Battle Continues at Oak Industries : The Effort to Oust Chairman Has Old Friends at Odds
Roderick M. Hills, former Securities and Exchange Commission chairman, doesn’t own a single share of Oak Industries. But that hasn’t stopped Hills--along with former U. S. Atty. Gen. Elliott Richardson and San Diego businessmen Daniel Derbes and George W. Leisz--from initiating a proxy fight that would wrest control of Oak Industries from Chairman E. L. McNeely.
Hills, the spouse of newly appointed U.S. trade representative Carla Hills, recently acknowledged in an interview that he might be “tilting at windmills” in the proxy fight that is scheduled to occur during Oak’s June 6 annual meeting.
Further, Hills, chairman of a Washington, D.C.-based investment banking firm and a recent appointee to Drexel Burnham Lambert’s board of directors, has acknowledged that he has “far too much to do,” even without the time-consuming proxy fight.
“I could have simply resigned from the board, but that would mean abandoning the shareholders at a critical juncture in Oak’s history,” said Hills, who joined Oak Industries’ board in 1985.
“I can’t just walk away,” said Hills, who added that Rancho Bernardo-based Oak’s management has decided not to nominate him for reelection at Oak’s June 6 shareholder meeting. “I think this company can be operated on a profitable basis,” Oak said.
‘Healthy Industries’
Hills’ sentiments are echoed by Leisz, a former Aerojet General executive, and Derbes, who recently retired from Allied Signal.
“I’m very much interested in having good, healthy industries in San Diego,” said Leisz, who serves as chairman of the San Diego Economic Development Commission. “Rod has put together a group that I feel offers a better potential for Oak’s shareholders than they’re seeing at present.”
Patience and potential have been oft-repeated words for Oak shareholders in recent years. Since 1987, the stock has traded at a low of $.75 and a high of $1.625. Oak closed Monday at $1.375, up from $1, evidently driven by word of the proxy fight, according to Irving Katz, director of research for Thomas Green/San Diego Securities.
Oak’s trading price has been stuck at about $1 because the company that generated $300 million in net losses between 1981 and 1985 has not proven to investors that it can make an operating profit, Katz said.
Oak’s net profits during the past two years--$12.9 million for the year ended Dec. 31, 1988 and $7 million for 1987--were driven largely by one-time occurrences, including the sale of property, settlements of patent lawsuits and the reversal of certain reserves.
Because of Oak’s past troubles, few industry analysts are willing to dedicate much time to chronicling the progress that Oak has recorded since McNeely came on board. But those who are familiar with the company credit the 70-year-old executive with getting the company on the road to profit.
“McNeely did what was needed to do to extricate the company from a bad situation,” according to one New York-based industry analyst. “It was in bad shape, but McNeely has done an OK job. It’s not a fast-track company by anyone’s definition, but he’s generally done OK.”
But Hills and his “Committee to Improve Shareholder Value of Oak Industries” believe that Oak should be doing better than OK.
“The cash keeps coming in, but things don’t seem to get any better,” Hills said in a recent telephone interview. “We need an operational tuneup. We don’t have the kind of industrial management that we need.”
Oak is a decidedly different company than the debt-ridden corporation that McNeely took over in 1984. Oak, which has sold a division and acquired two new businesses, reported $181 million in assets on Dec. 31, 1988, down from $252 million in 1984.
In 1986, it completed a massive debt-to-equity swap that trimmed Oak’s long-term debt total to $35 million, down from a staggering $229 million in 1985. But that swap increased Oak’s outstanding share total to 75 million, up from just 16 million shares outstanding in 1984.
Headquarters Sold
Shareholder equity, which hit a negative $69 million in 1985, has risen to a positive $91 million, and the company ended 1988 with a cash balance of $29.9 million. Oak sold its elaborate but unnecessary Spanish-style headquarters building in Rancho Bernardo for a gain of $4.5 million during 1988. Its employee total fell to 3,778 in 1988, down from 6,222 in 1985.
But analysts and Hills believe that $204 million in operating loss carry-forwards, which an investor could use to reduce taxes on future income, are one of Oak’s most important assets.
The tax loss carry-forwards evidently made Oak attractive to MIM Ltd., a London-based international fund-management company that in January acquired a 20% block of Oak stock. MIM acquired that stock from San Francisco-based ITEL Corp., which had acquired it from La Jolla-based Henley Corp.
Hills declined to discuss specifics of his proxy fight until after proxy materials clear SEC review. He did suggest that MIM “would like to use Oak as conduit for its investments,” Hills said. “Something like that could be of enormous benefit to Oak’s shareholders.
“But (McNeely) couldn’t work with Henley, he couldn’t work with (ITEL Chief Executive Officer Samuel) Zell and he’s at odds with MIM,” Hills said.
In contrast, McNeely on Monday described the MIM investment as “a vote of confidence” in Oak’s management.
For McNeely, 70, who became Oak’s chairman in Nov., 1984, the proxy fight represents a personal as well as business challenge because he is well acquainted with most of Hills’ committee members.
It was McNeely who in 1985 brought Hills onto Oak’s board. “I’ve known Carla Hills for nearly 20 years,” said McNeely, who previously served with Roderick Hills on Detroit-based Federal-Mogul’sboard of directors.
Derbes, a San Diego businessman who in January retired from Allied-Signal, has known McNeely socially for some time. The two served together on committees several years ago when Fairbanks National Bank--which Derbes helped to found--and National Bankshares of La Jolla--where McNeely served as a director--merged with First National Bank.
Hills last week acknowledged that the proposed proxy fight revolves almost directly around McNeely’s continuing role at Oak.
Hills, one of the Oak board members who last year voted McNeely an employment contract that runs for two more years, now believes that McNeely should “find a replacement . . . the company needs industrial managers with operations experience.” According to Oak’s 1988 proxy statement, the most recent one available, McNeely, received a 1987 salary of $180,000 and owns 454,100 Oak shares, or 0.6% of those outstanding.
Sea of Red Ink
McNeely, who joined Oak in 1984 as a board member, became chairman in November 1985. He planned on staying only a short time--long enough to steer the company out of the sea of red ink generated during the tenure of 25-year Oak veteran Everitt A. Carter, who resigned in 1984.
McNeely was best known as the former chairman and chief executive officer of Wickes Co., a conglomerate formerly based in San Diego. McNeely resigned from Wickes in 1982, upon determining that the financially ailing company should not enter bankruptcy proceedings. Shortly after McNeely resigned, newly named Wickes Chairman Sanford C. Sigoloff moved the company to Santa Monica and took it into bankruptcy. “I never agreed with that course of action,” McNeely said.
In 1985, McNeely predicted that Oak one day would merge as a “mean and lean . . . $300 million-per-year” company. When the company was profitable, McNeely added, he would turn the reins over to a younger executive.
“That’s still my objective,” McNeely said Monday. “But not until we have someone satisfactory to take my place.”
