At the dawn of telecommunications 138 years ago, investors formed Western Union to string telegraph lines across the United States. By the time the first transcontinental railroad was completed, Western Union poles had already marched to the Pacific, and it was Western Union that flashed word to the nation on May 10, 1869, that a golden spike had linked the last two rails at Promontory, Utah.
In time, poles and wire gave way to microwave towers that relay radio signals from point to point. And by 1984, Western Union it self--swamped by rapidly evolving information technology--was on the brink of bankruptcy.
Now the company has put its microwave system up for sale, selling off the last of its nationwide communications network.
Announcement of the sale, which Western Union had signaled 18 months ago when it completed a refinancing plan and corporate reorganization, came in an advertisement in the Wall Street Journal last Friday.
"Fully Equipped And Operational," the ad proclaimed. "Transcontinental Microwave System Serving Major Metropolitan Areas. 400 Locations, Average Tower Height 200'. Recently Modernized Trunk Routes. Single or Multiple Stations Available For Sale."
Although not unexpected, the move marks the end of an era for a firm that, had it played its cards differently at key moments in this century, might have become, in the words of one industry observer, "the AT&T; of today."
Bypassed by technology and unable to compete with American Telephone & Telegraph and its more nimble-footed competitors, Western Union nearly fell into bankruptcy in 1984 when its banks shut off credit. That triggered a financial crisis.
Western Union lost $59 million in 1983, another $58 million in 1984, $367 million in 1985 and $531.2 million in 1986. It managed a profit of $88 million in 1987--mainly because of a financial restructuring, then lost $1.08 billion last year--mainly because of a $1.02-billion charge that reflected the reduced value of its assets and the layoff of 2,500 of its 7,500 employees.
It was not until the end of 1987 that a complex reorganization was devised with the help of New York financier Bennett S. LeBow, a specialist in troubled companies. In addition, Drexel Burnham Lambert, the investment banking firm known for raising millions through "junk bonds," raised $500 million for Western Union to pay off bank loans.
LeBow and his associates agreed to put up $25 million in cash and to acquire ITT's international telex business, Worldcom, to complement Western Union's domestic service. In exchange, the LeBow interests received voting control of Western Union's stock and in January, 1988, installed its own management.
The new strategy, as outlined last April by President Robert J. Amman at a Drexel institutional research conference in Beverly Hills, strips Western Union of its own communications network. Instead, the company leases time on other networks to provide communications and financial services for customers--especially money transfers and bill payments.
"Our strategy," Amman said, "has been to develop and build the value-added businesses and to divest the network transmission businesses, while changing the company's cost structure from that of a regulated utility to that of a competitive, service-oriented business."
This year, Western Union sold its long-distance customer accounts to Atlanta-based Telecom-USA, which became the nation's fourth-largest long-distance carrier through the merger of two major regional companies, SouthernNet and Teleconnect USA. In April, it sold part of what it bought from ITT to a Swiss firm for $56 million cash.
"We are left," Amman said, "with the task of selling or dismantling more than 300 (microwave) towers."
It is a task that Western Union seeks to complete this year.
As it happens, that's the same task that No. 3-ranked U S Sprint undertook in 1987 as its new fiber-optic network approached completion and the company no longer needed its microwave equipment--some of which was virtually new. That sale, Sprint spokesman Syd Courson recalled Wednesday, is still going on. Major buyers so far include a regional long-distance company, Eastern Microwave Inc., which bought a chunk of network serving the upper Midwest, and China.
Investment analysts who have followed Western Union through its travails are still holding their breath. While noting that the network sale is in keeping with the company's new strategy, Leigh Walzer of R. D. Smith & Co., a New York firm specializing in distressed securities, observed that "microwave assets are not absolutely obsolete, but they're getting there fast."
To Geoffrey Johnson, a telecommunications analyst in New York for Argus Research, the investment potential remains "bleak. I think ultimately they will make it, but it's very risky," he said. "They're on the right track: They've slimmed down, they got out of the long-distance business where they couldn't compete and they're getting into such value-added businesses as electronic messaging (the sending of messages between computers).
"But they're not the only company in those businesses," Johnson said, "and they still have a long way to go."