Did Henley's Pied Piper Call This Tune?

He was the Pied Piper of Wall Street. Five years ago, Michael D. Dingman launched Henley Group Inc., a grab bag of 35 companies spun off from Allied-Signal Inc. Although the motley assemblage quickly became known as "Dingman's Dogs," investors swarmed behind the charismatic Dingman, snapping up Henley's then-record $1.2 billion initial public stock offering in 1986. Shareholders were drawn by Dingman's sterling reputation for sprucing up sickly industrial companies and selling them at a profit. In the years that followed, Dingman took investors on a dizzying odyssey of spin-offs, buybacks, and asset sales.

The long, strange trip of the company, based in Hampton, N. H., may be nearing an end. On Mar. 27, Libra Invest & Trade Ltd., a Zurich-based company owned by Lebanese investor Toufic Aboukhater, proposed a $325 million buyout of the 75% of Henley that Libra doesn't already own. Libra's $22-a-share bid breathed life into Henley's moribund stock, driving it to 24 from a recent low of 16. That's a pretty nice pop, but some Henley shareholders smell a rat. Embittered by poor returns on past Dingman deals, they fear that this is a maneuver by the Henley chief to enrich himself at stockholders' expense.

'VEHEMENTLY OPPOSED.' "Outside shareholders are being taken advantage of," charges Alan B. Snyder, president of Snyder Capital Management Inc. in San Francisco, a Henley shareholder. He isn't the only outraged investor. Shareholder E. Magnus Oppenheim, who heads a New York investment advisory firm bearing his name, fired off an Apr. 1 letter to Dingman and Henley's directors urging them to reject the bid. "We are vehemently opposed," Oppenheim says. "I am certainly going to seek all remedies available to shareholders."

Dingman isn't talking, but the Henley board on Apr. 3 rejected the offer. However, it left thedoor open for a higher bid. The dissidents, though, still worry that Aboukhater, a longtime friend and business ally of Dingman's, will walk away with the company at a bargain price. "The offer is ludicrously underpriced," Snyder says. "This company is worth $40 to $50 a share."

It was easy for Libra to bid low. After months of uncertainty, Henley on Mar. 6 canceled a proposed spin-off of one of its two biggest operations, saying that it would be easier to restructure the units together rather than separately. The company also reported a $54 million loss for 1990. Henley shares dipped below 20, a far cry from last year's 47 1/2 peak. Then

Aboukhater's offer emerged.

If Libra succeeds in taking Henley private, some shareholders and analysts suspect that Dingman will remain in charge with a piece of equity in the new company. Stockholders who have stuck with Henley are convinced that its remaining scientific instrument and industrial units are improving and will eventually be sold at a tidy profit. But by then, they fear, it may be Dingman and Aboukhater who reap the rewards, not Henley's public stockholders. "In a few months, the same management group could be in bed with Libra," says Oppenheim, "and they'll benefit from the improvements to Henley that we should be receiving."

It wouldn't be the first time. In 1988, when Dingman was anxious to amass a bigger piece of Henley Manufacturing Corp., one of Henley Group's many spin-offs, Aboukhater and a partner sold him their 17% stake. That trade gave him the controlling block that enabled him, along with Henley President Paul M. Montrone, to take the company private at a low overall price.

Dingman had obtained other Henley Manufacturing shares by a curious route. Henley Group and Henley Manufacturing gave Dingman plenty of shares and lent him money to buy more at low prices. And through a complex transaction, Henley Manufacturing was able to retire about half its stock, greatly increasing Dingman's stake. Dingman eventually raised his buyout offer from $80 a share to $90, but only after a slew of lawsuits by shareholders, many of whom still feel shortchanged. Henley contends that shareholders who sold for $90 got a good price.

Henley's shareholders have other reasons for their disenchantment with Dingman's nonstop financial footwork. A Henley share bought at the IPO for $21.25, assuming the holder kept all stock dividends and spin-off shares, is currently worth about $23.50 by Henley's own estimate. That's an 11% yield over five years, during which time the Standard & Poor's 500 has gained 53%.

The mystery surrounding Aboukhater, a publicity-shy investor who lives in Monaco, only heightens the current speculation. Aboukhater's spokesman, James Fingeroth of the Kekst & Co. public relations firm, says the investor's other holdings include European real estate and a ski resort in the French Alps. Fingeroth denies his client is in cahoots with Dingman in Libra's attempt to take Henley private. Henley won't comment on that. Libra and Henley both say Libra's Mar. 27 letter was the first communication between Aboukater and Dingman about the plan.

As for Dingman's future, Fingeroth says no decisions have been made but that Aboukhater "has a high regard for management." And both sides insist it is premature to speculate about whether Dingman, 59, or his top lieutenants might get a piece of the new entity.

Dingman was already a respected asset-shuffler in 1984 when Aboukhater first invested with him. In 1969, Dingman left his investment banking job at a predecessor of Drexel Burnham Lambert Inc. to run an ailing holding company. He pared it down into Wheelabrator-Frye, which he then built into a $1.5 billion engineering company that merged into Signal Cos. in 1983. When Signal, where Dingman was president, was trying to unload some of its holdings in another Dingman spin-off, Pullman Transportation Co., Aboukhater and a partner bought a big piece.

BAFFLING MOVES. At Henley, Dingman continued selling assets, buying them back, and spinning them off again. His methods often baffled shareholders, but few complained as long as the stock was riding high. Dingman is known for a tough but informal management style. He leads his senior managers on brisk daily walks to discuss business.

These days his dealmaking pace, at least, has slowed considerably. The slump for Henley and Dingman came as the popularity of leverage and asset-shuffling waned with the 1980s. One of Henley's biggest headaches has been the $1 billion in debt left from its 1988 acquisition of Pneumo-Abex Corp., an ailing aerospace company.

Some shareholders contend that recent balance sheet improvements have made Henley a more attractive prize than its recent stock performance would indicate. Henley recently bought back $ 200 million of Pneumo-Abex debt, some for as little as an estimated 40~ on the dollar. The company also raised cash by selling various stock holdings.

Before Henley nixed Libra's bid, the stock was trading some $2 a share above Aboukhater's offer, indicating that Wall Street thinks Libra will sweeten its price. But angry shareholders' best hope may be that Dingman heeds them and backs away from Libra. Even if he does, though, the throng that once followed this Pied Piper is thinning quickly.