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To: Grommit who wrote (7032)	2/13/1998
From: Eric L.	Read Replies (1) \| Respond to of 42804

Joe Alibrandi's well-earned retirement from Whittaker Corp.was rudely-and unpleasantly-interrupted. What did the sellers know that the buyers didn't? By Damon Darlin TALK ABOUT DOWNSIZING. Joseph Alibrandi must have the record. Between 1974 and 1994 he took Whittaker Corp. from a conglomerate with revenues that peaked at $2 billion down to a tightly focused $126-million-a-year military contractor and aerospace parts maker. Then he retired, at the end of 1994, to build a Malibu beach house and to fight for school reform in California. He left behind shareholders who had averaged close to a 19% annual return over the preceding decade. As his successor he chose Thomas Brancati, formerly the company's president and chief operating officer. Though he might have been expected to know better, given Alibrandi's tutelage, Brancati began to diversify again. Apparently dazzled by the computer communications revolution, he acquired his way into network communications. This involves systems that connect computers to other computers. In 1995 he bought Hughes' LAN Systems for $31 million plus future royalty payments worth up to $25 million. In April of last year he bought Xyplex, a network access company, from Raytheon for $118 million. The sellers must have known something the buyer did not know. Brancati's idea was to give Whittaker exposure to two booming markets-aerospace parts and high-tech communications networks-with the latter cushioning the company against defense spending cutbacks. The cushioning has had to work the other way around, with aerospace bailing out networking losses. The acquired Hughes' LAN Systems missed important product introduction deadlines. It has lost business to such smart, well-capitalized competitors as Cisco Systems, 3Com and Bay Networks. Brancati, it turned out, had gone in well over his head and taken the company with him. For the fiscal year ended last October, Whittaker's communications division ran $31 million in the red on revenue of $92 million, resulting in an overall loss of $19 million ($1.70 a share) on revenues of $222 million. Fed up, the board dumped Brancati last September and recalled Alibrandi, now 68, out of retirement. Alibrandi wants to spin Xyplex and the other network communications assets off to shareholders or sell them outright. "If someone jumped up and offered me book value for it, I'd sit down and talk to them," he says. If anyone does sit down and talk, they are unlikely to offer anything like the $100 million that Xyplex is carried at on Whittaker's books. "It's a gem of a business, " sighs Joe Alibrandi of his neglected aerospace division. Unwilling, for now, to consider taking a hit, he is trying to plump up Xyplex by trimming product lines, consolidating facilities and writing down goodwill on the balance sheet. Buying Xyplex put Whittaker $154 million in debt. Since selling it now would likely spark a major writeoff, Alibrandi says he will instead sell the unit that developed Shortstop for the U.S. military. Shortstop is a system that uses radio frequencies that make incoming artillery shells and mortars explode harmlessly way before they reach your lines. Selling Shortstop amounts to dumping the good stuff to support the bad, but Alibrandi doesn't have a lot of choices right now. The rest of Whittaker's aerospace operations are in great shape. Whittaker rode in the slipstream of Boeing's success by selling it and other aircraft makers fuel-flow control valves and wing deicers, plus fire and heat sensors and quick-disconnect nozzles for fuel hoses. "It's a gem of a business," says Alibrandi. Brancati's forays into network systems diverted capital and managerial resources from the expanding aerospace business. In fiscal 1996 the aerospace units generated $20 million in operating profit on $130 million in revenues. Since early last year Whittaker's stock has slid from 26 a share to a recent 91/2-about one-third what Alibrandi believes the core aerospace business on its own is worth. Alibrandi's stock in the company has withered in value to $5.1 million. Moral: If you are thinking of retiring, either pick your successor with care or sell your stock before handing the company over. May 5, 1997 Issue c Forbes Inc. 1997