THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Wednesday, January 31, 1996 TAG: 9601310523
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY CHRISTOPHER DINSMORE, STAFF WRITER
LENGTH: Long : 138 lines
Tenneco Inc. may be about to sell or spin off Newport News Shipbuilding, its top executive confirmed Tuesday.
But it is also considering reinvesting in the shipbuilding business by purchasing another shipyard, said Dana G. Mead, Tenneco's chairman and chief executive.
``We haven't decided on any of those options, but because of the increased value of the yard, we have a lot of options,'' said Mead during Tenneco's fourth quarter earnings report.
Rumors have been sweeping the yard's ranks recently that Tenneco, the yard's Houston-based parent, is about to sell the giant shipyard, which it bought in 1968. About 18,200 people are employed at the sprawling James River facility.
Employees have no need to worry, Mead said. ``The yard's got a very good future in front of it, whether it's part of Tenneco or it stands alone,'' he said.
But expect Tenneco to act soon. The conglomerate has been restructuring dramatically over the past couple of years in an effort to increase value for its shareholders, who have watched its stock price languish for several years.
``We probably would move sooner rather than later,'' Mead said.
Tenneco is looking at strategic moves such as spin-offs, sales, mergers and acquisitions that could affect all its businesses, which also include natural gas, packaging and automotive-parts manufacturing, Mead said.
The conglomerate could be about to join the likes of AT&T Corp. and ITT Corp., both of which recently announced break-ups that will make each of their different subsidiaries a separate business.
A spin-off is another possibility. In this case, a company gives a subsidiary to its shareholders by issuing stock in the subsidiary. The newly independent company is listed on a stock exchange and trades independently from its former parent.
In 1994, Tenneco sold Case Corp., its tractor-making subsidiary, to the public. It still holds 21 percent of Case's stock.
Stock analysts agree that Newport News Shipbuilding is a leading candidate for a sale or spin-off at Tenneco.
When Mead took over Tenneco's leadership in 1994 he said he wanted to focus the company on three key businesses, automotive, energy and packaging, said Subash Chondra, an analyst at Edward D. Jones, a Missouri-based investment bank. ``That obviously leaves out shipbuilding,'' he said.
Tenneco is trying to become a manufacturing concern focused on high-growth mass market products such as auto parts and packaging,analysts say. In the past two years it has invested substantially in expanding both its auto-parts and packaging divisions.
``Newport News is a very, very solid platform in its own right, but it's not a high-growth platform,'' said Donato Eassey, an analyst with Merrill Lynch.
``The same is true of the pipeline,'' Tenneco's natural gas transportation division, said another analyst. ``There's not much growth there, either.''
Whatever Tenneco does isn't likely to change the shipyard's future much.
``This yard is in a very strong position,'' Mead said. ``It generates more than enough cash to support its capital needs. It's won the sub battle.''
Indeed, the Defense Department spending bill expected to be approved by Congress and President Clinton assures the yard part of the Navy's $71 billion attack submarine building program.
The 110-year-old shipyard's $4.6 billion backlog includes two aircraft carriers and four petroleum product tankers. It's the only U.S. shipyard capable of building nuclear-powered aircraft carriers.
The yard has a pending contract to build five more tankers and it expects to hear by mid-year whether it will win a contract worth up to $1.6 billion to build four fast frigates for the United Arab Emirates. It is negotiating to build up to 16 more ships, Tenneco announced.
If the yard's success continues in the commercial market, which it re-entered only two years ago, it will soon be competitive with large international shipyards for contracts to build expensive liquified natural gas carriers and the like, Mead said.
Selling Newport News Shipbuilding would be complicated. ``How do you value a shipbuilder?'' asked the analyst Chondra. ``There are very few comparisons out there.''
Chondra expects Tenneco to sell or spin off the yard eventually, but said it may not happen this year.
A prime candidate to purchase Newport News Shipbuilding would be Litton Industries Inc., which has shed most of its commercial business to focus on defense-related work. Litton owns Ingalls Shipbuilding in Mississippi, a major Navy ship maker.
``Our strategy is to make selective acquisitions in this (defense) industry, which is consolidating,'' said Robert Knapp, spokesman for Woodland Hills, Calif.-based Litton. ``We have made several acquisitions in the past year, and we have have several others in the works.''
Knapp declined to elaborate.
Newport News Shipbuilding is in a joint venture with Litton's Ingalls to bid on the next generation of amphibious warships. The 12-ship program, worth an estimated $5 billion over the next 15 years, will be put out to bid later this year.
Another potential buyer could be General Dynamics Corp., which owns the Connecticut sub-builder Electric Boat and last August bought Bath Iron Works in Maine, which makes Navy destroyers. Falls Church-based General Dynamics is sitting on a bunch of cash that it needs to deploy, but it may have its hands full with the acquisition of Bath.
Newport News Shipbuilding tried to buy Electric Boat earlier last year, but backed away when it couldn't get financial support from the Pentagon.
Other companies would likely shy away from entering Navy shipbuilding because of its uncertain future, analysts said. ``Defense spending is going down,'' Merrill Lynch's Eassey said.
Mead's comments on a possible sale came as Tenneco announced its earnings for 1995's fourth quarter and for the full year.
Newport News Shipbuilding's income continued to slide in the fourth quarter. The shipyard made $35 million on gross revenues of $466 million in the quarter, down from $46 million on $462 million in revenues in the year earlier quarter.
The yard's fourth quarter revenues were reduced by a $4 million charge to pay for work-force reductions. The yard reduced employment by 1,650 in 1995 through a combination of layoffs, early retirements and attrition. It plans to eliminate about 1,500 jobs in 1996.
For the year, Newport News Shipbuilding contributed $160 million in operating income to Tenneco's results, down from $200 million in 1994. The yard's revenues were flat at $1.75 billion.
Tenneco made $183 million, or $1.05 per share, in the fourth quarter, up from $32 million, or 16 cents per share, in the same period a year ago. The year-ago quarter included a $177 million loss from operations Tenneco sold that year, including a brake business and an English chemical concern.
For the year, Tenneco earned $735 million, up from $408 million in 1994. Revenues were $8.9 billion in 1995 compared with $12.2 billion in 1994.
Tenneco's stock rose $2 7/8 to $51 3/8 a share Tuesday in trading on the New York Stock Exchange. ILLUSTRATION: Graphic
OPTION 1: REINVEST
OPTION 2: SELL
OPTION 3: SPIN IT OFF
[For complete graphic, please see microfilm]
by CNB