Troubled Pacific Enterprises Plans to Shed Units : * Divestitures: The parent of Southern California Gas Co. reported a fourth-quarter loss of $191 million. It also announced that it will suspend the dividend on its common stock.
Returning to basics, Pacific Enterprises, parent of Southern California Gas Co. and Thrifty Corp., announced Tuesday that it will shed many of its troubled retailing units--including the Big Five sporting goods chain--along with its unprofitable oil and gas exploration company.
But the move by the 106-year-old Los Angeles company--following two consecutive years of losses--may only partially satisfy its critics.
Pacific Enterprises will retain Thrifty Drug Stores, which has been a financial drain in recent years, and continue to operate its core--and profitable--natural gas utility.
Operations of the gas company will not be affected by the changes, officials said. The utility has sought to emphasize its commitment to customer service, even as union and consumer groups charge that Pacific Enterprises’ diversification has hurt ratepayers.
In another decision bound to worry shareholders and the stock market, Pacific Enterprises’ board of directors voted Tuesday to suspend the dividend on the company’s common stock, effective with the payment that was to be made May 15. The company set aside $110 million from 1991 earnings as a provision against losses on sales of the retailing units.
“(T)he best prospects for long-term shareholder value lie in focusing on our natural gas utility business and related opportunities,” said Willis B. Wood Jr., president and chief executive of Pacific Enterprises.
Gloomy earnings released Tuesday were an indicator of the company’s problems. Pacific Enterprises reported a 1991 fourth-quarter loss of $191 million, versus earnings of $54 million in the same quarter of 1990. For the year, the company lost $88 million, a further slide from a $59-million loss in 1990.
The company changed its name from Pacific Lighting Corp. in 1988, during what executives now consider an ill-conceived diversification launched in the mid-1980s by then-Chief Executive Paul A. Miller.
His successor, James R. Ukropina, continued the expansion. But Ukropina, citing health problems, resigned Dec. 3, and Wood, a 31-year company veteran who was already president of Pacific Enterprises, added the title of chief executive.
The financial markets have expressed their displeasure with the firm’s course.
The company’s stock has plunged from $52 in 1990 to $24.875. Although it was up 12.5 cents Tuesday, it was still near its 52-week low of $23.25. The firm issued its announcements after the market closed for the day.
Further, Moody’s Investors Service has Pacific Enterprises’ preferred stock and commercial paper on credit watch.
The holding company plans to sell Pacific Enterprises Oil Co., its Dallas-based oil and gas production subsidiary, which lost $41 million last year, including a $132-million fourth-quarter write-down.
Also on the block are the Big Five sporting goods chain, with 134 stores, mostly in California; two drugstore chains in the Pacific Northwest, and sporting goods chains in the Rockies and the Midwest.
Thrifty Drug Stores has 618 outlets, most of them in Southern California, and Pacific Enterprises’ decision to hang on to Thrifty left some analysts perplexed. Altogether, the company’s retailing operations lost $53 million in 1991.
Keeping Thrifty “isn’t going to make anybody jump up and down,” said Paul Wayne, director of research at the brokerage firm Crowell Weedon & Co. in Los Angeles. “They’re on the right track, but the basic problem they have is cash flow. The losses at Thrifty are so large.”
Wayne and others suggest that Pacific Enterprises--with $1.5 billion in debt outside its utility business--may be hoping to shore the chain up and get a better price somewhere down the road. And Wood did not rule out that scenario. Suspending the dividend isn’t likely to be a popular move, either.
“That’s going to go over like a lead balloon,” Wayne said. “That’s going to worry some people.”
Wood said he has had “substantial” discussions with other companies interested in acquiring the properties. He hopes to sell all the units now on the block by the end of the year, or shortly thereafter, bringing debt down to “several hundred million.”
Times staff writer Tom Petruno contributed to this story.
Back to Basics
Key elements of Pacific Enterprises’ restructuring:
* A planned sale of its oil and gas exploration and production business, Pacific Enterprises Oil Co.
* A planned sale of its retail chains, excluding Thrifty Drug Stores.
* Debt reduction using proceeds from the asset sales.
* Suspension of the 44-cent quarterly common stock dividend.
* $250-million after-tax special charges against 1991 earnings.
Principal business units remaining:
* Southern California Gas Co.
* Thrifty Drug Stores
