Debate Returns Over PacTel: Will Dividend Be Cut?
Wall Street is worried about the security of Pacific Telesis Group’s dividend--again.
The California phone utility’s shares sank $1.25 to $32.50 on Thursday after the company failed to sound enthusiastic about maintaining its current $2.18-a-share annual dividend. At least that’s what some analysts thought they heard in PacTel officials’ conference call reporting 1995 earnings.
“My sense is that everybody wanted them to say the dividend is safe and that they’re committed to it, but they clearly left it open,” said one brokerage analyst who requested anonymity.
PacTel currently pays out more of its net earnings in dividends than any of the other six Bell phone companies. Thursday, PacTel said it earned $2.46 a share last year, excluding a one-time charge for a change in accounting rules. That was down from $2.77 a share in 1994, reflecting the slow California economy and increasing competition within the telecommunications field.
More important, that $2.46-a-share in profit last year left very little money for PacTel after the $2.18-a-share dividend was paid. The dividend ate up 89% of the firm’s net earnings. In contrast, PacTel’s Midwest rival, Ameritech, paid out just 58% of 1995 earnings in dividends.
PacTel’s high dividend has been an issue for several years, as earnings growth has slowed because of telecommunications deregulation and heavy spending by the company on new ventures, such as wireless communications systems. A cut in the dividend would allow PacTel to retain more capital for critical technology investment; as things now stand, the firm’s per-share earnings aren’t expected to rise significantly before 1999.
But a dividend cut also would anger many individual shareholders, potentially fueling massive dumping of the shares.
For much of 1995 investors kept the stock depressed, treating it as if a dividend cut were inevitable. In recent weeks, however, the stock has been inching higher, suggesting more confidence in the dividend’s sanctity. The price reached $35.25 two weeks ago, up from $30 in late November.
Even at the current stock price the dividend yield is 6.7%, highest of the Bell firms. So Wall Street still appears to doubt that the dividend will be preserved at $2.18. Officially, PacTel says its directors will “take a close look” at the dividend at their March 22 meeting. But the company adds that a dividend review is “not unusual.”
Charles A. DiSanza, analyst at Gerard Klauer Mattison in New York, argues that PacTel has no pressing reason to slash the dividend. The firm’s cash flow remains strong, and if necessary the company can stretch out capital spending plans to conserve funds, he says. “In my opinion the dividend is absolutely secure,” he says.
Boxing With Helene: Shamrock Holdings, a Burbank investment fund with ties to Roy Disney, still has its hands full trying to turn around troubled footwear maker L.A. Gear (33%-owned by a Shamrock-related entity). But that isn’t stopping Shamrock President Stanley P. Gold from turning his sights on another company: Chicago-based toiletries maker Helene Curtis.
Shamrock, which owns 7.6% of Helene Curtis’ shares, suggested in a letter to the firm on Tuesday that it consider selling itself. The news sent Helene Curtis’ stock surging $6.625 to $40.75 on Wednesday. It added $1.25 to $42 on Thursday.
Helene Curtis’ earnings have been erratic for years, and Gold expressed the idea that somebody other than the controlling Gidwitz family could do a better job running the business. Citing the current takeover fight for Maybelline, Gold says he believes “there would be many interested parties” that would consider buying Helene Curtis.
Some analysts have long believed that Dutch giant Unilever would be interested in Helene Curtis’ brand stable, which includes Suave shampoo and Degree antiperspirant. Exactly what a buyer would be willing to pay isn’t clear; Helene Curtis’ peak stock price was $47.375 in 1993.
Shamrock has owned the stock since 1994. Why try to instigate a deal now? Under Helene Curtis’ corporate bylaws, its independent directors must every five years consider abolishing the Gidwitz family’s 81% controlling stake by converting the family’s voting shares to regular shares--leaving the family with just 31% of the firm. That bylaw-mandated “window” of opportunity just opened Jan. 1 and will close June 30. If the directors side with Shamrock a takeover could be forced on the family--assuming a buyer surfaces.
First Quadrant Sold: Pasadena-based First Quadrant, an up-and-coming $11-billion asset money management firm that had been part of Xerox’s financial services unit, has been sold to Boston-based Affiliated Managers Group.
The deal will turn First Quadrant Chief Executive Rob Arnott, 41, into a part owner of the business he has rapidly built up since 1988, when First Quadrant first began managing money outside the Xerox operation. AMG will own a controlling stake in First Quadrant, with Arnott and other managers holding the minority stake.
Importantly for AMG, the deal catapults the firm’s assets to nearly $16 billion from $5 billion now. AMG controls several small investment outfits, including J.M. Hartwell in New York and Skyline Asset Management in Chicago.
First Quadrant has made a name for itself among institutional clients as a very savvy “quantitative” investment manager, meaning it picks stocks and other investments strictly according to computer-driven formulas; human emotion is left out of the decision process. Becoming part of AMG could eventually make First Quadrant’s investment skills available to smaller investors via mutual funds, though Arnott says it’s premature to speculate on whether or when that might happen.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Baby Bell Yields
Pacific Telesis’ dividend yield--the annual dividend divided by the stock price--is currently the highest of the seven Baby Bell phone companies. A comparison: *--*
Annual Div. Baby Bell div. yield Pacific Telesis $2.18 6.71% US West 2.14 6.11% Nynex 2.36 4.47% Bell Atlantic 2.80 4.01% Ameritech 2.12 3.56% BellSouth 1.44 3.33% SBC Communications 1.65 2.91%
*--*
