Breaking Up Is Hard to Do: How the Feds Are Forcing Westinghouse to Clean Up Its Pension-Fund Mess before It Splits Itself Up

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How the Feds are forcing Westinghouse to clean up its pension-fund mess before it splits itself up

THE UNITED STATES HAS ALWAYS been the land of the fresh start. Persecuted in your homeland? Immigrate to America. Mess up in the East? If so, go West. Which brings us to Westinghouse Electric, the once great industrial company trying to make a fresh start by plunking down $11 billion to buy CBS and Infinity Broadcasting. In order to boost its stock price and give top managers something flesh and fun to run, Westinghouse intends to break up into two separate companies. One, a sort of dowdy Drusilla, will inherit the venerable Westinghouse name--along with a lot of Thermo King freezers and whatever else remains of the shrunken industrial empire. The second, a yet unnamed broadcast group that is the glamorous Cinderella of the duo, will own CBS and the Infinity radio empire. Guess which the current top brass will run?

But fresh starts for a company like Westinghouse aren't so easy anymore. Westinghouse, which messed up its industrial businesses for decades and blew about 5 billion bucks in the financial-services biz, can't just send the broadcasting company off to begin life anew. Reason: the Feds, specifically the U.S. Pension Benefit Guaranty Corp. (PBGC), a little-known agency that guarantees workers' pensions up to about $32,000 a year. Westinghouse, you see, has a hole in its pension fund big enough to swallow a few of the nuclear generators the company used to make during its heyday. And the Feds don't want Westinghouse leaving its pensioners in the lurch.

Here's the full story. Westinghouse estimates that its pension funds have $1.5 billion less in assets than the claims of current and prospective retirees. Though it would dearly love to do so, the broadcasting company can't just walk away from those obligations, all but $50 million of which are owed to industrial workers. Why? Because, fortunately, pension laws won't allow it. Thanks to changes often overlooked on Wall Street, companies can no longer merely split into pieces and, in the process, leave underfunded pensions behind.

Without a deal, the new broadcasting company will remain obligated to honor the industrial company's pensions. That wouldn't much please Wall Street, because it would effectively add $1.4 billion to the $5.8 billion in debt that the broadcast company will inherit in the split. That would be a bummer for Westinghouse's stock price, the elevation of which is the main point of the exercise. …