PITTSBURGH - Institutional investors and analysts like the idea of splitting Westinghouse Electric Corp. into separate broadcasting and industrial businesses better than the market as a whole does.
While the stock price barely moved after the announcement, several institutional investors contacted by Pensions & Investments applauded the deal. By one estimate, the two halves would be valued at a total of $25 a share, or more than 30% higher than where Westinghouse had been trading recently.
"The two parts are worth more separate than together," said Todd Grady, vice president and portfolio manager for Pioneering Management, Boston, which owns about 5 million shares of Westinghouse.
Earlier this month, Pittsburgh-based Westinghouse disclosed Michael H. Jordan, chairman and chief executive, had proposed the board of directors consider ways to separate the businesses.
Last week, Westinghouse bolstered the case for a split when management signed a definitive agreement to buy Infinity Broadcasting, New York, for $3.9 billion in Westinghouse stock.
"We want them to split," said Venu Reddy, equity analyst for the Ohio Public Employees' Retirement System, Columbus. Ohio PERS owns about 645,000 shares of Westinghouse.
Jay Abramson, executive vice president for Cramer Rosenthal McGlynn Inc., New York, also commended the proposal. Mr. Abramson said there's no downside to splitting up Westinghouse, yet the market continues to be skeptical of efforts to restructure the company.
But that's also why there's so much opportunity in the stock, he said. "We think the stock is worth $25 or so if it is separated," he said. Cramer Rosenthal owns about 3.5 million shares of Westinghouse.
Mr. Reddy said splitting the company would benefit Westinghouse. More analysts would follow the stock, and more people would invest in it, he said.
Added Mr. Abramson: "We're quite surprised by the tepid response from the media and sell-side analysts."
Dividing the two lines of business also would allow Westinghouse to put more money into its CBS television network.
As it stands, Westinghouse is constrained in the amount of capital it can put into the business, Mr. Reddy said. "I personally think CBS is lagging behind in getting into future media" because of its lack of capital, he said.
He said a separation would free cash flow for CBS to invest in programming and other growth areas, which is where Westinghouse's investment potential lies.
As for the Infinity purchase, "I think it's very interesting," said Mr. Grady of Pioneering Management. "Everything they're doing is to make it a broadcasting business."
Jeffrey Heil, vice president in equity research for Society Asset Management, Cleveland, said Infinity adds significant revenue to Westinghouse's broadcasting group.
But while Westinghouse might have gotten a good price, the company is "paying for it with somewhat of a cheap stock," Mr. Heil said. Society owns about 654,000 shares of Westinghouse.
The market's response to both the business split and the purchase of Infinity was muted. Westinghouse's share price rose seven-eighths on the day the proposal to split the company was announced, to close at 195/8. Later, it dropped lower.
David Robinson, equity research analyst for Banc One Investment Advisors Corp., Columbus, Ohio, said a split of the company makes sense for shareholders. Banc One owned 1.1 million shares of Westinghouse as of March 30, according to the CDA/Spectrum 13F filing database.
Like Mr. Reddy, he believes separating the two businesses would make it easier for Wall Street analysts to follow the company. And perhaps Westinghouse would pick up some coverage from media analysts; Mr. Robinson covers Westinghouse as an industrial analyst.
Westinghouse's broadcasting business includes CBS and what already was one of the largest radio groups in the United States, even before the Infinity deal was announced. Its industrial and technology group includes the highly regarded Thermo King transport refrigeration business and its money-losing power generation unit.
Mr. Grady said the proposal to divide the company is consistent with attempts by Mr. Jordan to increase the total value of Westinghouse.
"Jordan knows what he's doing," Mr. Grady said. The split is "all part of a strategy to do right by shareholders."
Mr. Grady hasn't written off the non-broadcasting side of Westinghouse. "Clearly the industrial business isn't the greatest business - at the moment," he said. Markets and businesses can turn around, he noted.
Thermo King, plus the rest of the industrial unit, could be attractive stocks to own, depending on how the split is structured, and where the various units are in their respective business cycles.
Richard Garriques, research analyst with Bond, Procope Capital Management, New York, said he was positive on Westinghouse before the announcement of the proposed split. "I had confidence that Mr. Jordan would do the right thing," and so far he has, Mr. Garriques said.
While he views the deal positively, separating the businesses properly will not be an easy task.
"Westinghouse as it is now has a lot of potential ahead of them, but they have to execute," Mr. Garriques said. "By no means is that an easy undertaking," he said. Bond, Procope owns about 300,000 shares, he said.
Similarly, Laura Linehan, a research analyst for brokerage firm Gabelli & Co., Rye, N.Y., said the proposal adds "a lot of upside potential" to Westinghouse's market value, but "it wouldn't be an easy thing to do."
Ms. Linehan said some of the questions revolve around how Westinghouse would allocate its debt obligations and pension obligations, and pending litigation. "It would be a complicated process," she said.
Mr. Grady said a complicating factor is the presence of some net operating losses that Westinghouse can use to offset future gains, thereby reducing its taxes.
Those writeoffs are more valuable to Westinghouse's broadcasting units, which are generating most of Westinghouse's profits, but in a split would likely have to remain with the industrial units that generate them, he said.
Not everyone is convinced a split is the right move. Jack Heilbron, chairman and chief investment officer of Centurion Counsel Inc., San Diego, said his preference is that Westinghouse doesn't "deconglomerate." According to CDA, Centurion owns about 411,000 shares of Westinghouse.
Mr. Heilbron said the two sides of the business have synergies that will be lost with a split. He said Westinghouse might turn out to be the watershed event that signals the end of the current spinoff mania taking place in the market.
General Electric Co. - which owns NBC - is doing well running both industrial and media businesses, there's no reason Westinghouse couldn't do the same, he said.
The largest institutional holder according to CDA/Spectrum is Barrow, Hanley, Mewhinney, & Strauss Inc., Dallas. Executives at the firm declined comment as a matter of policy, although an executive confirmed it owns about 12 million shares.
Likewise, managers at John A. Levin & Co. Inc., New York, declined to comment. CDA shows Levin owning about 5 million shares as of March 31.
