News: Analysis & Commentary: STRATEGIES
WHY `MR. SPUD' IS EYEING MORRISON KNUDSEN
Retirement doesn't mean much to J.R. Simplot. The 86-year-old Idaho billionaire who made his fortune selling frozen french fries to McDonald's Corp., stepped down from his post as chairman of his $2 billion agribusiness, J.R. Simplot Co., in April, 1994, but he hasn't slowed a whit. Since then, he has agreed to build a luxury hotel, developed a Boise subdivision, and is believed to have engineered a management shakeup at Micron Technology Inc., the Idaho chipmaker in which he has a 21.5% stake. But his biggest feat may be yet to come: rescuing troubled Morrison Knudsen Corp.
On May 15, Simplot met with Morrison Knudsen's new chairman, former Chrysler Corp. Vice-Chairman R. Steve Miller Jr., to discuss a reverse merger plan cooked up in February by former MK executive Jack K. Lemley. Lemley, 60, who headed construction of the Channel Tunnel as chief executive of Transmanche-Link until 1993, proposed that he and Simplot invest in MK and merge it with another publicly traded construction and engineering company, which he won't name. The combined company would keep the name Morrison Knudsen and remain in Boise. Lemley would be CEO, at least initially.
In the confusion after the ouster of William J. Agee as MK's chief executive on Feb. 9, no one responded to the Simplot-Lemley proposal at first. And the May 15 meeting, while upbeat, was inconclusive. But no one doubts that Simplot possesses the cash to rescue Morrison Knudsen and keep it in Boise. The proposed merger, says Lemley, "would preserve a company that has been an institution in Idaho and in the construction-engineering business for many decades." A longtime Boise resident, Lemley has known Simplot for years and is married to Simplot's former daughter-in-law.
Morrison Knudsen could use some strong management. It is on its second chairman and second CEO since the ouster of Agee, and some board members have been pushing for faster execution `f its plan to pay off debt by selling assets. "The company would have been better off if it had allowed Agee to be the bridge between the troubled times and bringing in a new chairman. Agee could have been the one to accelerate the asset's sales," says MK board member John W. Rogers Jr., president of Ariel Capital Management Inc. in Chicago.
Despite a May 31 deadline to repay loans, MK executives believe their banks will give them some breathing room to avoid bankruptcy. But MK nonetheless is starting to sell assets at a discount. On May 15, its remaining stake in MK Gold went to Leucadia National Corp. for $22.5 million in cash. That's 25% below the stock's market valuation and 47% below a previous offer that fell through. MK also is close to inking a deal to sell its Western Aircraft subsidiary.
But to raise the $150 million it needs to stay afloat, MK may have to dig deeper than the "noncore assets" it listed for sale in March. Its most pressing headache is its railcar business, which caused most of the company's estimated $310 million in losses in 1994. An MK spokesman says the company aims to fix the transit operation through a strategic partnership. Two of the likeliest buyers, Canada's Bombardier and Germany's AEG, say they aren't interested in the unit.
FAT WALLET. MK also hopes to keep such core assets as its construction, engineering, and environmental and mining businesses, says the spokesman. All are profitable. "[MK now is] cash flow-positive all around except for transit," says Kenneth Hackel, president of Systematic Financial Management, a Fort Lee (N.J.)-based investment company. "If they never got into the rail-transit business, the stock would be in the 40s now." Instead, MK shares trade at about 8. Hackel blames Agee. "Their problems were man-made, and we know who that man was," he says. "They can be solved."
Is J.R. Simplot the man to fix MK? He sat on its board until he turned 65 and "he's always had a soft spot in his heart for Morrison Knudsen," says Gordon C. Smith, a longtime associate. At 86, Simplot has had to give up skiing and horseback riding. But just a few weeks after his second hip replacement in April, he was back in the office every day, driving to work in his white Lincoln Continental with the MR SPUD license plates. "He's a charger, a vanishing breed of entrepreneur," says A. Dale Dunn, another close associate. "He gets a new idea every day or two." And for J.R. Simplot, even in retirement, ideas tend to result in action. By Dori Jones Yang in Seattle, with Richard A. Melcher in Chicago