Henley to Sell SFSP Stake in $1.2-Billion Deal

San Diego County Business Editor

In another episode of corporate reshuffling, Henley Group of La Jolla said Wednesday that it would sell two subsidiaries and three investments, including its 16.9% stake in Santa Fe Southern Pacific Corp., to Itel Corp. for about $1.2 billion.

The deal would bring Henley $827 million in cash and a 40% interest in Itel, a Chicago holding company with interests in electronics and transportation. It also sets the stage for another Henley reorganization later this year: the division of the business into two publicly traded companies, Henley Group and Wheelabrator Group.

In an interview, Henley Chairman Michael D. Dingman said the definitive agreement with Itel was part of his plan to boost the value of "Dingman's Dogs," the 35 disparate and mainly money-losing companies cast off by Allied Signal in 1986 and reconstituted as Henley Group.

Dingman's efforts have met with some success: Investors who bought stock in Henley when the business went public in May, 1986, have seen their holdings appreciate about 36%. Henley's stock closed Wednesday at $24.75 a share, up $1.50, in over-the-counter trading.

Itel, by acquiring Henley's Signal Capital finance and Equilease subsidiaries, would considerably expand its rail car and container leasing interests. The acquisition would add 30,000 rail cars to the 43,000 that Itel already owns, making it one of the nation's largest independent rail car leasing companies.

Reasons Vague

Itel also has extensive waterway dredging operations and owns five short-line railroads. The company reported a profit of $8.3 million last year on $1.3 billion in revenue. Its stock, traded over-the-counter, closed up 12 1/2 cents at $19.875 on Wednesday.

Itel Chairman Sam Zell and his partner, company director Robert Lurie, are listed on the Forbes magazine list of the wealthiest Americans with a combined net worth of $660 million. They took control of Itel shortly after it emerged from bankruptcy in 1983 and now together own 20% of the stock. Zell and Lurie also own an estimated 25,000 apartment units and 15.6 million square feet of shopping centers.

Itel did not spell out its reasons for buying Henley's 26.5 million shares in Santa Fe Southern Pacific, saying that the acquisition "reflects Itel's long stated belief in the opportunities provided by the rapidly changing railroad industry." The SFSP stock transaction is subject to federal review.

For Henley, the stock sale apparently would mark the end of its effort to take over SFSP, a Chicago-based transportation, energy and real estate firm. Henley called off a planned proxy fight for representation on SFSP's board in March after SFSP successfully deployed anti-takeover defenses.

Dingman said Zell and Lurie are "worthy managers" and that Henley will remain involved in managing the SFSP holdings through its 40% interest in Itel. Dingman and Henley Managing Director Paul Montrone will be named to Itel's board of directors. As part of the deal, however, Henley signed a so-called standstill agreement barring it from buying more Itel stock.

In a prepared statement, SFSP Chairman Robert Krebs applauded Itel's purchase of its stock, saying SFSP was "sure that Itel will be a constructive SFSP shareholder." SFSP stock closed down 75 cents at $18.75 on the New York Stock Exchange, making the Henley block worth about $497 million.

Analyst Theresa Gusman with Salomon Bros. said the deal was good for Henley shareholders because the $609-million price being paid for Signal Capital and Equilease exceeded her estimates of the subsidiaries' value by $200 million.

Itel is also buying Henley's 9.6% stake in American President, an Oakland-based container freight company, valued at $60 million, and Henley's 13.2% interest in Oak Industries, a San Diego electronics component manufacturer, valued at about $11.1 million.


Ever since Henley Group went public in a stock offering priced at $21.50 per share in May, 1986, Chairman Michael D. Dingman has been shuffling assets in an effort to increase the stock's value. The shuffle has included:

Buying back 43 million Henley shares, reducing the total outstanding to 86.2 million.

Issuing a stock dividend in Henley subsidiary Fisher Scientific Group in April, 1987, at the rate of 1/16th share of Fisher for each Henley share owned.

Issuing a stock dividend in Henley subsidiary Henley Manufacturing at the rate of 1/20th a share for each Henley Group share owned.

Spinning off to the public a 20% interest in another subsidiary, Wheelabrator Technologies, through an initial public stock offering in September, 1987.

Announcing a deal in which Henley Group will receive stock and cash worth $1.2 billion from Itel Corp. in exchange for two wholly owned subsidiaries and Henley's investments in three companies, including its 16.9% interest in Santa Fe Southern Pacific Corp.

Announcing plans to split itself later this year into two publicly owned entities, Wheelabrator Group and Henley Group.

One Henley share bought for $21.25 in May, 1986, is now worth $28.88, including the $24.75 market price Wednesday for Henley, the $1.20 value of the fractional interest in Fisher Scientific and the $2.93 value of the fractional interest in Henley Manufacturing.

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