Westinghouse Still Needs To Clean House

In his penthouse office, Westinghouse Chairman Paul E. Lego used to keep an enormous brass telescope aimed across the Monongahela River. It symbolized his "vision" at the company, he joked. But in Lego's rocky 2 1/2 years at the helm of the Pittsburgh giant, he saw little more than a river of red ink, most of it pouring from Westinghouse Credit Corp. Losses in the finance unit were his downfall. On Jan. 27, two weeks after failing to sell its assets to GE Capital Corp., Lego emerged from a board meeting without his job.

He and his successor, former Amoco Chairman Richard M. Morrow, say he resigned. But sources close to senior management say that the Westinghouse Electric Corp. board, led by Morrow, 66, and former Defense Secretary Frank C. Carlucci, pushed Lego out. Gary M. Clark, a 36-year Westinghouse veteran, stepped in as acting chief executive.

Shareholder activists applauded the moves. "Obviously, directors decided they needed a change," says DeWitt Bowman, chief investment officer of the California Public Employees' Retirement System. "That's evidence to us that they are thinking in the right direction." And Westinghouse stock rose 1/4, to 14, on the day Lego's exit was announced.

'PROBLEMS.' But as Lego said at a farewell press conference, Clark and Morrow "inherit a complex set of problems." First, the new leaders must sell the divisions put on the block last November, including the troubled credit unit, the electrical-supply company, and the power-transmission business. If they fail, they'll either have to raise equity capital--a tough prospect--or sell off company jewels, such as the Group W broadcasting units.

Two other businesses that aren't on the block, electronic defense systems and nuclear-power generation, face declining prospects. Westinghouse already plans to close a state-of-the-art radar plant in northern Mexico in February. In the coming year, Westinghouse's new chiefs may attempt to sell the defense business or merge its operations with those of another big contractor.

Salvaging the nuclear business may be harder. Lego maintained to the end that a large-scale conversion to nuclear energy was "just a matter of time." He planned to be ready for a big buildup in nuclear generating capacity with the AP600, a small, "off the shelf" power plant. Now, Clark or his replacement must try to sell the plants to a skeptical population with easy access to cheap oil.

Lego's downfall began last autumn, as Westinghouse stock plunged amid rumors of an imminent bankruptcy filing. Shareholder activists were pressing the board for action. He bought time in November by announcing a major restructuring. Its highlights: the sale of business units representing one-third of the company's $12 billion in revenues. He promised to sell the credit unit quickly and predicted he could get 37 on the dollar for its troubled portfolio. At that time, says one source close to the company, the directors gave him until Jan. 27, the date of the next board meeting, to show results.

LOW BIDS. Lego couldn't produce. To appease creditors and shareholders, he needed to promise fast sales. But potential buyers took advantage of Lego's haste to lowball their bids. Prices of the assets on the block plummeted.

Meanwhile, Lego was trying to sell the credit unit to General Electric. But according to a source close to the negotiations, several developers of Westinghouse-funded projects threatened to hit the company with a barrage of lawsuits if the deal with GE went through. Management, says the source, tried to stall GE, which ran out of patience and broke off the talks. With Clark and Morrow in charge, GE may return to the bargaining table, says a source familiar with both companies.

Lego's fate was sealed on Jan. 20 when Westinghouse announced a $1.81 billion loss for the fourth quarter and projected weak results through the first quarter of this year. By leaving, he avoids what promised to be a difficult annual shareholders' meeting in April. But even the new team may have a tough go of it at the meeting--especially if they show up dragging Westinghouse Credit Corp. behind them.

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