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`GO SLOW'? NOW, THAT'S RADICAL
Michael H. Jordan is talking tough. Speaking in New York on Jan. 11 in his first big meeting with securities analysts, the new CEO at Westinghouse Electric Corp. describes it as a "1950s-style" corporation full of deferential bureaucrats pushing memos. He calls it a place that predictably produces "a disaster of the year," most recently in its money-gulping environmental division. Cleaning up Westinghouse, he goes on, requires a cultural switch to "in-your-face management"--and, he adds, "every now and then, shooting somebody in the courtyard."
If Jordan sounds like a guy who eats roofing tacks for breakfast, it's because the 57-year-old CEO is betting his job that tough new management can lead the troubled Pittsburgh company to recovery--without selling off any cf its divisions for much-needed cash. When he was hired at Westinghouse last June, the former McKinsey & Co. partner and PepsiCo Inc. executive was widely expected to spin deals, selling off companies or even divisions such as defense electronics or broadcasting. This, it was hoped, would tidy up Westinghouse's sagging balance sheet and send the depressed stock soaring. The analysts' model: Lawrence A. Bossidy's spectacular turnaround at AlliedSignal Inc.
Six months later, Jordan admits that he entered the job with misconceptions. Westinghouse "is no AlliedSignal," he says. "I didn't know much." Now, in lieu of radical, Bossidy-style sell-offs, Jordan is planning a more difficult go-slow approach--not that different in direction from the model left behind by former CEO Paul E. Lego, who resigned under pressure a year ago.
It's quite a gamble. Jordan announced a $750 million pretax charge to slim down Westinghouse and resuscitate its balance sheet. But debt, at $4 billion, is still nearly four times equity, and Westinghouse's bonds were downgraded to junk status last week by Moody's Investment Services. Worse, pension liabilities will gobble up much of operating earnings this year and next.
ONGOING BATTLE. This means Jordan will struggle for cash as he works to build Westinghouse's core businesses--power generation, nuclear energy, defense electronics, refrigerated transport, and Group W Broadcasting. Robert A.G. Monks, a principal of LENS Inc., which holds $3 million of Westinghouse stock, says he worries about skimping on investment in the most important operations: "He's living pretty dangerously."
Why doesn't Jordan slash more? He says that by the time he came to Westinghouse, three years of financial crisis had already squeezed out much of the fat. Defense electronics, for example, went from 23,000 to 15,000 workers. What's more, unlike AlliedSignal, the company doesn't own a sizable core company with star potential. Instead, it has a stable of mature businesses, none of them close to a dramatic turnaround. So Jordan is holding on in hopes that he can nurture growth from within.
The question: Will Wall Street be patient? Jordan says the turnaround could take three to five years, earnings this year and next dragged down by mounting pension liabilities. The stock market hardly stirred at Jordan's announcements, nudging Westinghouse shares down 1/2, to 13 5/8, by Jan. 12. "Investors need to recognize that it's not going to be a one-year fix," says Judy Meehan, an analyst at Parker-Hunter in Pittsburgh. "We're not recommending the stock."
Jordan's hope is that slow-growth businesses, when run well, can make money. His model, he says, is General Electric Co., Westinghouse's age-old nemesis, which made nearly $14 billion in net profits over the past five years, while Westinghouse, burdened by a disastrous financial services division, wallowed in the red. By cutting costs, trimming headquarters and flattening Westinghouse's imposing bureaucracy, Jordan hopes to double productivity growth and raise profits by 11% to 12% annually. Key to this goal, he says, is a cultural revolution in Westinghouse's management. To help promote change, Jordan expects to name three or four outside executives to top posts within months.
He's also looking abroad, nailing down joint ventures in China for power generators. He hopes to upgrade nuclear power plants throughout Eastern Europe and the Soviet Union and has already signed a $442 million contract to complete a complex in the Czech Republic. The Eastern Europeans also need air-control systems, in which Westinghouse is a world leader.
If Jordan's strategy pays off, Westinghouse should climb back to profitability by 1996, analysts say. But if he stumbles, he may reconsider a quick sale. The logical candidate is Group W, the company's profitable broadcast unit. By selling half the unit, he could raise a quick billion while securing a strong partner for the airwaves and cable wars ahead. It's sure to be a tempting thought in the austere days ahead.Stephen Baker in New York