The Big Sell-Off

Gulf + Western slims down

Charles Bluhdorn was one of the earliest and flashiest corporate conglomerateurs, a master of the unfriendly takeover. Starting with a small auto-parts company in 1958, he assembled an incredible array of disparate businesses into Gulf &Western Industries (1982 sales: $5.3 billion). Bluhdorn eventually bought some 100 companies large and small, ranging from Paramount Pictures to publisher Simon & Schuster to New York City’s Madison Square Garden. In one six-year period, he brought 80 firms into what became jokingly known as “Engulf and Devour.” Bluhdorn died in February at 56 after a heart attack, and his successors are in no mood to keep up that pace. They are contracting Gulf & Western almost as fast as Bluhdorn expanded it.

Last week the new management team headed by Vice Chairman and Chief Executive Martin Davis, 56, announced a major streamlining program to rid the company of low-profit operations. Among the cast-off candidates: Arlington Park race track near Chicago and Roosevelt Raceway in New York, manufacturer E.W. Bliss, and Sega’s video-game-making unit. The moves would save the company about $470 million in tax write offs, but produce a loss of $215 million this year.

The divestitures were just the latest ordered by Davis, who went to Gulf * Western from Paramount in 1969 and took over immediately after Bluhdorn’s death. Davis had earlier moved to sell off $650 million of company-owned stock in 30 companies, leaving the conglomerate with some $150 million in such holdings. The money was used to bring down the company’s mountain of debt to $1.2 billion. Davis then also sold Gulf + Western’s 21.4% stake in Brunswick, the sports-equipment manufacturer, for $97 million.

Davis has likewise chopped away at the company’s work force, reducing it by about 10,000, to 47,000. Two weeks ago, 35 managers were dropped. An earlier casualty was David Judelson, Gulf & Western’s president, who was passed over for Bluhdorn’s job and resigned. Judelson had overseen the disastrous multimillion-dollar investment in developing batteries for an electric car that made a splashy debut in June 1980 but then dimmed.

Gulf * Western officials believe that Bluhdorn would have approved the breaking up of the empire he built. Says Executive Vice President Neil Call: “He would be concerned about how fast we’re doing it.” Bluhdorn sensed that the conglomerate had got out of control and sold Brown, a paper-products firm, insurer Providence Capitol and cement producer Marquette. Davis completed the sale of Consolidated Cigar for $120 million.

Pointless mixing of dissimilar firms now seems finished at Gulf & Western. Says Shearson/American Express Analyst Scott Merlis: “Few of their businesses were related to their other businesses.” Instead, the company now seems determined to focus sharply on a few areas: consumer products (apparel, Kayser-Roth; home furnishings, Simmons), entertainment (Paramount) and financial services (Associates Corp.)

Gulf & Western is only the latest company to follow the newly fashionable divestiture route. Such firms as Beatrice Foods, Quaker Oats and General Electric have all sold off major holdings during the past year. In 1969 cigarette maker RJ. Reynolds attempted to diversify by buying Sea-Land Industries, an ocean transportation firm, for some $500 million. But last week Reynolds let it be known that it is considering raising anchor on Sea-Land. The 1960s was the decade of the big buy-up; the 1980s may be the years of the big selloff.