COMPANY TOWN : An Eye Toward Change : Westinghouse Poised to Remake Itself With Bid for CBS
Back when the late Betty Furness pitched the company’s appliances on television in the 1950s, the theme was “You can be sure if it’s Westinghouse.”
No one seems quite sure what Westinghouse Electric Corp. is these days.
The Pittsburgh-based industrial company has been transforming itself for years, selling divisions and trying to get out from under a big load of debt. Once known for such household products as refrigerators and such unlikely businesses as rental cars, Westinghouse today is smaller but still a hodgepodge of operations that include furniture, nuclear power, radar, refrigeration systems for trucks, and TV and radio stations.
Now Westinghouse, under Chief Executive Michael H. Jordan, is on the verge of bidding as much as $5 billion, or about $80 a share, for CBS. In doing so, Jordan appears willing to pay a substantial premium--most analysts and other prospective bidders believe it’s worth no more than $4.7 billion--to get a rare asset with the potential of transforming Westinghouse from an unfocused conglomerate into a communications giant.
“I think Michael Jordan is trying to find what’s left in Westinghouse that makes sense going forward that he can exploit,” said Dale Hanson, principal of American Partners Capital Group in San Diego.
Westinghouse’s aim, analysts say, is to broaden the base of its most profitable business, which is broadcasting, and amass stations that would reach a third of the nation’s television viewers at a time of station consolidation driven by an expected relaxation of federal rules restricting ownership.
The idea is to bulk up station ownership--the area of greatest profitability and stability in the television business--and perhaps, after an acquisition is complete, bring in a minority strategic partner that can make the necessary investments in programming to revive the network. Major companies without distribution are Turner Broadcasting System, Seagram Co.’s MCA Inc., Sony Corp. and Walt Disney Co. Of them, Sony might be the most willing to settle for a minority position because, as a foreign entity, it has few other options for securing an outlet for its programs. Federal laws prohibit foreign ownership of broadcast stations.
Neither Westinghouse nor CBS has commented. The Westinghouse board is believed to have given preliminary approval of a cash offer for CBS in the neighborhood of $5 billion, although negotiations are expected to proceed through next week.
The company has received commitments for $2 billion in debt from J.P. Morgan, which is advising Westinghouse, and Chemical Bank. The debt is expected to be paid down using cash flow, $500 million from CBS and $230 million from Group W, Westinghouse Electric’s broadcasting unit. Tax-loss carry forwards--an accounting measure allowing a company to use prior losses to offset taxable income--can be used for the next 10 years.
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In any event, Westinghouse investors are restless as the company’s stock languishes despite Jordan’s efforts to trim costs and restructure. Westinghouse stock closed unchanged Thursday at $13.125. CBS shares rose $3.625 to close at $74.875.
Despite signs that Westinghouse is close to making an offer, some stockholders remain skeptical that Westinghouse, saddled with total debt of $3.7 billion at the end of last year and hampered by poor credit-worthiness, can pull it off.
“If what you end up with is a company called Westinghouse Communications, then it will be worth a great deal more than its current assemblage of mediocre companies,” said investor Robert Monks of Lens Inc. in Washington. “But there are three major ifs: if the purchase price isn’t too high, if you can sell some assets to pay for CBS, and if they can manage the businesses in a way to make them top-quality businesses in that industry.”
Whether the company can manage a huge broadcasting operation or not is open to debate. Westinghouse’s broadcast operation, though one of the top performers inside the company, gets mixed reviews from outsiders.
“Just because you are in a business that is sexy doesn’t mean you can do it well. They aren’t Cap Cities by any stretch of the imagination,” said Monks, referring to the highly regarded management of Capital Cities/ABC.
If Westinghouse does end up with CBS, investors and analysts expect the company to eventually trim down so it is largely, if not entirely, a pure broadcast operation. Ironically, the move toward broadcasting in effect returns Westinghouse to one of its early roots.
By the early 1990s, however, Westinghouse had grown into an unwieldy company in aging or risky businesses. Between 1991 and ‘93, the company lost about $2.8 billion as it restructured. A large chunk of the company’s loss was the cost of getting out of its troubled financial services business. As a major lender, Westinghouse was hit hard--to the tune of about $5 billion--in the late 1980s and early ‘90s when the commercial real estate market plunged and borrowers defaulted.
Today, Westinghouse and CBS have a joint venture under which they own four stations and share in the profits, although the stations are run by Westinghouse’s Group W unit. In addition, CBS has another three stations in the top three markets of the country. Group W has four, two in the Top 10 and the rest in the top 25 markets.
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Improvement in the network performance would increase the value of those stations by making local advertising easier to sell and at more favorable rates. CBS is now in fourth place in key demographic ratings, behind Fox. But in an effort to improve its standing, the network this month hired Leslie Moonves, a talented salesman and television developer who headed Warner Bros. Television, to spearhead its entertainment division.
The Westinghouse management is likely to retain both Moonves and Peter Lund, a veteran broadcaster who took over as president of CBS earlier this year.
No one else has joined the bidding for CBS, leaving some to question whether the price is too high. “You have to look at the track record of management,” said one investment banker. “What does Michael Jordan know about broadcasting?”
The same could be said about General Electric, which owns NBC. One CBS executive said this: “Group W knows more than [CBS Chairman] Larry Tisch,” who has been criticized for letting the network deteriorate.
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The Westinghouse Transformation
Since 1991, Westinghouse Electric Corp. has been undergoing a massive restructuring, cutting its work force and selling divisions in an effort to boost profit and slash its debt. Those efforts accelerated under Chief Executive Michael Jordan, who took over in 1993 after former Chief Executive Paul Lego stepped down under pressure from stockholders.
ACCELERATED CHANGES
The company, which will celebrate its 100th birthday next year, has deep roots in electricity--it provided a generating system that powered the World’s Fair in Chicago in 1893--and in radio--it signed a series of agreements with General Electric in the 1920s that led to the commercial release of radio. It has also produced nuclear power technology and a series of innovations for the military, including radar. A look at Westinghouse’s most recent transactions: * 1989: Westinghouse Broadcasting, also known as Group W, buys eight radio stations for $360 million from Metropolitan Broadcasting Corp. and Legacy Broadcasting. * 1990: Westinghouse Broadcasting buys a 15% stake in the independent production firm of Castle Rock Entertainment for $18.7 million. The firm also acquires furniture maker Knoll International Inc. * 1991: Company officials stun Wall Street by reporting a loss of $1.48 billion in the third quarter and say they plan to slash their work force by 4,000. * 1992: The company announces a restructuring effort that includes shedding five major businesses and 23,000 employees, and a $1.13-billion after-tax charge against its earnings. * 1993: The firm sells about 300 apartment buildings to LW Real Estate Investments for $1 billion. It also sells its distribution and controls division--which makes electrical equipment--to Eaton Corp. for $1.1 billion and liquidates a money-losing credit business. * 1994: Officials announce a plan to slash the company’s work force by 6,000. Westinghousesells the trade publication Radio & Records to Perry Media Corp. for $12 million. Group W enters an alliance with CBS to provide network outlets in five markets. * July, 1995: Westinghouse is rumored to be a suitor in a $5-billion takeover bid for CBS.
HOLDINGS
* Broadcasting (Group W): Includes eight major-market TV stations affiliated with CBS, 18 radio stations, syndicated programming, the Nashville Network, 33% of Country Music Television, sports marketing
* Electronic Systems: includes radar, anti-submarine warfare systems and space electronics
* Government & Environmental Services: Includes radioactive waste treatment and environmental cleanup
* Thermo King: Includes temperature control equipment and service parts
* Other: Energy Systems, including services for operating nuclear power plants; steam turbine generators and renewable energy technologies; Knoll Group, which manufactures and sells office furniture, textiles and computer accessories, and real estate properties WCI Communities in Palm Desert and Florida
EARNINGS (LOSSES)
In millions:
1994: $77
DEBT*
In billions:
1994: $2.45
* Includes long-term debt for both continuing and discontinued operations Sources: Bloomberg Business News, Westinghouse Electric Corp. 1994 annual report, Times and wire reports. Researched by JENNIFER OLDHAM / Los Angeles Times
