Will Focus on Financial Services : Household International to Spin Off 3 Divisions, Sell 6
Household International Inc. said Wednesday that it would dissolve its $1-billion manufacturing empire, narrowing the company’s operations to financial services after four years of restructuring.
The company said it would spin off three of its manufacturing units to its shareholders, creating three independent companies, and sell the other six, which include Thermos Co.
The company will be left with four financial-services operations: Household Finance Corp., Household Bank, Household Commercial Finance and Alexander Hamilton Life Insurance Co.
Household said in a statement that it would use the proceeds from the transactions to reduce its $500-million debt by about $255 million and pump about $95 million into its financial services operations.
“These actions are intended to create more focused entities and should increase the value of Household shareholders’ investment,” Chairman Donald C. Clark said in a statement. “The actions represent a logical next step to several years of restructuring in a continuing effort to maximize shareholder value.”
Thermos Co. on Block
The three independent companies to be created are Eljer Industries Inc., a building products company with anticipated 1988 sales of more than $400 million; Schwitzer Inc., a maker of engine parts with anticipated 1988 sales of $140 million, and Scotsman Industries Inc., a manufacturer of commercial refrigeration products with anticipated 1988 sales of $175 million.
Household said it was considering a tax-free distribution of one new share in each of the three spun-off units for every five shares of Household’s common stock. The spinoffs are expected to occur on or about April 15, Household said.
The units to be sold are: Thermos Co., the well-known maker of insulated products for storing and serving food; GC-Thorsen, a marketer of entertainment accessories and hand tools; Albion Industries, a leading manufacturer of heavy-duty casters; King-Sealey, a major supplier of cooking-appliance controls; Omni Products International, a furniture maker, and WaterTest Corp., a provider of water-testing services for consumer and commercial markets.
The combined 1988 sales of the six units to be sold are expected to total about $300 million, Household said.
The company, which is based in this northwest Chicago suburb, said it expected to receive “well in excess” of $120 million for the six units. Household also said it would be repaid funds borrowed by the divisions to be spun off.
Analysts said Household’s exit from manufacturing was not surprising, considering the company’s sale in 1985 of its Household Merchandising subsidiary (a chain of supermarket, discount, hardware and variety stores) and of National Car Rental a year later.
“If you had read between the lines, their strategic emphasis on the financial side of the business probably would have led you to this conclusion,” said Frederick Wightman, vice president of research with Duff & Phelps Inc. in Chicago.
Wightman said investors perceived manufacturing as having a “cyclical influence” on Household’s stock price.
“Cyclical earnings are not valued as highly as steady earnings,” he said. “If Household can remove the cyclical component and retain the fairly stable financial component, this will enable them to realize a higher multiple (or price-to-earnings ratio) on their stock,” and thus attract more investors.