rail Company, Won’t Disclose Intentions

Henley Group of La Jolla said Tuesday that it will seek governmental approval to raise its 5% stake in Santa Fe Southern Pacific to slightly less than 25%, but Henley declined to say what its intentions are toward the beleaguered transportation company.

Henley also said it plans to buy back up to 25 million of its own shares of common stock for $28 each in cash through a tender offer. In addition, the company said it is “actively considering” restructuring its general chemical and manufacturing group into a new company and distributing shares to current Henley shareholders.

Despite Henley’s apparent interest in Santa Fe Southern, it is keeping its options open and could sell all or part of its 7.9-million-share stake in the Chicago company if Santa Fe Southern’s “uncertain” situation changes, Henley Chairman Michael D. Dingman said. Dingman declined to say in an interview whether Henley is interested in taking over Santa Fe Southern, which is undergoing a restructuring in the wake of the Interstate Commerce Commission’s refusal to allow the company’s two railroads to merge.

30-Day Waiting Period

Henley filed under the Hart-Scott-Rodino Antitrust Improvements Act, which mandates a 30-day waiting period while the Federal Trade Commission and the Justice Department review intended investments of more than 10% in another company. The filing “is like going down and getting your driver’s license,” Dingman said. “It’s a legal requirement before we can purchase more shares.”

At Santa Fe Southern, “our reaction is that we have no comment” on the Henley announcement, a company spokesman said. Separately, Santa Fe Southern reported Tuesday that its second-quarter net income rose to $90.4 million on revenue of $1.44 billion, compared to net income of $81.8 million on revenue of $1.37 billion in the same period last year.

Santa Fe Southern’s stock rose $2.375 Tuesday to close at $53.25 as an apparent result of the Henley announcement. It was the third-most actively traded issue on the New York Stock Exchange, with nearly 2.4 million shares changing hands. In over-the-counter trading, Henley Group closed at a bid price of $29.25, up $1.50.

Analysts were split over whether Henley really intends to buy Santa Fe Southern, particularly in light of a “poison pill” provision that distributes a new class of stock when a hostile suitor buys more than 20% of the company. But Henley’s move undoubtedly will complicate life for Santa Fe Southern, which is trying to develop a plan to sell one of its railroads as ordered by the ICC when it refused last month to reconsider the merger of Santa Fe Railway and Southern Pacific Transportation.

Santa Fe Southern has yet to say what its plans are for the railroads, in which several competitors have expressed interest, but the company has announced plans to sell several smaller businesses. What’s more, Santa Fe Southern is looking for a new chief executive to replace John J. Schmidt, who was ousted in April by a disgruntled board of directors and was replaced temporarily by John S. Reed, Schmidt’s predecessor as head of the Santa Fe unit.

Meanwhile, an umbrella group of railroad unions said Tuesday that it is “aggressively developing options” to allow employees to buy part of whatever railroad Santa Fe Southern sells or to otherwise participate in the railroads’ operation.

Railroad employees “are not somebody who’s interested in turning a quick buck or turning the railroads into a cash cow but are interested in the long-term future of the railroads,” said Jim Kennedy, executive director of the group, called the Railway Labor Executives Assn.

Besides their other concerns, Santa Fe Southern officials must handle “all the normal problems that come from being in the rail business and the oil and gas business, which are not inconsiderable,” railroad analyst James Voytko of the Paine Webber investment firm said. “Boy, I tell you, they’re probably earning every dollar they’re making,” he quipped.

Analysts’ Theories

Analyst E. Magnus Oppenheim theorized that Henley is not interested in buying all of Santa Fe Southern but could intend to influence company operations through an enlarged stake.

“Inasmuch as there is no real leadership at Santa Fe . . . this gives Mike Dingman a very good opportunity to step into what might be called a vacuum,” said Oppenheim, president of the New York investment firm that bears his name.

Ever since Henley disclosed its 5% stake in March, analysts have speculated that Santa Fe Southern’s real estate development, construction and transportation businesses might fit well with Henley’s operations. But analyst Katherine M. Stults of Dean Witter Reynolds argued that Henley is more interested in the buying and selling of assets.

“You don’t think in terms of Henley and fit,” Stults said. “They’re interested in buying assets and selling them for more than they paid for them.”

Dingman himself acknowledged: “We’re not a classic company that makes widgets. We’re basically a fixer-upper company.”

Dingman said his company’s $700-million stock buyback, which will be paid for with a new $2.5-billion line of credit, “is a way to return money to shareholders.” Henley no longer needs a large equity base for acquisitions but instead can get the needed capital through partnerships and other forms of financing that do not affect the balance sheet of Henley Group, he said.

Henley Group at a Glance

Spun off by Allied-Signal Inc. in May, 1986, Henley owns and operates about 35 businesses in four groups. Based in La Jolla, the company’s products include laboratory equipment, refuse-to-energy systems, chemicals and various electronic and industrial components.

Year ended Dec. 31 1986 1985* Sales (millions) $3,172 $3,340 Net loss (millions) (426) (25)

* Pro forma

Assets $4.698 billion

Employees 22,400

Shares outstanding 108.7 million

52-week price range $17.875-$29.25

Tuesday close $29.25, up $1.50