Z,
Perhaps, it's time to take management out of the loop and recruit some really annoying guys into the effort to unbundle the value of DLT/NFR/SSD from the commodity disk drive biz.
Gus
Relational Investors Acquires Stake in Storage Technology,
Urges Buyback
By William M. Bulkeley
Staff Reporter of The Wall Street Journal
October 20, 1997
Relational Investors Inc., an activist money manager, said it has become one of the top shareholders in Storage Technology Corp., and is agitating for a $1 billion stock buyback.
Ralph Whitworth, a manager of Relational, said that if Storage Tech doesn't undertake the buyback soon, he expects to mount a proxy fight to replace one or two directors of the Louisville, Colo., maker of computer storage devices.
Many analysts and investors have looked at Storage Tech's strong cash
position-$601 million at the end of June and low debt of $21 million, and predicted the company would undertake an acquisition or a stock buyback. However, Relational says it wants to push Storage Tech management to decide on a buyback rather than a takeover, and to do it sooner rather than later.
A spokesman for Storage Tech noted that the company had a $200 million
buyback of shares last year and is buying 1.5 million shares this year as part of a program to cover employee stock options. Larger buybacks are "something we certainly consider," he added. In composite New York
Stock Exchange trading Friday, Storage Tech closed at $51.50, down 87.5 cents.
Mr. Whitworth declined to specify Relational's stake in Storage Tech, but said it was larger than the 1.3 million shares, or 2.1%, that American Century Investment Management Inc., the 10th-largest holder, owned on June 30; and smaller than the 2.6 million shares, or 4.2%, of J.& W. Seligman & Co., the largest holder.
Relational, of San Diego, was formed in 1995 by Mr. Whitworth and David H. Batchelder to target companies where governance changes could
improve performance. It has nearly $300 million under management,
including $200 million from the California Public Employees'Retirement System, which has also been active in prodding Corporations.
In the 1980s, Messrs. Whitworth and Batchelder worked for corporate
raider T. Boone Pickens at Mesa Inc., the Texas energy company. More
recently, Mr. Whitworth advised financier Kirk Kerkorian in his successful effort to have Chrysler Corp. undertake a big buyback. Relational recently disclosed in a filing that it had acquired 9.9% of Apria Healthcare Group Inc., and urged it to move quickly to boost value or face a proxy fight.
Mr. Whitworth said that Storage Tech has $500 million in cash beyond
what he considers necessary for operations, and is generating $25 million more a month, giving it ample flexibility for a big buyback. He added that despite improving results since David Weiss took over as chief executive officer two years ago, the company's stock price has lagged. As of Friday, Storage Tech stock had risen 10.7% since the beginning of the year, while the S&P 500 stock index was up 38% and the Dow Jones index of U.S. computer stocks had risen by 59%.
Storage Tech has improved results through cost cutting in recent years, but sales growth has been slow. In the first half of this year, the company's net increased 28% to $93.6 million while sales rose 2.5% to $955.6 million.
Mr. Whitworth reckons that a $1 billion buyback over 12 months would
eliminate about 17 million of the company's 61 million shares outstanding, boost the share price to about $74, and remove from management the temptation of making a highpriced acquisition. Storage Tech would end up with $250 million in cash and debt of $250 million, with a market capitalization of $3.3 billion, compared with $3.1 billion today, according to Mr. Whitworth. "This is a very conservative amount of debt," he said. "We aren't trying to put them on the precipice." |
