Tenneco Splits Packaging, Automotive Units into Two Companies

It's official.

After months of speculation, Tenneco Inc. is splitting its two remaining businesses — specialty packaging and automotive parts — into separate publicly traded companies. The transaction, announced today, will involve a tax-free spinoff to Tenneco shareholders. Tenneco said it expects the new packaging company to have 1999 sales of $3 billion, while sales for the new auto parts company are projected at $3.2 billion. The spinoff is expected to be completed in autumn 1999.

The exact details of the capitalization for the new companies have not been finalized. Tenneco said it is expected that the packaging company will be rated as investment grade and the automotive company as non-investment grade.

The spinoff, which culminates a corporate transformation of Tenneco that began in 1992, had been expected for some time. Last July, Tenneco chairman and CEO Dana Mead said the company was considering separating the two remaining businesses as part of a major restructuring. At the time, Mead, who expressed frustration with the company's sluggish stock price, said the restructuring was part of a five-year effort to change Tenneco from an "unwieldy, slow-growth conglomerate" into a more focused company.

At one time, Tenneco had seven distinct businesses, including shipbuilding, farm equipment and gas pipelines. In 1996, Tenneco spun off its Newport News Shipbuilding subsidiary and sold its energy division so it could focus on packaging and auto parts. The company also completed its sale of Case Corp., a Wisconsin-based farm and construction equipment manufacturer.

Last summer, Tenneco said it intended to cut costs by $100 million annually by reducing overhead and operating expenses. Earlier this month, Tenneco sold the majority of its containerboard business to Madison Dearborn Partners Inc. for about $2 billion, while keeping a 45% equity stake. (See related article). The company also agreed to sell its folding carton business to Caraustar Industries Inc. for $72.5 million. (See related article).

Mead said today that the division of Tenneco into two separate companies has the potential to generate the greatest short- and long-term value in both businesses.

Tenneco also announced its earnings today, reporting income from continuing operations of $45 million, or 27 cents per share, compared with $75 million, or 44 cents per share, in the same period a year ago. The company had one-time charges totaling $195 million, or $1.17 per share, after taxes, giving Tenneco a net loss of $291 million, or $1.74 per share. The charges resulted from the sale of the containerboard business and other transactions related to Tenneco's realignment.

The results beat the expectations of analysts, who predicted Tenneco would have income from continuing operations of 23 cents a share, according to First Call Corp. The company reported revenues of $1.85 billion, up from $1.81 billion.

First quarter results reflect strong growth and earnings performance in the company's specialty packaging businesses, steady improvement in its automotive original equipment (OE) business, a return to profitability in the automotive aftermarket and early indications of containerboard price improvement vs. 1998's fourth quarter.

In recent months, company officials had talks with rival automotive companies about selling the auto parts business. Tenneco Automotive had sales of $3.24 billion last year. The unit, based in Lake Forest, IL, has approximately 23,000 employees in 44 plants, including 12 in the United States. Tenneco Packaging had 1998 sales of $2.76 billion. The business, also headquartered in Lake Forest, has 15,700 employees.