THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Friday, March 22, 1996 TAG: 9603220583
SECTION: FRONT PAGE: A1 EDITION: FINAL
SOURCE: BY CHRISTOPHER DINSMORE, STAFF WRITER
LENGTH: Long : 196 lines
Newport News Shipbuilding will be an independent company by the end of the year.
Tenneco Inc., the sprawling Peninsula shipyard's Houston-based parent, announced Thursday that it will spin off ownership of the yard to its shareholders.
Without Tenneco's deep pockets, the shipyard will be left to sink or swim on its own, although as the Navy's sole supplier of aircraft carriers it's unlikely that the facility would be allowed to go out of business in the foreseeable future.
``Newport News Shipbuilding is more than ready and prepared to operate as an independent company,'' said William P. Fricks, the shipyard's president and chief executive. ``All that is left for us to do is go out and perform and show the world that we're not only the best shipyard in the United States, but also in the world.''
The spinoff marks a return to independence for the 110-year-old shipbuilder, which Tenneco bought in 1968.
The move won't change the yard's employment picture. The shipyard's name and top management won't change either. It still plans to cut 1,500 jobs from its 18,000-person payroll by the end of the year. The yard's employment should be stable at 16,500 through the end of 1998, Fricks said.
``On the surface it looks like a good thing,'' said Thomas Crudup, president of Local 8888 of the United Steelworkers of America, which represents the yard's hourly employees. ``I don't think it's anything we need to worry about.''
The union has been assured that its contract with the yard remains in place and that employee benefits will be largely unchanged, Crudup said.
``I'm all for it as long as I've got a job,'' said Derrick Overbey, a sheet metal worker in the shipyard. ``We all sort of knew it was coming.''
Tenneco Chairman Dana G. Mead said in January that his company would likely sell or spin off the shipyard early this year. Tenneco, a conglomerate with interests in several different industries, has been restructuring in recent years to re-energize its stock value, which has languished compared to other stocks.
In the spinoff, Tenneco will create a new stock representing its ownership of the shipyard and give that stock to its shareholders. The transaction is supposed to be tax-free. If the Internal Revenue Service approves, the transaction should occur by the end of the year.
Although Tenneco is dumping its slower-growth units to focus on its high-growth auto parts and packaging business, that doesn't mean Newport News Shipbuilding is in any jeopardy.
``Newport News is a national asset,'' said John W. Douglass, assistant secretary of the Navy for acquisition. ``It's a priority for our country to see that the yard remains healthy.''
Analysts and shipyard officials expect little change in the shipyard's strategy as a result of the estimated $1.2 billion spinoff. Its business will be substantially the same as it is now. There are even several opportunities for growth. And no one is likely to try to take it over, analysts said.
``It will probably be as viable as it was under Tenneco,'' said Elliott Rogers, a defense analyst with the New York investment bank Cowen & Co.
``Newport News Shipbuilding is going to be a large company in and of itself,'' said Fricks, the shipyard president. ``This company has been profitable and generates cash flow on its own.''
With $1.8 billion in sales last year, the shipyard would be just shy of being a Fortune 500 company.
``Newport News Shipbuilding is probably the most profitable shipyard in the world,'' said James R. McCaul, president of IMA Associates, a Washington shipbuilding consulting firm.
Navy projects have a built-in profit, McCaul said, while commercial shipbuilding is a dog-eat-dog worldwide market where profit margins are razor-thin to nonexistent.
As the only facility capable of building nuclear-powered aircraft carriers, the shipyard can argue that its continued existence is a national security issue. It's also got a built-in market. The Navy is widely expected to order another carrier, valued at about $5 billion, around the turn of the century, McCaul said.
``Newport News will always be building flattops and always be bringing in flattops for repair,'' Rogers said.
Congress has also promised the shipyard at least two orders for the next generation of attack submarines starting in 1999.
And there are other growth opportunities with new Navy projects, such as a new line of amphibious warships that the yard is bidding on, a concept vessel called the arsenal ship and a new generation of ammunition cargo ships, McCaul said.
``We'll be interested in almost all the ships the Navy builds from now on,'' Fricks said.
While Newport News will be competing with the nation's four other Navy surface-ship builders for this work, McCaul said there's enough new work in the pipeline to keep everyone reasonably busy as long as Congress funds it.
Newport News Shipbuilding also expects to hear soon whether it wins an order worth up to $2 billion to build fast frigates for the military of the United Arab Emirates, a tiny Persian Gulf nation.
It also has $400 million in orders for nine commercial petroleum tankers and is trying to attract more as it strives to again become a diversified shipbuilder. Commercial building now accounts for just under 10 percent of its backlog, up from none four years ago.
``In four years, we have built tremendous value at Newport News Shipbuilding - strengthening its position to build nuclear-powered aircraft carriers and submarines, re-entering the market for commercial ships and pursuing foreign sales of fast frigates,'' Tenneco's Chairman Mead said.
The spinoff raises concerns about whether the yard will be adequately capitalized to see it through the down times that are part of any business, said Sen. John W. Warner, R-Va.
``We will have a capital structure such that we have access to reasonable interest rates in the market . . . ,'' Fricks said. ``We'll have access to sufficient capital to make needed investments in the shipyard.''
Tenneco has invested heavily in the shipyard recently, building a $70 million automated steel fabrication plant and paying for a new nuclear refueling facility and expansion of its biggest drydock.
Tenneco chose to spin off the company instead of selling it to avoid paying what would be a tax of several hundred million dollars on a sale.
``This was clearly the best way to optimize our shareholder value,'' Mead said.
Fricks said there were some inquiries from potential buyers, but he said Tenneco planned all along to do a spinoff. He declined to identify the interested companies.
Spinning off the shipyard could make it vulnerable to takeover by another company, but it's unlikely any of the likely buyers would try, Rogers said.
The two other major Navy shipbuilders, Litton Industries Inc. and General Dynamics Corp., both would face serious issues if they tried to buy Newport News Shipbuilding, Rogers said.
``It's not like you could consolidate,'' he said. ``Whoever buys Newport News Shipbuilding is buying unique production facilities.''
Many of the details have yet to be determined, but the new company's stock is likely to trade on the New York Stock Exchange, Fricks said. The ticker symbol ``NNS'' is not being used, he added. MEMO: Staff writer Dale Eisman contributed to this report.
A HISTORY OF NEWPORT NEWS SHIPBUILDING
1886: Founded by railroad magnate Collis P. Huntington as Chesapeake
Dry Dock and Construction Co.
1889: First dry dock opened.
1890: Name changed to Newport News Shipbuilding & Dry Dock Co.
1891: Delivery of its first vessel, the tugboat Dorothy.
1897: Delivery of its first Navy warships, the gunboats Nashville,
Wilmington and Helena.
1904: Delivery of its first six submarines.
1914: Delivery of the battleship Texas, which served in World War I
and World War II.
1934: Delivery of the Ranger, the first ship designed from the keel
up as an aircraft carrier.
1940: Sale of the shipyard to a group of 17 investment firms.
1943: World War II employment peaked, at 31,000.
1952: Delivery of the passenger liner SS United States.
1955: Delivery of the Forrestal, the first jet-age supercarrier.
1961: Delivery of the Enterprise, the first nuclear-powered carrier.
1968: Tenneco Inc. acquires the shipyard.
1976: Delivery of the first Los Angeles-class attack submarine.
1995: Christening of the Cheyenne, the last Los Angeles-class
submarine, to be delivered later this year.
1996: Tenneco announces it will spin off shipyard as a separate
company.
1886: Founded by railroad magnate Collis P. Huntington as Chesapeake
Dry Dock and Construction Co.
1889: First dry dock opened.
1890: Name changed to Newport News Shipbuilding & Dry Dock Co.
1891: Delivery of its first vessel, the tugboat Dorothy.
1897: Delivery of its first Navy warships, the gunboats Nashville,
Wilmington and Helena.
1904: Delivery of its first six submarines.
1914: Delivery of the battleship Texas, which served in World War I
and World War II.
1934: Delivery of the Ranger, the first ship designed from the keel
up as an aircraft carrier.
1940: Sale of the shipyard to a group of 17 investment firms.
1943: World War II employment peaked, at 31,000.
1952: Delivery of the passenger liner SS United States.
1955: Delivery of the Forrestal, the first jet-age supercarrier.
1961: Delivery of the Enterprise, the first nuclear-powered carrier.
1968: Tenneco Inc. acquires the shipyard.
1976: Delivery of the first Los Angeles-class attack submarine.
1995: Christening of the Cheyenne, the last Los Angeles-class
submarine, to be delivered later this year.
1996: Tenneco announces it will spin off shipyard as a separate
company. ILLUSTRATION: Graphic with photo
WHAT'S A SPIN-OFF?
In a spin-off, a company creates a new stock in one of its
subsidiaries and gives that stock to its shareholders. In this
spin-off, Newport News Shipbuilding will now be owned by Tenneco's
shareholders.
WHAT DOES THE YARD MAKE?
The yard is building two aircraft carriers, two sealift ships and
nine double-hulled petroleum product tankers at a total cost of $4.6
billion. In December, its latest carrier, the Stennis, was
commissioned.
WHAT DOES IT MEAN?
No impact on the yard's employment or the Hampton Roads economy.
Important decisions about the shipyard's future will now be made in
Newport News rather than Houston. by CNB