Related topics

Restructuring Your Way to a Higher Stock Price

February 19, 1990

NEW YORK (AP) _ With the expansionist 1980s behind most U.S. companies and the leaner and more conservative ’90s under way, corporate restructuring may well become more popular as a way to increase the price of a firm’s stock.

Junk bond financing is just about on hold and fewer takeovers are getting done, so it’s harder for companies to boost their stock prices by making acquisitions. But buying back shares, divesting underperforming units or taking other restructuring steps is an easier and sometimes cheaper alternative.

When Marriott Corp. announced in December it was restructuring by selling most of its restaurants and buying back more stock, company officials said enhancing shareholder value - Wall Street’s catchword for raising the firm’s stock price - was among their goals.

It doesn’t always work, and when it does, it can take time. The day the Marriott restructuring was announced, the company’s stock fell $1 to $33.62 1/ 2 a share.

Marriott’s shares have traded lower since then, but the company has been subject to the same doldrums that have eroded prices for most issues on Wall Street this year.

Investors were more enthused when International Business Machines Corp. announced a $1 billion stock buyback in October. They immediately bid the computer giant’s shares up $2.37 1/2 to $104.12 1/2 . IBM is currently trading at about that level.

How much a restructuring affects a company’s stock price depends on a number of factors, including the kind of move undertaken, how much money is involved and whether the shares themselves are directly involved, as in a buyback. Conditions on Wall Street are also a variable.

There is nothing new about restructurings, but analysts have predicted there will be more of them in the coming months and years now that the takeover boom has ended.

Companies are now working from within, rearranging and streamlining their businesses, trying to improve their profits and, consequently, the price of stock. If they decide to repurchase stock, the price often goes up under the law of supply and demand.

But some firms are forced into restructuring by the threat of hostile takeover attempts. The buyout binge may be over, but a few companies have become the targets of investors who want a better return on their holdings - in other words, a higher stock price.

Georgia Gulf Corp. had to formulate a recapitalization plan to try to fend off Texas investor Harold Simmons, who holds about 9 percent of the chemical company’s stock. Simmons began playing a cat-and-mouse game with Georgia Gulf last summer, presenting management with a list of suggestions on how to raise their share price.

The company says its recapitalization plan, which provides for a cash payment to stockholders, is worth up to $55 a share. Simmons, dissatisfied with the recapitalization, has launched a $1.1 billion or $45 per share hostile bid and wants to unseat the Georgia Gulf board.

The company’s stock is currently trading below Simmons’ bid.

Simmons’ strategy - considered corporate raiding in some quarters - is similar to the approach Carl Icahn used at Texaco Inc. starting in late 1987. Icahn, then Texaco’s biggest shareholder, fought the oil company’s management for more than a year, charging they were not doing enough to raise its stock price.

Icahn proposed a takeover bid and tried unsuccessfully to unseat Texaco’s board. The oil giant ended up with a major restructuring that included the sale of billions of dollars in assets and the payment of a special dividend to stockholders.

Now Icahn is the largest shareholder at USX Corp., and is expected to rock the boat there, too.

End Adv for Monday Feb. 19

Update hourly