SAN DIEGO — Allied-Signal Corp. is expected to announce today a far-reaching restructuring that analysts said would trim about $2 billion in annual revenue but could add about $2 billion in cash to the newly merged conglomerate.
The restructuring plan, which includes layoffs, was expected to be hammered out during a marathon Allied-Signal board meeting late Tuesday night in New York. The plan would eliminate industrial, health-care and other operations that fall outside of the giant company's aerospace, automotive, chemical and electronics businesses.
Concurrently, the company is expected to announce an agreement in principle for an out-of-court settlement with a group of dissident shareholders. The shareholders filed suit to block a compensation plan included in the merger deal that would pay about $106 million to 150 Signal executives.
Morristown-based Allied Corp. and La Jolla-based Signal Cos. merged in September.
Although Allied-Signal officials would not comment on the board meeting, an Allied spokeswoman said that Chairman Edward Hennessy will discuss the board's actions during a press conference this morning in New York.
The restructuring could include "a bunch of write-downs, divestitures and some discontinued operations," said Laurence Lytton, a securities analyst with Drexel Burnham Lambert in New York.
Could Hurt Earnings
"It's conceivable that we could see the divestiture of $2 billion in revenues over the next couple of years," he said. The write-downs could amount to "several hundred million dollars . . . during the fourth quarter," he noted.
Analysts said such write-downs could eat into the company's earnings for the year.
But Lytton also said that cash accumulated during the restructuring would put Allied-Signal in a "cash-rich" position that might bring a wave of acquisitions not unlike those initiated following Allied's acquisition of Bendix Corp. in 1983.
"Allied-Signal is underleveraged and . . . has significant borrowing power," Lytton said.
As much as $2 billion in cash could be generated from a "significant" restructuring, according to Katherine M. Stults, vice president of research with Dean Witter Reynolds in New York. "We've seen a lot of little (operations) disappear . . . but it might be time to take the (necessary) write-downs" that would make businesses outside of Allied-Signal's four chosen areas more attractive to buyers.
Allied's Fisher Scientific, Instrumentation Laboratory, Allied Health & Science and Amphenol divisions are likely candidates for divestiture, according to analysts. In addition, analysts suggested that Signal's real estate and credit operations, as well as its minority holdings in other companies, would probably be divested.
Dissident Signal shareholders threw a wrench in the otherwise smooth merger when they sued to block executive compensation payments and so-called golden parachutes that were triggered by the Allied merger.
A definitive settlement agreement is expected to be negotiated later this week and presented to a San Diego Superior Court Judge next week.