NEWS OF THE WEEK
CHANGE AT THE HELM: Bossidy takes charge at Allied-Signal Twelve years ago—when Edward L. Hennessy Jr. became chairman of Allied Chemical after a long stint at United Technologies—Wall Street applauded, the company's stock rallied, and great expectations were held for the then languishing firm. History repeated itself late last month. Hennessy, n o w 63, announced he would relinquish the chief executive's position, at what he has made into Allied-Signal, to Lawrence A. Bossidy, 56, a vice chairman of General Electric, effective July 1 (C&EN, July 1, page 19). As soon as Hennessy announced Bossidy's appointment and added that he would retire as chairman by year's end, Wall Street again applauded. And with its expectations for i m p r o v e d e a r n i n g s , it so swamped the New York Stock Exchange with buy orders, that it delayed the opening of trading in Allied-Signal shares—which ended the day at $33$, up $33A. Bossidy spent 34 years at GE. His most recent position made him responsible for such operations as GE's
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July 8, 1991 C&EN
lighting, engineered materials power systems, electric motor, financial services, and information services businesses. Among other executive positions he held were oversight of GE's materials sector and several financial positions, including a stint as chief operating officer of General Electric Credit Corp. Hennessy notes that Bossidy's experience should serve Allied-Signal well: "He has managed large, diverse businesses similar to many that are part of Allied-Signal." Financial observers expect Bossidy to address Allied-Signal's dilemma that research and capital investments are outstripping its ability to generate cash. For example, Wall Street analyst David Bartlett, senior vice president of research at First Hanover Securities, says, "General Electric's strength is its financial ability, and that is where Bossidy excels. So I have great hopes for Bossidy's successful financial management at Allied-Signal." Bartlett adds that he has been "aloof from the stock for a long time," and now is thinking of picking it up again. Katherine M. Stults, a vice president at Dean Witter Reynolds, points out that Allied-Signal's financial performance doesn't represent its true earning ability. "It should be doing better," she says. She, too, hopes for improvement as Bossidy takes charge: "Bossidy has a good reputation on [Wall] Street." Bossidy joins a firm substantially different from that Hennessy took over 12 years ago. In 1978, the year before Hennessy joined it, Allied Chemical ranked ninth among the 50 largest U.S. chemical producers-^ with chemical sales of $1.9 billion, net sales of $3.3 billion, and an aftertax profit margin of 3.7%. In 1990, by contrast, Allied- Signal ranked only 18th among the 100
Bossidy: improved earnings expected largest U.S. chemical producers, with chemical sales of $2.8 billion, net sales of $12.3 billion, and an after-tax profit margin of 3.7%—the same profit margin as in 1978. Hennessy substantially reduced Allied's oil and gas operations, dropped soda ash and fertilizer ventures, and diversified into such businesses as automotive equipment with the acquisition in 1983 of Bendix Corp. He also expanded positions in such markets as aerospace, various types of equipment, and specialty chemicals with the $5 billion acquisition in 1985 of Signal Corp. But even as he realigned Allied and spun off unrelated businesses in 1986 into the Henley Group, profit margins stayed low. Since 1987, Allied-Signal's profit margins have been consistently lower than those of a representative group of 30 chemical firms. The group's average never fell below 6.3% (the 1990 figure), but Allied-Signal's never rose higher than 4.6% (in 1987). Marc Reisch
