Westinghouse to Spin Off Industrial Assets

Ending a 110-year tradition as a diversified conglomerate, Westinghouse Electric Corp. said Wednesday that it will spin off its industrial assets into a separate company to become a pure broadcasting entity, with CBS as its flagship property.

The spinoff, to be completed late next year, is expected to free the higher-valued broadcast properties from the weakness in the company’s power business and from environmental and pension liabilities that have been a drag on the stock.

The announcement, which had been anticipated, is the culmination of a transformation of Westinghouse over the last three years under Chairman Michael Jordan, who has slashed the work force by 25%, shed assets and focused expansion on its fastest-growing business: broadcasting.

In the last year, Jordan has spent nearly $11 billion to reshape Westinghouse into the nation’s largest television and radio station operator, buying CBS Inc. a year ago and agreeing to purchase Infinity Broadcasting Corp. in July. The CBS deal closed earlier this year, and the Infinity transaction cleared antitrust scrutiny Tuesday and is expected to be approved by shareholders in a Dec. 10 vote.

“We are no longer going to be a junior GE,” Jordan said at a news conference in New York announcing the decision. Rival General Electric, like Westinghouse, owns a broadcast network and stations and makes nuclear equipment.

“We are ready to send both of our children off to school by themselves,” Jordan said.

On Wall Street, Westinghouse shares fell $1.25 to close at $19.375, after rising 13% over the last week in anticipation of the news.

Analysts expect the broadcast group, which has not yet been named but would be based in New York, to be worth about $21 a share after the split, and they peg the industrial stock at $5 a share, for a $26 value to current shareholders.

The broadcast group would retain all of the debt, which Jordan said will total $5.8 billion after the Infinity purchase. Analysts say the debt can be paid down quickly because of $1.8 billion in tax credits that can shield earnings and that would reside with the broadcast group.

Jordan said freeing the industrial businesses from the overhanging debt will better position it to compete internationally. The biggest revenue generator in the group, which would retain the Westinghouse name but not the stock symbol, is the nuclear power equipment business, although the biggest moneymaker by far is Thermo King, its refrigerated-equipment arm.

To capitalize on Thermo King’s value, the company plans to offer 20% to the public, raising an estimated $400 million to finance expansion. Though the company said it had set aside reserves to cover $1.5 billion in pension and environmental liabilities, some analysts are unenthusiastic about the new company because of the poor prospects for the power business.

Jordan said the company will take a $125-million charge in the fourth quarter to cut 1,100 additional jobs, or 5% of the work force, mainly from the power sector.

Though the split would make the CBS group one of the purest broadcasting plays on Wall Street, some analysts predict CBS could become the subject of a takeover by a studio in need of distribution, such as MCA or Sony. Although federal rules prevent foreign companies from controlling TV stations, investments bankers say either could structure a purchase by keeping a minority stake in the station group after spinning it off to a third party.

Jordan scoffed at the idea. “That’s a huge check someone would have to write,” he said, throwing out numbers that would suggest a price in excess of $20 billion.

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Calling It Splits

Westinghouse Electric Corp. announced plans to split off its growing broadcast empire from its shrinking industrial base. A look at the assets of the two divisions:

Westinghouse Electric

Headquarters: Pittsburgh

Revenue: $4.6 billion

Holdings: The world’s largest nuclear power business and the Thermo King mobile refrigeration line and government operations

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Yet-to-be-named media company

Headquarters: New York

Revenue: $4.2 billion, not including Infinity Broadcasting, which is valued at $3.9 billion

Holdings: Television and radio assets of CBS, Group W Satellite Communications (the cable television and distribution company) and to-be-acquired Infinity Broadcasting

Sources: Westinghouse Electric Corp., Times and wire reports