NEWS ANALYSIS : Still Trying to Figure Out What ITT Should Be : Conglomerates: CEO is reshaping the firm again. Latest plan calls for selling another part of its financial services group.
Since becoming ITT Corp.’s chief executive in 1979, Rand Araskog has sold 250 companies and dismantled much of the far-flung conglomerate built and made famous by Harold Geneen. But 15 years later, Araskog is still trying to figure out what ITT should be.
Araskog once envisioned New York-based ITT as a technology powerhouse, but that dream was dashed in the mid-1980s when the company, formerly International Telephone & Telegraph, sold most of its telecommunications equipment business.
In the early 1990s, Araskog also mulled splitting ITT into pieces to boost the price of its stock. That didn’t happen either, though ITT in February of this year did spin off its Rayonier forest products group.
Now Araskog, 63, is reshaping ITT again--this time shedding unwanted assets to be a big player in gaming and other entertainment.
On Tuesday, ITT announced plans to sell another piece of its financial services group to Norwest Corp., one day after it agreed to sell the group’s commercial finance business to the U.S. arm of Germany’s Deutsche Bank.
ITT also said Tuesday that it plans to shed the rest of its financial group and, when all the sales are completed, reap between $3.3 billion and $3.5 billion. The group accounted for 6% of ITT’s $22.8 billion in revenue last year.
ITT agreed a week ago to buy gambling giant Caesars World for $1.7 billion, and it already owns the Desert Inn in Las Vegas and the worldwide Sheraton hotel chain.
In August, ITT joined with Cablevision Systems Corp. in a pact to buy Madison Square Garden, which owns basketball’s New York Knicks and hockey’s New York Rangers, for $1.1 billion. In recent months, ITT also reportedly considered trying to buy CBS Inc. or General Electric Co.’s NBC television network, but no deal developed.
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In response to the announcements this week, ITT stock jumped $4.375 a share to $88.125 in New York Stock Exchange trading Tuesday.
The financial group’s divestiture would leave ITT focused on entertainment and hotels and on insurance (through its Hartford unit) and manufacturing (auto parts and defense and electronic goods).
But it’s an open question whether ITT’s new mixture of operations will bolster its profit growth and stock price any better than its earlier grab bag of interests, which at times also included rental cars, baked goods and food vending services.
Indeed, despite Araskog’s past tinkerings, ITT’s stock price has risen 65% since the end of 1986--well behind the 91% leap in the Standard & Poor’s 500 index.
Some analysts say the gaming and entertainment lines should help maintain ITT’s earnings growth and place a higher value on ITT’s stock. Why? Mainly because investors find casinos and hotels a lot sexier than commercial finance.
“The company is obviously trying to get more exposure to businesses that they deem have higher growth prospects and at the same time have higher valuations” on Wall Street, said Phua K. Young, an analyst at Lehman Bros.
But to really raise its value, the company might be preparing to split itself apart, particularly now that its gaming-entertainment group could stand on its own with the Caesars acquisition, analysts said.
Salomon Bros. analyst Jay Cohen estimates that the combined breakup value of ITT’s pieces amounts to $115 a share.
“The stock is now at $88,” he said. “How do you get to $115? It’s going to require an extra step” of breaking the company apart and issuing stock in its separate operations, such as Sheraton or ITT Hartford.
Even ITT doesn’t rule out such a move. “It’s certainly an option,” said ITT spokesman James Gallagher. “It’s not in our plans at the moment, but we’re not closing the door” on the idea.
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Ironically, the corporate raiders Araskog had to fend off in the 1980s had proposed the same idea. In 1985, for instance, financier Irwin Jacobs stood in front of Araskog at ITT’s annual meeting and demanded that ITT be split apart. Araskog said no. At the time, ITT’s stock was trading in the $30 range.
ITT’s performance has improved markedly in the past couple of years. The company earned $913 million in 1993, or 12.3 cents for every $1 of its stockholders’ investment--and Araskog is credited with making the once-unwieldy ITT more focused than ever. Its employment has dropped to 100,000 today from 252,000 a decade ago.
But considering that ITT managed a higher return on equity (14.5 cents) seven years ago, and in light of its stock performance since then, Araskog’s reign overall gets mixed reviews on Wall Street.
His standing wasn’t helped in 1990 when, even though ITT’s profit edged up only 4%, Araskog’s compensation package doubled from the previous year to $11.4 million. After facing heavy criticism, the board sliced his compensation in 1991 to $7.6 million.
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Araskog took over from Lyman C. Hamilton, who, despite being Geneen’s hand-picked successor, managed to stay chief executive for only two years, losing his job in 1979.
Geneen himself arrived at ITT in 1959 and spent the next two decades buying dozens of disparate businesses and turning the once-modest operator of foreign telephone companies into one of the world’s biggest conglomerates. Geneen retired from ITT’s board in 1983.
Some analysts speculate that Araskog will propose ITT’s breakup or some other dramatic move as a way to put an exclamation point on his tenure, and to further distinguish himself from Geneen.
But Lehman’s Young said the goal of a breakup would have the broader purpose of helping ITT “just get better recognition as to what they’re all about.”
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Reinventing ITT Corp.
In a series of moves over the past 18 months, ITT has radically changed the scope of its holdings. Here is a brief wrap-up of ITT’s recent projects and acquisitions: * Dec. 27: Agrees to sell its Island Finance group to Norwest Financial for $1.37 billion in cash. * Dec. 26: Agrees to sell its ITT Commercial Finance unit to Deutsche Bank North America for $2.3 billion in cash. * Dec. 20: Offers $1.7 billion in cash for Caesars World, marking the largest single investment in the history of Las Vegas. Cancels plans for its $750-million development of Desert Kingdom, which was to have included a 3,500-room hotel, a 135,000-square-foot casino, nine restaurants and family-oriented fantasy attractions. * Nov. 29: A group led by ITT announces plans for a spaceport launch facility at Vandenberg Air Force Base; ITT will provide $30 million in funding for the site. * Sept. 19: Purchases 70% of Ciga Hotel Corp., a chain of 31 luxury hotels in Europe, for $550 million. * Aug. 27: Agrees to buy Madison Square Garden in New York for $1.08 billion in partnership with Cablevision Systems Corp. The Garden includes a 20,000-seat arena, a basketball team (the New York Knicks) and a hockey team (New York Rangers), Madison Square Garden cable television network and a 5,800-seat theater. * April 29: Pays $250 million for the Phoenician resort and Crescent hotel in Scottsdale, Ariz. The Phoenician was built by Charles Keating Jr. for about $300 million in the early 1980s. * June 29, 1993: Purchases the Desert Inn in Las Vegas for $160 million from financier Kirk Kerkorian.
Sources: Times reports, Bloomberg Business News
Researched by ADAM S. BAUMAN / Los Angeles Times
