Abracadabra At Tenneco

Close your eyes, and it'll no longer be in energy

Tenneco Chief Executive Dana G. Mead made a name for himself as spin-off and cost-cutting master. Now, at 60, he's pondering the boldest move of his career. On Mar. 20, the Houston company's board gave Mead the go-ahead to plan the spin-off or sale of two of its four divisions--accounting for 42% of its $9 billion in revenues.

What's surprising is that Tenneco Energy--the core gas pipeline business Tenneco Inc. was built around--may hit the block, through either a spin-off to shareholders or perhaps an outright sale. Since Jan. 30, Mead has also been readying the spin-off of Newport News Shipbuilding, a major tanker and aircraft-carrier builder. The two deals would pull in up to $2 billion from one-time dividend payments and help lower Tenneco's $3.7 billion in long-term debt.

Going ahead with both moves would give Mead, who became CEO in 1994, the cash to further build up the company's packaging and auto-parts businesses, perhaps through acquisitions. By divesting both units soon, he hopes to take advantage of high valuations for defense and natural-gas pipeline stocks. Insiders say neither unit is meeting annual earnings growth targets of 15%.

Some analysts think an outright sale of Tenneco Energy could raise $3.5 billion. Its biggest asset is a pipeline between the Gulf Coast and New England, but it also has regional pipelines. Says Tom Matthews, president of Texaco Natural Gas Co.: "There are pieces of that business we would be extremely interested in."

LEGAL BAGGAGE. Still, a fast sale isn't guaranteed. The big hurdle: lawsuits with two natural-gas producers claiming Tenneco owes them $1.5 billion under high-priced supply contracts. The suits have hurt Tenneco's ability to reach agreement with current customers to replace contracts expiring by 2000.

Since Mead, a former International Paper executive, joined Tenneco in 1992, he has been reversing a trend toward diversification begun in the 1960s. His first task as chief operating officer was prepping the conglomerate's Case Corp. division for a spin-off by slashing costs and improving the quality of its farm equipment. Mead squeezed $2.1 billion from the unit in four stock sales, the final on Mar. 15. Now, he's hoping that his skills as a corporate slim-down artist won't fail him at his biggest moment.

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