Fairchild Industries Inc., battered by financial losses over the past several years, yesterday said it will sell its troubled aircraft manufacturing business and other subsidiaries to concentrate on high-technology areas and defense electronics.
To fund the restructuring, the Chantilly-based company has turned to New York investors George Soros and Harvey L. Karp, who are investing $34 million in the company in exchange for stock and debt.
Soros, a Hungarian emigre who reportedly made between $90 million and $100 million as a Wall Street investment manager last year, also was elected yesterday to the Fairchild board of directors, where his influence already has been seen. Karp has been on Fairchild's board for about a year.
In April, Soros abandoned plans to buy up to 49.9 percent of the aerospace and communications company's stock for the Quantum Fund, an investment fund based in the Netherlands Antilles. Soros said at the time that he had been told that foreign ownership of Fairchild could impair the company's ability to obtain security clearances for government work.
Soros is the principal investment adviser for the Quantum Fund, which owns 11.4 percent of Fairchild's stock. However, a spokesman said the $34 million that Soros, a U.S. citizen, and Karp are investing is their own money rather that of any investment fund.
"We considered many possible investors," said Emanuel Fthenakis, chairman and chief executive officer of Fairchild. "George was a natural choice because he was quite familiar with the company and we were convinced that his motives were purely as an investor... . We also value his financial judgments and advice," he said.
Fairchild, which lost $167 million in 1985 and $10 million in 1986 on sales of $647 million, will be a smaller company after the restructuring is completed. It will try to sell its Fairchild Aircraft Corp., which manufactures commuter aircraft, and its general industry businesses, which include the manufacture of cabinets for computers, electrical control systems and seamless doorknobs, according to a company spokeswoman. The company expects to raise more than $150 million through the sales.
In addition, the company is evaluating whether to sell its commercial telecommunications businesses, which provide communications equipment for business and industry.
Following the sales, Fairchild's core businesses will consist primarily of space systems, avionics, defense electronics, aerospace subsystems and aerospace fasteners, according to Paul E. Wright, president and chief operating officer of Fairchild. Its main customers will continue to be the U.S. government and major aerospace companies.
Most financial analysts contacted yesterday said they viewed the moves as positive ones for the company. "They're shutting down an aerospace business that was agonizing," said Alan Benasuli, who tracks the company for Drexel Burnham Lambert Inc. "Getting out of this dying business is a very smart move. Instead, they can concentrate on areas in which they're knowledgeable," he said.
Benasuli said that in addition to the restructuring, the company is "holding at bay the two major investors. Fairchild was concerned that those two investors could make a run on the company."
Fairchild officials have denied that they feared that Soros, in particular, might try to take over the company. But under the present agreement, Soros, Karp and the Quantum Fund have agreed to limit their total holdings of the company's outstanding voting stock to 24.9 percent for five years. In addition, there's a "standstill" agreement that prohibits them from selling the stock for 18 months and restrictions on how they can dispose of their holdings after that.
Neither Karp nor Soros could be reached for comment yesterday.
However, a spokesman for Soros said: "I know he's very excited about joining the board and will definitely be giving advice on the restructuring. It's an unusual move for him ... . He's been asked to join other boards and declined."
In addition to the capital provided by selling assets, Fairchild also plans to repurchase more than 3 million shares of Series A preferred stock and refinance its debt in order to reduce overall debt, the company said yesterday.
Fairchild's stock closed yesterday on the New York Stock Exchange at $13.37 1/2, up $1.12 1/2, on volume of 65,300 shares.