Westinghouse decides to go media-only Industrial units will be spun off as separate company

No more 'junior GE'

'We're going to get rid of that inferiority complex'

November 14, 1996|By Timothy J. Mullaney | Timothy J. Mullaney,SUN STAFF

Westinghouse Electric Corp. said it will spin off its industrial businesses as a separate company, completing the transformation of America's "Junior General Electric" from a manufacturer and defense contractor into a television and radio titan.

The Pittsburgh-based conglomerate's units that make refrigerator trucks, steam turbines and nuclear fuel and sell services to the federal defense and energy departments will become a separate company called Westinghouse Electric Co., or WELCO.

WELCO expects to sell 20 percent of its Thermo King refrigerator-truck unit to the public; the media company expects to choose a new name and move its headquarters to New York; and the three companies are expected to have their separate identities in place, all by next August.

"This is really the culmination of a lot of actions that have taken place in the transformation of Westinghouse over the last three years," Westinghouse Chairman Michael H. Jordan told a New York news conference. "We're no longer going to be a junior GE. We're going to get rid of that inferiority complex."

That complex has been severe, owing to Westinghouse's longtime status as one of the worst performers among the 30 stocks in the Dow Jones industrial average. Accordingly, yesterday's move was made for the same reason Jordan has made most of his changes: to raise Westinghouse's stock price.

The stock fell 87.5 cents to $19.75 yesterday.

Linthicum plant already sold

Jordan's changes have included selling the Linthicum-based defense contracting business that was Maryland's biggest private employer during the 1980s, and using much of the $3.6 billion it commanded from Northrop Grumman Corp. to pay for Westinghouse's purchase of the CBS television network.

CBS had been a laggard until recently, but is in an industry that is much more profitable than post-Cold War defense contracting.

Westinghouse's moves also included waves of layoffs that began before Jordan arrived and which continued yesterday with the news that 1,100 jobs will be eliminated as part of the breakup. Those to be cut represent about 5 percent of those destined for WELCO's work force, excluding people who work on government operations. Westinghouse will take a $125 million fourth-quarter charge to pay for severance benefits.

Analysts like the move

Despite yesterday's stock dip, analysts praised the decision, which had long been expected and had helped Westinghouse shares rise by 20 percent in the six trading days before yesterday.

"You have great franchises [in the media business] and they aren't counting on price increases to make more money," NatWest Securities analyst Nicholas P. Heymann said.

He said rising ratings for the CBS Network, the expected improvement of its radio stations as managers from soon-to-be acquired Infinity Broadcasting Corp. take over, and better management of CBS-owned local television stations that had languished under the pre-merger CBS Inc. should all push the media company's earnings higher.

$4.2 billion in sales foreseen

Westinghouse said the media company will have $4.2 billion in annual sales when the Infinity deal is completed.

Westinghouse's strategy is the same basic plan that Marriott Corp. of Bethesda used when it split into two companies in 1993: Separate the most profitable part of the company from weaker sectors so the core company's stock price can rise. In Westinghouse's case, it's expected that offering part of Thermo King to the public will boost WELCO's price as well.

At today's Westinghouse, broadcast operations generate 70 percent of the company's profits, but haven't pulled the stock up much because two of the three major industrial businesses are barely profitable.

"It's a big thing for a couple of reasons," said Richard Henderson, an analyst at Donaldson, Lufkin & Jenrette's Pershing unit in Jersey City, N.J. "No. 1, it clearly separates the businesses so Wall Street has a fair shot at valuing each one on its own merits."

WELCO will start its separate life with no debt and about $4.6 billion in annual sales. But the media company will keep $1.8 billion in tax benefits it can use to shelter future earnings from the Internal Revenue Service, credits the company painfully built up during the early 1990s as its defense business shrank and it uncovered disastrous problems in the real estate operations it had built up during the 1980s construction boom.

$1 billion in pension liabilities

WELCO will also assume more than $1 billion in pension liabilities and an unspecified amount of environmental liabilities. But Jordan said the new company would be able to pay off those obligations within five to 10 years without disrupting operations.

Westinghouse employed as many as 17,000 Marylanders during the 1980s.

But its biggest local operation now will be WJZ-TV, Baltimore's Channel 13, which General Manager Marcellus Alexander said last year posts about $180 million in annual sales.

Pub Date: 11/14/96

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