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ONE OF CBS'S FEW SUCCESSFUL NEW shows these days is ""Touched by an Angel,'' a sitcom featuring divine creatures that come down to earth to rescue mere mortals from vexing problems. Michael Jordan, the guy who runs CBS, tried to apply an angelic touch of his own last fall to the stock price of CBS's parent company, Westinghouse Electric, by announcing a plan to split the company into two independent pieces. The idea: separate media and industrial companies would be blessed with a higher total price than Westinghouse would fetch on its own.
One part, to be called CBS, would have been deeded the glitziest, most valuable assets: the television network of Big Eye fame, Westinghouse's huge collection of radio stations, and tax losses that would shelter $2 billion in future profits. Not surprisingly, this glamour-puss would be run by Jordan and his top honchos. The second company, Westinghouse, would inherit the company's decidedly dowdier industrial businesses (electric generators, for instance) and would be stuck with such problems as paying for pensions and retiree medical plans underfunded to the tune of some $2.3 billion.
Sound fishy? You bet. Maybe that's why the plot has changed between the time the pilot was released last November and Westinghouse's latest pronouncement, made on June 18. Now, Westinghouse says, CBS will be responsible for carrying the underfunded employee-benefit plans, rather than having the New Westinghouse foot the bill. What's more, CBS hopes to use most of its tax benefits to quickly eliminate the deficit in the pension plans and free up money to pay retirees' medical costs.
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Whether they know it or not, the companies' retirees (past and prospective) should raise their voices in a resounding hallelujah. They've been touched by a financial angel, highlighting the heartening moral of this particular episode - to wit, sometimes government watchdogs and other Higher Powers really do look out for the little guy.
Let me explain. Officially, Westinghouse revised its breakup plan because it's better for shareholders and not, heaven forfend, because of problems meeting its pension obligations. ""We felt that [the November plan] was going to satisfy the pension obligations,'' said John Bergen, Westinghouse's top spokesman. Skeptics like me, on the other hand, suspect Westinghouse rewrote the script to avoid running afoul of laws designed to stop companies from splitting themselves into pieces while leaving pensioners holding the bag. Under these laws, an independent CBS would have been on the hook for Westinghouse's pension obligations for five years. If the New Westinghouse couldn't pay, the U.S. Pension Benefit Guaranty Corp., the federal agency that insures pensions, would have come knocking on CBS's door looking for money. That prospect would doubtless have depressed CBS's stock price, undermining Jordan's rationale for splitting up Westinghouse in the first place.
I'm not privy to the negotiations between Westinghouse and the pension agency - neither party would comment - but it's clear that the agency wasn't willing to release CBS from Westinghouse's pension obligations without extracting a whole lot more than Westinghouse wanted to give. And without a release from the pension agency, Westinghouse's pensions would have hung over CBS stock like cancellation rumors over a sinking sitcom.
Since I believe the beauty of a thing is in the details, here are a few more. Under Jordan's initial plan, the new industrial company would have owned all of Westinghouse's industrial businesses, including Thermo King, which makes refrigeration units for trucks, rail cars and the like. (Thermo King is unrelated to Westinghouse refrigerators, a business that the company sold long ago.) Under the new plan, Thermo King will be part of CBS. No, that's not because TV is supposed to be a cool medium. Rather, CBS hopes to sell Thermo King for $2.5 billion or more, shelter most of the gain on the sale with the aforementioned tax losses and use around $1.1 billion of the proceeds to make its pension funds whole. Because that $1.1 billion payment would be tax-deductible, a $2.5 billion sale would leave CBS with about $700 million in tax losses and $1.4 billion in cash. CBS would use the cash to reduce its debt. Westinghouse spokesman Bergen estimates that CBS would save $112 million in interest a year by paying off debt, more than covering the $100 million cost of retirees' medical benefits. CBS would end up with far fewer tax credits than originally planned, but the industrial company would be much stronger. And, of course, retirees' pensions - and medical benefits - would be much safer.
Westinghouse hopes to complete the split-up by the year-end. There are still plenty of hurdles left, but if everything goes as planned, Westinghouse's industrial company, the small remnant of a once great industrial empire, will have financial breathing space. And thousands of Westinghouse retirees won't have to depend on divine intervention to get their medical benefits and pension checks.
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