Cover Story: THE BUSINESS WEEK 1000
THE YEAR OF THE NEWBIE
It's not too often new companies muscle their way into the ranks of the BUSINESS WEEK 1000 in the first year of going public. But thanks to Corporate America's ongoing restructuring, this year's roll sports a large crop of well-placed newcomers. Between spin-offs, split-ups, and IPOs, more than three dozen newly public companies have begun life nestled among America's most valued.
Spin-offs were the key factor. To admiring glances from Wall Street, plenty of companies trimmed down to svelter, more profitable versions of themselves last year. Their spin-offs reached a record market value of $47.9 billion in 1995--double the previous year's volume--according to J.P. Morgan Securities Inc. Already in 1996, spin-offs worth an additional $70 billion are pending, and the frenzy isn't over. "This year promises to be a bonanza for these restructurings," says Barbara Goodstein, a senior vice-president at Rothschild Inc.
IN FOCUS. The dismantling of the old ITT Corp. was typical. Once America's most diffuse conglomerate, the company--No.82 in 1995--split into three in December. ITT Industries, now No.393, kept the auto parts, defense electronics, and fluid technology businesses. Insurance now comes under ITT Hartford Group Inc.'s umbrella, at No.214. And ITT's controversial CEO, Rand Araskog, kept the fun for himself: He heads the hotel, casino, and entertainment units under the new ITT Corp., now No.199.
Shareholders now can invest only in the businesses they think will do well, ending ITT's perennial conglomerate discount. "A spin-off gives you the benefit of focus," says D. Travis Engen, CEO of ITT Industries. "We're now easily understood." The understanding is that the three are worth more apart than together. The old ITT was worth $11.6 billion; now their combined market cap is $15.5 billion. US West, too, had difficulty getting investors to pay a premium for its mix of assets with markedly different prospects. So it opted to offer investors separate shares. Now, its telephone arm lures those seeking steady growth and dividends, while risk-takers can buy into US West Media Group Inc., which is moving aggressively into cable.
RICH OFFSPRING. To please investors who'd like to see Nabisco in a smoke-free environment, RJR Nabisco Inc. also spun off 19.5% of the food-and-snack subsidiary last year. It worked: Nabisco's publicly held shares now trade without the tobacco discount that weighs down RJR. Apply the same value to the 80.5% of Nabisco that RJR still owns, and Nabisco boasts a higher market value, $9.3 billion, than its parent does at $9.2 billion. Still, dissatisfied investors are pushing for a full Nabisco spin-off.
The soaring market for IPOs was another route for high-ranking newcomers to make it to the BUSINESS WEEK 1000. Now No.304, cosmetics maker Estee Lauder has seen its market value climb 41% since it went public last fall, to $4.3 billion. Revlon Inc. looks decidedly riskier. Saddled with $1.5 billion in debt left from its hostile takeover by Ronald O. Perelman in 1985, Revlon has not turned a profit since. Nevertheless, its glitzy Feb. 29 IPO, in which supermodels Claudia Schiffer and Cindy Crawford took a much-hyped tour of the New York Stock Exchange, brought a $1.4 billion market value and the No.754 ranking. New to the market these companies might be, but naive they're not.By Lori Bongiorno in New YorkReturn to top
New For 1996
Spin-offs, split-ups, and IPOs added 39 companies to this year's BUSINESS WEEK
1000, including the following:
RANK COMPANY MARKET VALUE
125 U S WEST MEDIA GROUP $9,860
134 NABISCO HOLDINGS 9,308
214 ITT HARTFORD GROUP 6,031
304 ESTEE LAUDER 4,296
331 CASE 3,795
357 GUIDANT 3,406
393 ITT INDUSTRIES 3,073
416 U.S. SATELLITE BROADCASTING 2,919
585 DARDEN RESTAURANTS 1,968
640 OFFICEMAX 1,769
754 REVLON 1,381
772 PROMUS HOTEL 1,336
DATA: STANDARD & POOR'S COMPUSTAT
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