Dingman--Deal Maker Who Didn’t Make Deal
In the early 1970s, Michael D. Dingman took an obscure asset, a “tiny license agreement from a Swiss company,” as one longtime associate put it, and created the first practical plant able to turn waste material into energy.
That plant in Saugus, Mass., represented the key first step in the development of a billion-dollar business for Dingman, who is now chairman of Henley Group, based in La Jolla.
The deal was a complicated joint venture that was put together in a “matter of days” after a competitor walked away from a similar deal after agonizing for “several years,” Marc Stern, Henley’s managing director, said in a recent interview. The plant became the core business of Wheelabrator-Frye, the company that Dingman then headed, and exemplified his no-nonsense opportunism, propensity for risk taking and talent for simplifying deals.
And that first major deal is part of the mythology that surrounds the 56-year-old Dingman. His image as a deal maker grew even stronger over the past several months as he has struggled to pull off the biggest transaction of his career: taking control of Santa Fe Southern Pacific in what would have been the largest non-oil takeover in U.S. history.
“Some institutional investors think Dingman can walk on water,” said one Wall Street analyst who asked not to be identified. “It’s analogous to President Reagan, the ‘feel good President.’ Part of the image is reality, part of it perception.”
$1 Million Ahead
But Friday, Dingman suffered what was perhaps his biggest setback as Henley announced that it would give up on a planned proxy fight to take over the transportation, energy and real estate concern, a company in which Henley holds a 15.7% stake. Although Henley left its investment options open, most analysts took the announcement to mean Dingman was throwing in the towel on his eight-month battle to take over the company.
Although Henley is still about $100 million ahead--not including heavy legal and consultant costs--on its $1-billion investment, Henley’s apparent defeat in its chess game with SFSP may cause some fans on Wall Street to reassess the Dingman aura.
“Dingman got boxed in,” said Eli S. Lustgarten, an analyst with Paine Webber who followed the epic joust between Henley and Santa Fe.” Calling off the proxy fight was “a recognition of reality” that Henley’s attempts to exert influence on SFSP management and its restructuring plan had largely failed, Lustgarten said
Santa Fe’s chessboard moves included a successful “poison pill” anti-takeover defense amended in December that effectively kept Henley from accumulating more than 20%, either by itself or as part of a group. In January, SFSP neutralized a potential ally of Henley’s--Olympia & York Developments of Toronto-by naming two O&Y; executives to its board in exchange for O&Y;’s promise of support for SFSP restructuring and its promise not to oppose SFSP’s slate of board nominees at the May annual meeting.
When it announced on Jan. 19 that it planned to launch a proxy fight for representation on SFSP’s board, Henley said it hoped to enlist the support of O&Y.; The Toronto-based real estate and energy concern owned 10.2% of SFSP shares before beginning a tender offer last week that may increase its holdings to 19.6%. O&Y; had no comment Friday on Henley’s action.
SFSP also began a sweeping restructuring earlier this year that even Dingman acknowledged has made SFSP a less attractive takeover target.
The final straw for Henley may have been a Delaware court’s refusal March 11 to grant Henley a temporary restraining order barring SFSP from issuing $780 million in bonds, part of a $4.7-billion payout to SFSP shareholders. The court was unmoved by Henley’s claim that the bonds overburdened the company with debt and imposed overly restrictive covenants on future SFSP actions.
In a telephone interview last week prior to Friday’s announcement, Dingman admitted that his litigious approach in the SFSP case may have been a mistake, and he expressed regret over having broken one of his own cardinal rules: Never attempt a hostile takeover.
“You always flirt with something you’ve never done before,” Dingman said. “We thought . . . (a hostile takeover) was the best decision. But we never got there. The deal probably shouldn’t have gone the way it has. It probably wasn’t the smartest thing to have done, in hindsight, to have carried this relationship to this level of legal proceedings.”
In the interview last Wednesday, Dingman said the restrictions tied to SFSP’s bond issue last week made the company less attractive because the new borrowing restrictions would limit his ability to restructure SFSP were he to take control. Dingman was unavailable for comment on the Friday announcement.
What Henley will do with its SFSP shares now that it seems to have abandoned its takeover attempt is the subject of intense speculation on Wall Street.
“If the takeover is dead, then it’s a Catch-22 situation,” said Laurence Lytton, an analyst with the investment banking firm of Drexel Burnham Lambert in New York. “Do they want to be passive investors? Are they stuck with 15.7% of SFSP with no board representation? If not, how do they get out? The (SFSP) stock is trading where it is because people are speculating Henley is there to buy or create value.”
If Henley’s 24 million shares of SFSP were put on the market, Lytton said, “you aren’t going to get $17 a share,” a reference to the approximate price at which SFSP shares were trading last week. (SFSP shares closed down 37.5 cents in Friday trading at $16.75 per share, while Henley closed off 87.5 cents at $24.75.)
Lytton said chances are good that SFSP and Henley will negotiate a “reasonable divorce settlement” involving SFSP buying or exchanging assets for Henley’s SFSP shares. “It’s in both parties’ interest. Santa Fe doesn’t want this kind of overhang in the market and Henley doesn’t want to be a passive investor,” Lytton said.
Paine Webber’s Lustgarten said that, although Dingman “stumbled a bit” with SFSP, the important thing is that Henley is still ahead on its SFSP investment. O&Y;, on the other hand, is “under water,” he said, and would take a 20% loss if it sold its SFSP shares at current prices. “Dingman may not have made a lot of money, but he will at least walk away whole,” Lustgarten said.
Despite some damage, Lytton expects Dingman to emerge with his reputation intact from the SFSP episode. “It’s not so much that Dingman lost but that he lived to fight another battle. That’s why people like him. He’s not throwing away money. Par for the course for corporate America is to make stupid acquisitions and deplete shareholder value,” Lytton said.
The substance of Dingman’s reputation lies in his formation of Wheelabrator-Frye in 1972, his role in merging it into Signal Cos. in 1983 and then helping meld Signal into Allied Corp. in 1985 to create Allied-Signal. Over a 13-year period, those actions have helped create a sevenfold increase in the value of a 1972 investment in Wheelabrator-Frye.
The next step for Dingman was to take over a collection of 35 companies cast off by Allied-Signal in 1986. He named it Henley Group and took the company public in May, 1986, in a $1.2-billion initial public offering that at the time was the largest IPO ever. Analysts attributed the move’s success to Dingman’s rapport with big institutional investors--including pension funds and insurance companies--that snapped up most of the shares.
Henley investors who have stuck by Henley since paying the $21.25 initial stock price now own shares and stock dividends in Henley spinoffs worth $27.10--a solid, but less than spectacular, gain that several analysts expect will continue.
While his image is built mainly on his performance for Wheelabrator and Signal shareholders, Dingman’s charm and persuasiveness and ability to retain a core of loyal managers over the better part of two decades, are also components of his reputation.
Richard Cramer, chairman of Fisher Scientific Group, a Henley unit that was spun off as an independent entity last year, tells how he had retired to “drinking rum and Cokes on my patio overlooking the Pacific” after making $70 million in 1982 on the sale of his Imed medical supply company to the Warner-Lambert pharmaceutical company.
But Cramer, now 54, was lured back to run Fisher in 1986 by his new next-door neighbor, Michael Dingman, by the promise of autonomy in running a $1-billion company. “He kept tickling me,” Cramer said.
He was impressed with the fact that a dozen top managers had been with Dingman for more than 15 years and that Dingman enabled them to “get a piece of the action” through a generous stock-purchase plan designed to increase their awareness of shareholder concerns.
Witnessing Dingman’s performance before a Fisher sales meeting in late 1985 was a decisive factor in Cramer’s jumping aboard.
“Fisher was a 100-year-old company that had been bought by Allied Corp., then merged into Allied Signal and now was to be spun out again into Henley. These guys didn’t know if they were coming or going,” Cramer said.
“But Dingman got up and said: ‘I have one thing to say to you. You are going to go back to being Fisher Scientific. I don’t know how to run your business. You ran it successfully for a number of years, and you are going to get it back.’ They stood up and cheered.”
Dingman has gained part of his reputation as a masterful businessman by constant restructuring and reshuffling of Henley’s $8.2 billion in assets. These actions are praised by his many fans as “creating value” but are brushed off by his detractors, who are much fewer in number, as just sophisticated sleight of hand.
An example of the Dingman touch was Henley’s announcement last Wednesday that it was dividing itself into two separate public companies and would distribute to shareholders stock dividends in the new entity. Henley also said it might buy back up to 20 million of its 90 million outstanding public shares. The company has already repurchased 39 million of its shares during the past two years.
As often happens on news of a Henley restructuring, Henley stock shot up, closing Wednesday at $25.625, up $1.75, in over-the-counter trading.
