Just as ITT once muscled its way through the corridors of power, it is today carving out a new empire in leisure and entertainment. Already this year the giant has spent almost $3 billion on high-profile acquisitions. It bought giant Caesars World Inc., owner of casinos in Las Vegas and Atlantic City. Then came Madison Square Garden, home to basketball’s Knicks and hockey’s Rangers. CEO Rand V. Araskog talked briefly of buying NBC or CBS, and considered linking up with Rupert Murdocb’s Fox Broadcasting or purchasing some television stations. The strategy: to become a player, quickly, in one of the go-go industries of the 21st century.
Yet this is a leaner ITT. The owlish Workaholic who built up the company, Harold Geneen, created an industrial octopus sprawling across scores of businesses. His successor, Araskog, has spent the last decade and a half shrinking that empire. What remains is a sharply focused company with holdings in insurance, manufacturing, and leisure and entertainment. Now Araskog is contemplating a final step in his corporate pruning: busting up the $24 billion ITT into three separate companies. Wall Street likes the idea. “Araskog has honed the company, while managing better what was left over,” says Tony Kreisel of Putnam, a major ITT investor
It took 75 years for ITT-founded after World War I to provide telephone service abroad-to get to this point. Few people would have imagined ITT might ever be broken up, least of all Geneen when he joined as president in 1959 and began to devour companies. Once upon a time, ITT rented cars through Avis, baked Wonder bread and Hostess Twinkies at Continental Baking and built homes through Levitt & Sons. Geneen’s ITT reveled in corporate shenanigans, its waywardness chronicled in Anthony Sampson’s 1973 best seller, “The Sovereign State of ITT” The company lobbied hard to protect its broad business interests, giving rise to rumors of bribe and political arm-twisting. The most notorious exploit was a botched $1 million scheme to block Salvador Allende’s election as president of Chile.
Geneen’s era of high jinks and hunger for new businesses lasted for two decades, until ITT brought in Araskog in 1979. A West Point grad, raised on a Minnesota farm, Araskog joined ITT in the late 1960s and cared little for cowboy theatrics. Insiders recall he would fire underlings at a whiff of skulduggery. From the start, he took up the machete. He has hacked off three quarters of the companies acquired by Geneen. He used the cash, as well as the savings from a deep cut in ITT’s dividend, to pay down debt and buy back millions of shares.
Still, Araskog has been controversial in his own way. He shrank the company, got it focused, but he didn’t do much for ITT’s earnings or stock price. Shareholders bridled at his personal largesse. For years he collected one of the heftiest salary and stockoption packages in the country-$11.4 million in 1990-bestowed upon him by one of corporate America’s most richly paid boards. The perks were unusually good, too. There was that low-interest loan on his sprawling Park Avenue apartment and the extraordinary retirement package, which will exceed $1 million annually and include the use of ITT’s corporate jet. Araskog and his wife were fixtures in New York high society, prominent on all the right boards. By the early 1990s, ITT’s shareholders were on the verge of revolt. The challenge subsided only after the board tied Araskog’s pay to ITT’s financial performance.
The company has done well ever since. Last year profits soared to more than $1 billion, and the company’s stock has surged from $40 in 1990 to a new high of $102 last Friday. Wall Street is bullish about the future. ITT is pushing into the entertainment and leisure business because that’s where baby boomers, at the peak of their earning power, will be spending much of their money By current projections, the $13 billion gaming industry will boom for years. So will the hotel business-occupancy rates will jump sharply, analysts predict. ITT has also purchased a host of luxury properties in recent years, from the opulent Italian Ciga hotel chain to the elegant Phoenician resort in Phoenix. Now it’s betting that at least some of the 25 million guests who stay at 450 Sheraton hotels each year can also be steered to Caesars for vacations. To create new synergies, ITT is exploring the possibility of beaming boxing matches at Caesars to Sheraton hotels in the Far East and Asia. It’s even considering a Saturday-morning cartoon featuring the Knicks and Rangers, to be broadcast over the Garden’s cable network.
Not everyone thinks Araskog’s vision is on target. Many analysts believe ITT (and its partner in the venture, Cablevision) overpaid for Madison Square Garden, bought from Viacom for more than $1 billion. The arena has gone years without making much profit, and ITT’s plans for turning it around (by cutting costs and broadening the audience for the Garden’s cable network) strike some in the industry as overly optimistic. Also, gambling isn’t the exclusive franchise it once was. It is expanding beyond Las Vegas and Atlantic City, where Caesars is anchored. Nearly 40 states have either legalized casino gambling or are considering doing so, according to analysts.
One thing shareholders don’t have to fret about: the $5 billion to $6 billion plunge into network television Araskog flirted with last year. Last fall ITT approached General Electric’s Jack Welch about acquiring NBC. “He wanted NBC to be aligned with an entertainment company, not another conglomerate,” says Araskog. ITT explored other possibilities, as well, from buying CBS to linking up with Rupert Murdoch’s Fox Broadcasting to purchasing some independent TV stations. But those options are out for now. After buying Caesars and the Garden, a network would have been too much to absorb. “I think it would be just plain foolhardy,” Araskog now says.
In the old days Geneen’s ITT might have Plunged ahead, grabbing one more jewel for the corporate crown. That it now resists the impulse shows how much the company has changed. Who knows? If ITT wins its latest bets and keeps focused on a few businesses rather than many, the 63-year-old Araskog could well ride off into the Hollywood sunset with the company on top.
