Chicago Tribune from Chicago, Illinois • 43

Chicago Tribune. Wednesday, August 31. 1983 Section 3 11" A merciful death for Heller International Dill i l-r' THEY COULDN'T have picked a more appropriate businessman to lead this year's United Way Crusade of Mercy in Chicago. Franklin A. Cole is waging his own crusade of mercy on behalf of shareholders of Walter E.

Heller International the Chicago-based banking and commercial-finance holding company that Cole heads as chairman. Heller stock, after hitting a low of $13.62 last year, is trading at about $30 a share, not because of improved earnings prospects but because the company is finally going out of business. Heller shareholders are to vote Wednesday on the sale of the company's commercial-finance subsidiaries to giant Fuji Bank of Japan for $425 million. A deal is also pending to sell Heller's remaining asset, American National Bank Trust Co. of Chicago, to First Chicago holding company of First National Bank of Chicago, for $275 million.

OPINIONS DIFFER on whether Cole is a hero or a bum in his recent stewardship of the last major independent commercial-finance company. But that's an academic question now. "I want to see these transactions closed," Cole said. So do Heller shareholders, who also want the company liquidated. Heller International can avoid capital-gains taxes on the sale of the finance companies and the bank by adopting a 12-month plan of liquidation under Internal Revenue Service rules.

But don't expect Cole to announce such a plan Wednesday, although he'll certainly be asked about it. If liquidation is the next step, a plan must be adopted before the Fuji deal closes, probably sometime in December. Proposing liquidation earlier might start the IRS' 12-month clock ticking before it's necessary, considering that the sale of American National Bank hasn't even reached the definitive-agreement stage. For years, Heller specialized in asset-based lending to small and medium-size companies, a form of lending that bankers disdained. But disdain turned to envy.

"The whole business of being a financial intermediary has been in the process of change for 20 years," Cole said. "Twenty years ago, independent finance companies would get referrals from banks. The banks themselves were not in the business of serving this kind of credit. But we saw over this period much larger financial institutions begin to seek to serve this market." In raising funds for that and other purposes, banks have used their deposit-gathering ability to leverage themselves at more than four times the level of less-regulated companies such as Heller. To maintain their all-important credit ratings, finance companies had to keep their debt-equity ratios at 6 to 1 or less, compared with; nearly 30 to 1 at some money-center banks.

With greater leverage, "the rate you need to charge on loans to have the same return on capital is far lower," Cole said. DESPITE ITS roots, Heller isn't lust a finance company that happens to own a bank, says Cole. He views Heller as a finance company that took whatever steps seemed best at the time to enhance its value to shareholders. At one time, for example, Heller owned industrial companies. When Heller bought American National Bank 10 years ago, "it wasn't in the context that it would be nice to own a bank," he said.

"The way we paid for the bank, we felt shareholder value would be enhanced." In that regard, Heller shareholders missed a chance to cash out four years ago when Midland Bank Ltd. offered $550 million, or $42.50 a share, for Heller International, including American National Bank. The deal broke down four months after it was proposed. Darnhart i For now, Cole says the company is considering all options, including reinvesting the proceeds of the di-, vestitures in new acquisitions. HOWEVER, no one expects Heller International, which will change its name to Amerifin Corp.

after the Fuji deal closes, to do anything except-liquidate. "If they don't, there'll be a riot on LaSalle Street," said one observer. About a third of the stock is owned by major investors, including the wealthy Belzberg family of Canada and Mathers Co. of Chicago. Heller, which for 64 years has lent money to small companies, has been living on borrowed time as well as borrowed money.

The holding company's debt climbed to $269 million on June 30 from $228 million at the end of last year. The $269 million includes a $25 million loan to Walter E. Heller the domestic commercial-finance unit, which will be repaid when the Fuji sale closes. Heller International is paying about $4 million a quarter in dividends to shareholders. An additional $4.5 million is being paid for holding-company expenses, mostly interest on debt.

But only about $3 million is coming in as American National Bank's quarterly net income contribution. The finance companies aren't contributing anything. DEPENDING ON how you look at the numbers, therefore, you could say Heller International is borrowing to pay dividends. That's what creates a sense of urgency about bringing Heller International to a peaceful end. A youngster works on a computer that is placed on an adjustable table produced by Bretford Manufacturing of Schiller Park.

Computer boom pads future for maker of office furniture Two chiefs give bank Very nice balance' "I "Win 1 Franklin Cole: "The whole business of being a financial intermediary has been in the process of change for 20 yeafs." EVER SINCE then, the fate of Heller International has been the subject of speculation and anxiety among Heller shareholders, employees and customers. At one point, First Chicago reportedly wanted to buy the finance companies as well as American National Bank. In February, Heller said it would sell the finance units to Secu' rity Pacific Corp. but two weeks later accepted a better offer from Fuji. Recently, the Belzbergs bought a 7.05 percent stake in Heller International.

It's been a rough few years for Heller International, and it's not, over yet. But with the Fuji and First Chicago deals, Cole is making the best of a bad situation. Tilbww photo by WaHar Kate roles. Rau says, "Norm handles the By William Gruber TO JOHN RAU and Norman R. Bobins, there Is no problem in trying to determine who is the No.

2-ranking official at Exchange National Bank of Chicago and its parent company. "We have a very nice balance," said Bobins, 40, who was elected president this month of Exchange International the holding company. He also is vice chairman and chief lending officer of the bank, the city's sixth largest, with assets of $1.1 billion. "We don't have an organization chart as such, and we've had no problem sorting out our responsibilities," added Rau, 35, who at the same time was elected president and chief operating officer of the bank and deputy chairman of the holding company. The two men replaced Homer J.

Holland, who resigned unexpectedly as president and chief operating officer of both concerns to form his own financial-services consulting firm. ASKED WHO reports to whom under the new set-up, Rau replied, "I don't like the word 'reports. Norm handles the commercial side. He is free to do lending as he sees fit. I handle the administration and operation of the bank." Ira J.

Kaufman, who remained chairman and chief executive officer of both entities, said the two executives are "working together as a team" People 1 By Sally Saville Hodge DAVID PETRICK keeps waiting for the bubble to burst, even though he's sure that's not going to happen. Petrick ana his brother Ed own Bretford Manufacturing Inc. in Schiller Park. The company makes a variety of office products, ranging from projection carts to typewriter tables. David is vice president, Ed president.

What has caused the privately held firm's bubble to really expand of late, however, has been the boom in demand for personal computers. Three years ago, Bretford began developing specialized office furniture for the personal-computer market, geared toward schools and business and industry. Even during the recession, business was good, according to David Petrick, but it is even stronger now. Total 1983 sales are. expected to surpass $15 million.

PETRICK ISN'T certain how much growth to expect for personal computers, and thus for computer-support equipment, but he says the independent dealers who distribute Bretford's lines tell him they've only touched the tip of the iceberg. Researchers agree. Statistics compiled by International Data Corp. IDC of Walton, a market research firm, indicate the of personal computers installed by the end of 1987 will grow enormously. "The furniture industry will be able to feed off that," said statistician Laura Greenfield.

IDC data project the dollar value of all personal computers installed in the United States to grow to $78.3 billion by year-end 1987 from $17.34 billion at the end of 1983. In the markets Bretford has targeted education and businessIDC's projections are similarly impressive: In education, the market should climb to $1.6 billion by the end of 1987 from $495 million at the end of this year; business installations for the same years are projected to grow to $54.2 billion from $10.9 billion. AMONG BRETFORD'S strongest selling products geared toward the fast-growing market are two introduced within the last year: an adjustable, universal printer stand, and an adjustable computer table. "Printers are selling like there's no tomorrow," Petrick said, "but the problem is in buying a stand for them. Ours is adjustable and can handle every printer on the market." The computer table, set on casters for easy mobility, is two-tiered, with room on the lower shelf for the keyboard and work space and on the upper level for the computer screen and printer.

"We anticipated a tremendous demand for these Petrick said, "so we were able to Midway Continued from 1st Business page Neal Meehan, Midway's president. Midway won't announce a decision on whether it will proceed with such a move at least. until mid-February because of competitive reasons, he added. IOCATING a portion of the carrier's flights outside Chicago could permanently affect its growth rale in Chicago, Meehan said. "We'll still grow in Chicago, but there'll be less growth," he added.

The FAA has resisted the airline's attempts to expand its service despite the airline's support by the city, Rep. Daniel Rostenkowskl 111., Sen, Charles Percy 111. and other elected officials. Thomas Kapsalis, city aviation commissioner, said he was disap-poiied by the FAA'f decision to Small business react in planning out manufacturing-schedules. In the months of June and July, our orders doubled from the year-ago period." COMPUTER-RELATED prod-ucts have moved up to account for 25 percent of Bretford's total production, according to Petrick.

Demand for them forced a juggling of the manufacturing schedule, allowing the company to keep delivery lead times on the most popular items, such as the printer stand and computer table, down to a week.) While Bretford has sufficient manufacturing capability to keep up with short-term demand, Petrick says the company may have to expand physically because of the ousiness outlook. In seeking its share of the potential business, Bretford will have plenty of competition. Some 250 companies across the country also have begun developing the microcomputer-related support market, according to Petrick. Most are believed to have annual sales of $4 million to $5 million. BRETFORD Manufacturing was formed in 1948 by the Petrick brothers' father and uncle taking its name from the maiden names of both their wives.

It originally was a metal stamper, part of whose business was in making parts for movie screens. When its major customer took its stamping business in-house, the elder Petrjcks decided the company should make their own screens. ThaV developed into a growing audio-visual business, catering to the educational market. From there, Bretford began making projection carts to complement Its audio-visual screens. By 1968, David Petrick had joined the family firm.

"Basically, they didn't know what else to do with me," he said. He found that one of the company's projection carts happened to fit the 3M-209 copier, one of the first popular photocopying machines other than Xerox's. "So I decided, well, let's see if we can get the cart into that marketplace," he said. "So I hopped into my dad's station wagon with the cart and drove through Illinois, Ohio, Michigan and Indiana, going after the independent office-supply dealers." From there, office furnishing-type supplies have grown to constitute 40 percent of Bretford's total business, with computer-geared furnishings playing an increasingly important role. "I keep waiting for the bubble to Petrick said, "but it's not going to.

That's the beauty of this. We are putting on more and more customers and getting a bigger market share because we put these products on the market at the right time." refuse Midway more slots. "We want to keep Midway Airlines here. It's a fine operation, and it's the main reason that airport will be improved." AFTER THE air traffic controllers' strike two years ago, the FAA put a lid on additional flights at Midway and O'Hare airports. Other airlines serving Chicago have suffered under the restriction, but Midway claims that, as a fledgling carrier, its hardship is especially severe.

"Other, larger airlines have more flexibility to cancel their least-traveled routes. We don't have that flexibility," Bass said. Midway Airlines' growth was capped in December, 1981, when the FAA first extended its restriction on slots at O'Hare to the smaller Midway. Flights at O'Hare and 21 other major airports in the country already nad been restricted for about six months for safety reasons in the wake of the strike and the renting reduction in the air control and that if any final decisions are to be made, he will make them. Kaufman also heads Rodman Renshaw a Chicago-based securities investment firm.

Rau and Bobins occupy adjoining offices on the second floor of the bank's main building at 120 S. LaSalle St. and say the doors between their offices are always open, except when they are talking to a bank customer. THE PAIR have much In common. Both earned graduate degrees at major universities, Rau from Harvard and Bobins from the University of Chicago.

Both came to Exchange after long stints at other Chicago banks. Rau Joined the bank in 1979 after eight years at First National Bank of Chicago, and Bobins worked for 15 years at American National Bank and Trust Co. before moving to Exchange in 1981. Both are married, and each has one son Rau'S is 1 year old, Bobins' 15. They once lived a block apart in Chicago but didn't meet each other until they joined Exchange.

Rau now lives in Evanston. IF THERE IS any major disagreement among the two executives, it involves their opinions over whether the bank should seek further growth opportunities along the merger route. Bobins thinks there will be additional opportunities for Exchange, which doubled in size last year by acquiring Central National Bank in Chicago, to buy other distressed local banks. He predicts a number of smaller banks will run Into trouble in the fierce competition for deposits that has been Norman Bobins (left and John Rau. at the Exchange National Bank of Chicago, where Bobins is president of the holding company and Rau the president of.

the bank. Of the created by deregulation of the financial-services industry. "The time to do this acquire financially ailing banks is when you're high on the learning curve," Bobins said. Rau prefers to concentrate on growth from the bank's present core of services and from adding fee income. "We should focus on the return on assets," he said.

Bobins agrees there are plenty of opportunities to grow internally. BOTH AGREE with the strategy' developed by Kaufman and Holland in 1979 after an investor group headed by Kaufman took control of Exchange: that the bank should concentrate on the middle market in the Midwest. Rau defines this market as companies with sales ranging from $2 million to $5 million at the low end to $75 million to $100 million at the high end. "We don't want to be all things to all people," Rau said. "We can't compete in every service with banks like the First National or Continental, when sheer size is important." Bobins added, "but we can be a full-service, bank in the market we want to serve." He is free to do lending as fit.

I handle the administration and of the bank." last two years, the bank has dropped-some businesses it decided didn't fit with that 2 Exchange sold a computerized shipping service to First National and its; personal and land trust businesses toi National Bank. It also sold a branch in i the bank is also considering some products and services, Rau says, such equity placements, expanded asset-based financing and Small Business Investment deals. IT doesn't plan to cut back on its retail business, Rau said, Exchange will be in that "we're not going to and pans or offer free checking." executives predict, a new drive-in facility, by year-end at Ohio and LaSalle tap a new source of business as that to develop commercially. concede, however, that Exchange may stronger competition in the middle the combination of First National National, which already is its competitor. leadership In addition, the report noted that since late 1981, when Midway and O'Hare were linked for slot allocation purposes, virtually all expansion in airline service in Chicago has occurred at O'Hare.

Over the last 18 months, the larger airport has been granted 89 new slots and Midway only 4. THE FAA declined to comment on the report or explain its reason for denying Midway's request for more slots. "We just can't automatically grant I Midway more slots," a spokesman for the agency said. The agency is reconsidering Midway's application and has told the airline it is studying the feasibility of splitting the two airports' slot allotments. "I'm convinced there is capacity In the system for more slots at Midway, but the FAA is hesitant to approve them because it may open a hornet's nest," Meehan said.

"The FAA told us its study would take three tf five weeks, but I wonder If commercial he sees operation In the strategy. bill-payment profitable LaSalle Israel. However, additional as private Corp. SBIC WHILE banking "less visible" away pots The to be opened Streets, will area continues They face even market from and American strongest FAA in March, Midway submitted results of a study by a former official of the agency's air traffic servic- The study concluded that Midway Airport is operating below capacity and Chicago 8 air traffic control system could accommodate "modest increases" in flights at the airport. Separating Midway Airport's slot allocations from Hare would not hurt the city's air traffic control system, the report said.

Midway released the study's findings, but declined to make public the consultant '8 name. AT CURRENT air controller staffing levels in Chicago, an increase of 25 arrivals a day at Midway "would have an insignificant effect on hourly operations. There would be no problem handling these flights," the study found. The study pointed out that Midway's control tower has unused radar capacity that, if utilized, "could improve air traffic management in 1f entire Chicago area. that's just another smokescreen." HOWEVER, even some of the airline's supporters say they are skeptical Midway will actually move part of its operation outside Chicago.

"It sounds like a bluff. You nave to consider what that would cost them," said one city official. "The move is a contingency plan, but a serious one," Meehan countered. Meehan pointed out that the airline, which has 17 aircraft, is buying more jets and plans to expand its fleet to 30 by next spring. "We have to put those in operation somewhere," he said.

One Wall Street analyst, who declined to be named, applauded Midway's plans. "Chicago isn't the only market where their business-class service will succeed," the analyst said. "Slot problems are cramping their style. It appears they've got a winning strategy with Mctrolink the name of Midway's business-class service, but they've got to hjwe more flights-." f. ler work force.

"We never got an explanation for the FAA's action," Bass said. THERE HAS been speculation that, the FAA was pressured by major airlines at O'Hare that were worried about competition at Midway. The agency, however, dismisses the charges as "nonsense." After October, the agency will drop slot limitations at all airports except Chicago, Los Angeles International, Denver's Staplelon and New York's LaGuardia. The FAA says it won't lift the restrictions at those airports before 1984. ''We can't get anyone to tell us something definitive about when that will happen next year." Meehan said.

"We can't wait another year." As a result, Midway Airlines has asked the FAA to consider splitting Midway and O'Hare's slot allocations. Recently, the FAA severed the allotments at LaGuardia and Newark airports, which also had been tied together after the strike. A confidential memo to the.