THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Thursday, August 29, 1996 TAG: 9608290398
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY CHRISTOPHER DINSMORE, STAFF WRITER
LENGTH: 130 lines
Tenneco Inc. will not saddle Newport News Shipbuilding with onerous debt as it spins the giant shipyard off to shareholders later this year.
But the Greenwich, Conn.-based conglomerate will take $600 million in cash out of the yard before the spinoff. Newport News Shipbuilding will borrow the money to cover the payment to Tenneco.
The $600 million payment distributes debt from the parent company to its subsidiary as part of Tenneco's overall restructuring. It also contributes to Tenneco's return on its 28-year investment in the yard.
Analysts say the cash that the shipyard generates should be more than adequate to reduce the debt in a few years.
Newport News Shipbuilding's proposed debt structure is one of many details about Tenneco's proposed spinoff of the yard that were laid out in the company's preliminary plan filed Tuesday with the Securities and Exchange Commission.
The filing also described how the stock would be distributed, named the yard's board of directors and disclosed the salaries paid to the yard's top executives.
The proposed spinoff must be approved by Tenneco shareholders. The Internal Revenue Service also must approve the tax-free status of the transaction.
If both approvals are given and nothing else stalls the spinoff, Tenneco shareholders will get one share of stock in Newport News Shipbuilding Inc. for every five shares of Tenneco they own.
The transaction should occur sometime in December, shortly after the shareholder vote is tallied.
Nearly 36 million shares of the shipyard's stock will be issued and listed on the New York Stock Exchange. The stock price has yet to be determined. Tenneco's stock closed Wednesday at $51 a share, up 1/8.
After that, Newport News Shipbuilding will be on its own, without the deep pockets of a big corporate parent to support it. The shipyard is the region's largest employer, with nearly 18,000 workers.
The shipyard's struggle to diversify will continue. About 94 percent of its revenues in 1995 derived from the Navy.
Shipbuilding analysts have wondered how much of Tenneco's debt might be saddled on the yard. The answer came in SEC filing late Tuesday.
Newport News Shipbuilding will assume $200 million of long-term debt and $410 million of short-term debt to make the dividend payment to Tenneco.
``Putting short-term debt on the balance sheet suggests they think they can reduce it within a few years,'' said Byron Callan, a defense stock analyst at Merrill Lynch.
Investors will be more interested in the shipyard's $4 billion backlog of orders and how much cash the company will generate over the next few years.
``The investment community will focus on the cash the company will generate,'' Callan said. ``It will continue to earn a pretty healthy margin, particularly on the carrier work.''
Based on the Pentagon's long-range planning, Newport News Shipbuilding will be building aircraft carriers well into the next decade, he said. Construction of the new attack submarine will keep up until at least 2001.
The investment community will also be expecting someone to try to buy the shipyard after it's independent, Callan said.
General Dynamics Inc.'s top executive said earlier this year that his company would be interested in buying Newport News Shipbuilding if the price were right.
``G.D. would love it,'' said Guy Stitt, a naval analyst with AMI International in Bremerton, Wash. ``They'd be the only nuclear shipbuilder in the United States.''
General Dynamics owns the nation's other submarine builder, Electric Boat in Groton, Conn., and Bath Iron Works, which makes Navy destroyers in Bath, Maine.
Litton Industries Inc., which owns Ingalls Shipbuilding in Pascagoula, Miss., might also be interested, Stitt said.
Takeover speculation could drive up the purchase price of the company, Callan said.
Moreover, a few ``wins'' on the contract front - particularly for the $5 billion LPD-17 amphibious assault ship program - could boost the yard's value beyond the range of strategic buyers like General Dynamics, he added.
Newport News Shipbuilding will start with a three-man board of directors, including Tenneco Chairman Dana Mead and William P. Fricks, the shipyard president and chief executive. Joseph J. Sisco, a longtime Tenneco board member, will be the third.
According to the SEC filing, which requires disclosure of executive earnings, Fricks made $323,759 in salary last year with a $195,000 bonus and $29,591 in other compensation. Fricks owns 29,324 shares of Tenneco stock with a market value of nearly $1.5 million.
The shipyard's four other top-paid executives earned between $275,200 and $301,760 in 1995.
The shipyard's blue-collar workers make between $7.12 and $15.53 an hour.
The filing also disclosed some details about the Pentagon's Defense Contract Audit Agency ongoing review of the yard's winning bid for the $2.5 billion carrier Ronald Reagan.
The audit is focusing on information the yard gave the Navy about its labor costs and overhead, and whether it was current, accurate and complete.
Agency auditors have told the yard informally that they believe the contract price should be reduced by $122 million, according to the filing.
The Defense Department's Inspector General is also seeking documents related to the same bid as part of a joint investigation with the Justice Department, the U.S. Attorney's Office in Norfolk and the Naval Criminal Investigative Service.
Neither investigation has yet resulted in a formal claim against the shipyard.
According to the filing, the yard believes it can defend itself against these claims without adverse financial effects. ILLUSTRATION: OVERVIEW OF THE PLAN
Presuming it gets approval from its shareholders, the IRS and the
Securities and Exchange Commission, Tenneco will become three
separate companies in December.
One will be Newport News Shipbuilding.
The Greenwich, Conn.-based company wants to create value for its
shareholders by spinning off what are very different companies.
``Today we have taken an important new step in our comprehensive
plan to create a powerful, new Tenneco with both a clear focus on
our highly successful automotive parts and packaging businesses, and
excellent potential for value creation,'' Tenneco Chairman Dana Mead
said.
Here's how it will break down.
Tenneco shareholders will receive:
one share in Tenneco for every share they currently own
representing the company's packaging and automotive parts business
and the current corporate management;
one share of Newport News Shipbuilding stock for every five
shares of Tenneco stock;
one share in El Paso Energy Co., which is merging with Tenneco's
energy unit, for every 10 shares of Tenneco stock based on current
market values of both stocks.
Tenneco's stock edged up 1/8 to $51 a share in Wednesday trading
on the New York Stock Exchange. by CNB