McDonnell to Share Reversal of Fortune

McDonnell Douglas Corp., giving stockholders a long-awaited bonus for the aerospace giant’s recovery, Friday announced a 71% dividend increase, a 3-for-1 stock split and a buyback of 15% of its common shares after the split.

In response, McDonnell’s stock soared $15.625 a share to a record high of $141 in New York Stock Exchange composite trading, giving the stock buyback a current value of $846 million. Volume was a heavy 611,800 million shares.

Wall Street had looked for McDonnell to boost its shareholders’ returns for the past several months, because of the sharp rebound in the St. Louis-based company’s financial health since 1992.

The rebound had fueled a surge in the price of McDonnell’s stock, which traded as low as $34 a share two years ago. McDonnell Douglas itself had indicated it might return some of its substantial cash flow to investors.

“It was better late than never, and it shows in the price of the stock,” said Gary J. Reich, an analyst at Prudential Securities Inc.

Notably, McDonnell’s board took the actions only a month after it hired outsider Harry C. Stonecipher as chief executive--a manager known for his emphasis on improving shareholders’ investments.

In a telephone interview, Stonecipher denied being the catalyst for Friday’s announcement, saying it showed “that the company’s performance is very strong. I happened to be the lucky guy that’s here.”

But Reich said Stonecipher’s arrival no doubt played a role. “The combination of things going their way, coupled with the new person in charge, made it the right time,” Reich said.

McDonnell, which employs more than 20,000 people in Long Beach and Huntington Beach at its commercial jetliner, C-17 military transport and space systems programs, said the actions include:

* A 3-for-1 stock split to shareholders of record as of Dec. 2. That will increase McDonnell’s total common shares outstanding to 118.5 million from 39.5 million.

* After the split, McDonnell will pay a quarterly dividend of 20 cents a share, payable Jan. 3 to holders of record as of Dec. 2. The current quarterly payout is 35 cents a share.

* McDonnell will buy back up to 18 million of the post-split shares in periodic open-market or private purchases, or through tender offers.

The actions cap a comeback McDonnell engineered with aggressive cost cutting, including the elimination of more than 60,000 jobs--or 45% of its work force--since mid-1990.

The cuts enabled McDonnell, despite a big drop in Pentagon spending, to bolster its profits and generate more than $1 billion in cash during the past two years, which was partly used to slash its debt. The cuts also helped McDonnell’s struggling Douglas Aircraft jetliner business stay profitable despite a slump in orders.

Stonecipher has said his priorities include rejuvenating Douglas, which made some investors nervous because they worried Stonecipher would pour McDonnell’s cash into the ailing unit instead of giving some to shareholders, said Byron K. Callan, an analyst at Merrill Lynch & Co.

But the actions Friday allayed those fears by showing “there’s going to be a balance here” in how McDonnell invests its surplus cash, he said.

Separately, Stonecipher confirmed that “we’re probably going to build” Douglas’ proposed 100-seat jetliner, the MD-95, somewhere other than Douglas’ home plant in Long Beach.

He declined to be more specific, but sources have said an outside firm will probably assemble the plane in Dallas.