Quantum Announces Major Restructuring, Special $50 Dividend

Quantum Chemical Corp. on Wednesday announced a far-reaching restructuring that includes selling its specialty chemical division and paying a special $50-a-share cash dividend in order to boost the price of its stock, which it said is undervalued.

The move worked. Quantum’s shares jumped $18.625 to $107.125 on the New York Stock Exchange.

The company said the special dividend will be paid from the proceeds of a $1.15-billion bridge loan from investment banks Dillon, Read & Co. and First Boston Corp. With about 25.7 million common shares outstanding, the special payout would total about $1.28 billion.

“Our primary motivation was to deliver value to shareholders while at the same time protecting the future of the corporation and its employees,” Quantum Chairman and Chief Executive John Hoyt Stookey said in an interview.

Stookey said the company’s recapitalization plan set a “new standard for the responsible use” of such financial tools as bridge loans.

But analysts said the move will leave the company’s balance sheets with a heavy debt. “The recapitalization plan breaks new grounds in terms of shareholder value,” said Harvey Stober, an analyst who follows Quantum for Dean Witter Reynolds Inc. But Stober and other analysts said the plan will boost the company’s debt to capital ratio to nearly 80% from about 60%.

Quantum’s oleochemicals business, referred to as specialty chemicals, is involved in processing products such as soybeans, tallow and palm oil. The oleochemicals business has a book value of about $287 million, the company said.

In the past four years, New York-based Quantum has doubled its investment in its chemical and propane businesses to $2 billion and plans to invest an additional $1.3 billion in plant and equipment in the next three years.

The company also said the board affirmed its plan to proceed with $1.3 billion in capital expenditures through 1991 and to maintain its $3.00 a share annual dividend.

Quantum has been participating in the boom in the petrochemical industry, which has been straining to keep up with demand this year.

In October Quantum reported that third-quarter operating earnings rose to $99.8 million from $27.6 million, while revenue rose to $812.4 million from $617.2 million in the year-earlier quarter. On a per share basis, the company expects to earn about $15.30 this year, compared to $7.75 in 1987.

The company is the largest producer of polyethylene in the nation. But it said the stock market has failed to take into consideration the value of its propane and oleochemical operations.

“It has also been of independent concern that our oleochemical business, the Emery division, which is unrelated to our core petrochemical operations, could be of greater value to a strategic buyer with complementary objectives, and the decision has been made to sell it,” Quantum’s statement said.

To boost its stock price, Quantum has been aggressively buying back its own shares. But analysts said the strategy did not work and that the market has been re-evaluating the entire chemical industry in the belief that the sector has reached its peak performance and demand will flatten next year.

Consequently, share prices of Quantum and other chemical producers have suffered. Quantum’s shares peaked at $108.25 during the summer but recently the shares have been trading in the $80s.