Fortunes, Failings of Two Giants : Westinghouse Plans to Shed Five Major Non-Core Businesses
Westinghouse Electric Corp., whose ailing financial services unit has been a huge drag on company profit, on Monday unveiled a restructuring plan designed to staunch the bleeding and refocus attention on the company’s core technology and broadcasting businesses.
Under the plan, Pittsburgh-based Westinghouse will shed five major businesses, including financial services. The units account for 23,000 of its 109,000 employees.
Westinghouse said the plan will force the company to take a $1.13-billion after-tax charge against its earnings and to reduce the annual dividend on its common stock to 40 cents a share from the current rate of 72 cents.
Paul E. Lego, Westinghouse’s chairman, told analysts at a hastily called meeting here that the restructuring plan would “seal off, put aside, and effectively finish” the drain caused by the financial services unit.
Westinghouse is the latest of a number of giant conglomerates that is disgorging units in order to focus on its core businesses. The firm had been under pressure from shareholder activists to take actions that would improve its earnings prospects and help its share price.
Investors, who had driven the company’s stock price down in recent months as the magnitude of Westinghouse’s woes became clear, were cheered by the move. Westinghouse stock jumped $2.375 per share to close at $12.125 Monday on the New York Stock Exchange, where it was the second most actively traded stock, with 7.3 million shares changing hands.
Westinghouse was forced to draw down $5.5 billion from its $6-billion bank lines of credit in recent weeks after Moody’s Investors Services downgraded the company’s debt and investors refused to buy the company’s commercial paper.
“I think it’s definitely a step in the right direction to get them out of this mess,” said Kent Newcomb, an analyst for A. G. Edwards & Co.
But Judy Meehan, an analyst for Parker/Hunter Inc., cautioned that while the plan looks good on paper, Westinghouse “still needs buyers for the businesses.”
Westinghouse said it has been negotiating the sale of the credit unit’s assets with various potential buyers. A company spokesman declined to comment on whether any prospective buyers have surfaced for the other four units.
In addition to the financial services unit, which has been plagued by the depression in the commercial real estate market, Westinghouse said it would dispose of four other businesses: its distribution and controls unit, which makes electrical products for heavy industry and construction; Westinghouse Electric Supply Co.; Knoll International, an office furniture manufacturer, and Westinghouse Communities, a residential real estate developer.
Westinghouse said profit on the sale of these four “non-strategic” businesses will help cushion the anticipated $2.65-billion pretax charge it will take from reducing--to true market levels--the values of the financial services unit’s assets on the company’s books.
“All of these businesses are strong competitors in their markets and we will seek buyers who recognize their long-term value and who will serve the best interests of their employees and customers,” Lego said.
“This comprehensive plan enables us to put our financial services problem behind us and sets the stage for Westinghouse to grow profitably in markets where we are a strong worldwide competitor,” Lego added.
Once the five businesses are divested, Westinghouse will have operations in electronic systems, including radar and defense systems; environmental systems, which provides services for the disposal of toxic, chemical and nuclear wastes, and power systems, which manufactures power-generation systems.
In addition, Westinghouse said it will retain its Thermo King Corp. unit, the world leader in refrigeration systems for trucks, rail cars, ships and buses, and its Westinghouse Broadcasting Co., also known as Group W, which owns five television and 16 radio stations and is involved in television production and syndication.
In connection with the restructuring, Westinghouse also realigned senior management responsibilities. Under the shake-up, three senior executives announced their retirements, effective Dec. 31.
They are: Theodore Stern, 63, executive vice president and a member of the board; George C. Dorman, 63, executive vice president for human resources and quality control, and Robert F. Pugliese, 59, executive vice president, legal and corporate affairs.
Back to Basics
Westinghouse Electric Corp. took a huge write-offs last year because of bad loans made by its financial services unit, resulting in a massive loss that swallowed orofits from other operations. By divesting itself of the unit, Westinghouse is returning to its traditional roots in businesses such as power generation and broadcasting. Cheered by this move, investors sharply drove up the price of Westinghouse stock on Monday. Share Prices (Monthly closes) In millions of dollars: 1991: -$1,086 1990: 268 1989: 922* 1988: 823 1987: 739* 1986: 671 1985: 605 Monday close: 12.125, up 2.375
*Reflects accounting change
Source: Standard & Poor’s
Breaking Up Westinghouse
Westinghouse, which now employs 109,000 people, said 23,000 work for the units that it will jettison as part of a broad restructuring announced Monday. Businesses to be retained: Electronic systems Environmental systems Power systems Thermo King Corp. (refrigeration) Group W Broadcasting Businesses to be disposed of: Financial services Distribution and controls Westinghouse Electric Supply Co. Knoll International (office furniture) Westinghouse Communities (real estate development)
