The Los Angeles Times from Los Angeles, California • 114

Orange County Sunday, March II, 1984 Part uJtO! VIDEO! James Flanigan Parsons Shows Ingenuity Can Work Wonders KT 1 Cal Standard: View Change Spurs Merger Gulf Oil Fills Need Created by Mideast, Several Dry Holes PS? sE 1 L. ar Mm. i rttrl, 1 of the largest record retailers, 1984 is shaping up as "the year of video." Sacramento-based Tower Records, which has 33 stores in six Western stales and New York, plans to open nine video stores this year and only two record stores. Tower Records officials said most of the new video stores will be in separate buildings near the company's existing record stores. On a Sherman Oaks street, for example, a MARSHA TRABGER Lot Anfeln Tliim Mitch Perliss.

left, stocks videos for Music Plus. At right, Hank and Daira Stewart set up new video section at World of Records. Record Retailers Get the Picture, Stock Video Big Profit Potential, Marketing Lure for Other Products Are Behind Change Writer By LOUIS SAHAGUN. Timet Stall It was last Christmas that Hank Stewart was suddenly swamped with calls from customers wanting to know if he sold or rented movies at his small Vermont Avenue record shop across the street from Los Angeles City College. Other record stores had them, the customers said, including the Wherehouse, his closest competitor.

A few weeks ago, Stewart decided to "see for myself what all the commotion was about" So he left his World of Records and drove two miles west on Sunset Boulevard to the nearby Wherehouse store. "I was flabbergasted by what I saw," said Stewart, who opened his record store 10 years ago. "Half the store was devoted to video and half to It looked like guys were taking numbers just to wait in line to rent movies. I said. 'Hey, this is Stewart had caught a glimpse of the future of record retailing, a future in which many believe record dealers large and small will come under increasing pressure to carry prerecorded video software, along with records, in order to remain competitive.

to be left behind, Stewart invested $5,000 to add a line of "top 25" movies to his 3.000-square-foot store. "I have to do it to remain competitive with Wherehouse," he said. "It's going to be fun. I know we'll make a few more bucks with video." But Stewart's entry into the burgeoning video software market is tiny compared to the commitment by major record-retailing chains. These dealers are investing thousands of dollars into video products, ill Tower Video store carrying about 1,500 movie titles faces Tower Records.

Gardcna-bascd Wherehouse Entertainment which the Wherehouse chain, has placed video software in 77 of its 126 stores in five Western states. More video outlets are expected, said Louis Kwiker, president of the publicly owned company. Wherehouse of-Fleaae see VIDEO, Page 7 carefully designed strategy. To detractors, it's no more complicated than the disdainful comment of a competitor: "They shot a rifle at a very narrow target So it's not surprising they have a competitive edge over more broadly based firms." To Frederick H. Joseph, the 46-year-old chief of the corporate finance department, however, it's not quite that simple.

He stresses that because Drexel focuses on working with entrepreneurs whom he calls "empire builders" or "aggressors" it has learned to pull off the tough deals, the ones that call for imaginative structuring and hard selling. Joseph says: "It takes a different kind of guy to build something and a different kind of guy to be his investment banker. Our business is not a social event, it is a business event" Drexel's march up the underwriting ladder began a decade ago when Joseph, a Harvard MBA, was recruited from Shearson Hammill to forge a department then consisting of only 19 professionals who were split into two warring factions created by the merger the year before of Drexel Firestone, an old Philadelphia firm, and Burnham Co. into a cohesive whole. A pragmatist Joseph decided by mid-1975 that instead of knocking heads with the entrenched firms in a futile attempt to imitate them, Drexel should exploit an opportunity that was being ignored by other investment bank The chance was to become banker to the nation's 5,000 or some-dium-sized, growing companies whose securities were considered rieate tee DREXEL, fait 4 5 i a rearranging the layout of their stores to emphasize the sale and rental of videotapes and, in some instances, are building new stores exclusively devoted to video products.

Most record retailers agree that a well-balanced, prominently displayed line of video products, combined with the proper marketing strategy, can generate a very lucrative business. That's why, for many Prospective video renters crowd In the past, underwriting was dominated by firms with blue-chip clients that boast "investment-grade" ratings of BBB or higher from bond-rating agencies. By contrast, Drexel specializes in financings for entrepreneurial, fast-growing companies rated below investment grade (BB or lower by Standard Poor's and Ba or lower by Moody's Investors Service). Whatever happened to Yankee ingenuity? You get the feeling sometimes that the whole country is like an old house going to ruin because the handyman has gone away. The bridges and roads are in need of repair: traffic is snarled but there are no trains; electric power plants planned at a different lime for different needs are too expensive to open, too costly to cancel.

There never seems to be enough money to do what needs to be done. What's happened to Yankee ingenuity? It's alive and well and recently showed its face in Chandler, a growing town of 45.000 that is 25 miles southwest of Phoenix. Chandler needed a new waste water treatment plant but was hard pressed for the money to pay for it. The city asked prospective contractors to be prepared to put up 20 of the cost of the plant if they wanted to be considered for the job of building it. But in came Parsons the Pasadena-based engineering and construction company, and offered not only to finance the entire $23-million plant but to own and operate it, selling the water treatment service to Chandler for the next two dozen years, after which the town will have the option of buying the plant or continuing to pay for Parsons' service, but at a lower rate.

Profitable Company Is Parsons an angel of municipal mercy? Not at all. It is a highly profitable engineering company with an backlog of work, and earnings last year of $46 million on $800 million in revenuesthe third largest, after Bech-tel and Fluor, of the big U.S. engineering firms. Parsons makes its money, whether designing and building a new industrial city in Saudi Arabia or retrofitting a refinery in Louisiana, by billing the time and output of its engineers. And good money it is, roughly 26 on investment last year.

It will make a comparable return on its investment in the water treatment plant for Chandler, yet the community will pay less for the service than if it had financed the project itself with tax-free municipal bonds. How is that? First of all. Parsons has put up $23 million to back industrial revenue bonds that will be issued by Chandler, but not charged to the town's debt total because Parsons is bearing the risk. Also, because Parsons is a private company, it can take the risk of floating interest rates on the bonds currently it is paying less than 6 while a political entity using public funds could not Then, too, Parsons will benefit from tax credits the investment tax credit (about 10) and accelerated depreciationthat will shelter its other corporate income. The result: Chandler gets a low service charge for water treatment, and Parsons gets work for its engineers and a good profit Parsons is bidding on a similar project in Auburn, and looking also to build, own and operate steam and electricity co-generation facilities for chemical companies near Houston (Parsons would sell process steam to petrochemical producers, and sell the electricity to Houston Lighting Power).

Loaded With Sparc Cash Note-. Parsons is loaded with spare cash, and it is a relatively slow time for engineering projects worldwide. Other companies might think of diversification at such a time. But Parsons, more sensibly, is developing a variation on its main business, playing from its strength. "We are not uncomfortable designing and building these plants," observes Chairman William Leonhard, a former Air Force general.

"It's a way to make an honest buck." "It's a concept whose time has come," declares Harvey Goldman, a partner in the accounting firm of Arthur Young Co. The Young firm pioneered the idea of privatizing public works two years ago when cutbacks in federal funding for water treatment left localities in difficulty. Now it is consulting with Utah, on four projects in Salt Lake City, with New Jersey, on a $40-million facility in Bayonne, and with 22 other states on ways in which private industry and local government can work together. Is this a healthy trend? Of course it is. The skills of private industry are being directed to the public purpose, and tax credits, for once, are being used to foster useful and necessary work.

Think about that the next time some after-dinner speaker or political candidate gives off a belch of hot air about the implacable conflict between business and government. With a little ingenuity they can work together for the good of all. By PATRICK BOYLE, Timet Staff Writer Two years ago, George Keller said his Standard Oil Co. of California planned to avoid the merger fever that had begun to infect the oil Industry. The Cal Standard chairman had just turned down an opportunity to bid for Conoco and he said he was distressed that the Industry's political standing and image would be further tarnished if Mobil Oil bid for the company was successful.

Since then, San Francisco-based Cal Standard had spent millions of dollars drilling several exploratory wells in the North Slope of Alaska, and all had been dry holes. Government restrictions have made exploration along the coast of the United States more difficult The escalating war between Iran and Iraq had once again sharpened the realization that Cal Standard's Mideast oil supplies are not to be counted on. And only a few weeks ago, guerrillas fighting in the civil war in Sudan attacked an encampment and killed several employees of a Cal Standard subcontractor working on a company pipeline there. Thus, Cal Standard, revered in the industry as a top-notch worldwide exploration company, made a decision to buy some known oil reserves a little closer to home. Cal Standard agreed last week to pay $13.4 billion for Gulf Oil a firm with substantial domestic reserves in the Gulf Coast area.

It's the most ever paid to buy a U.S. company. ClrcamstaMces Chaag e4 'Two months ago, if someone had asked me if we would make a proposal for Gulf, I would have said I certainly don't think so," Keller said. "But our circumstances changed, and the fact that we were approached by Gulf made us view it as a different situation." Keller emphasizes that the company has no intention of reducing its exploration efforts, and he sees the acquisition of Gulf as adding to rather than replacing any of Cal Standard's business activities. But how the merger will add to Cal Standard is far from clear, and even Keller isn't quite sure yet what it all means for his company to nearly double in size almost overnight Nor is it certain that the two huge oil companies will be able to consummate their union.

As Keller had once predicted, mergers between big oil companies have stirred a storm of opposition among politicians and consumer advocates worried about competition in the energy business. Mobil lost out bidding for Conoco (DuPont Co. won), but in the past two years, Texaco Inc. bought Getty Oil Co. and Cities Service Co.

was acquired by Occidental Petroleum Corp. Even though the Federal Trade Commission is expected to approve the Cal Standard-Gulf merger, a number of interest groups have vowed to carry the fight to Congress and seek enactment of legislation to block this and all future unions between large, competing energy firms. "I've got a feeling we're not going to see many more of these." said one Wall Street analyst "In fact maybe this is the last one. Political opposition is getting stronger." Pleaae ee STANDARD, PafeS Tax Shelters Begin at Home Ttmmks It dmmget I tax lews. rtUthtt cm mntxj mm to emek mtker mmifti mew Cur brtmkt frm ike Internal Rtrtnmt Service.

MaUag Moaey Wort, Pasje 2 SALs' New Road Beemmse mf deregulatim, siring mmi tommt etmU tffeax mj mew dereltmtrt reml estate. Bml the president ef ww the natin i largest hmlUingJmdiutry cusmlting flrmutajtckamgetimtmeratimg phitosaphy are necessary ta keep SALsfram falling into traps that bramght disaster to ethers. Page Computer File SJdriijhts Letters Viewpoints. Wall Street New York Stock Exdiaie. AmericM Sloe ExchsnyB.

Padftc Stock EKiunst National OTC Wafer OTC Mutual Findt. PafeS 1 3 3 4 MARSHA TRABGER Ua Angctei Tina store aisles looking at titles at Wherehouse Records in Hollywood. High-Yield Bond Specialty Thrusts Firm to Top Tier cf Wall Street Underwriters Drexel Burnham Finds Self in Heady Company By LINDA GRANT. Timet Staff Writer Since investment banking is a snobby business, a lot of big firms used to eschew Drexel's success. But all that is changing today.

Observes an officer at one of the firms Drexel passed by in 1983: "Years ago people looked down on Drexel Burnham. I doubt that anybody is looking down on them now." Drexel muscled its way into the top tier' of finance by pursuing a NEW YORK-When the annual roster of Wall Street's top underwriters hit the offices of the 15 leading investment banking firms a few weeks ago, the complexions of some of the priciest partners edged from winter tan to envious green. There, right behind the traditional heavy hitters Salomon Merrill Lynch Capital Markets, Goldman, Sachs fc First Boston Corp. and Morgan Stanley Co. in sixth place was Drexel Burnham Lambert Inc.

Drexel Burnham? The house that specializes in trading securities that the street inelegantly dubs "junk The same Drexel that ranked 11th in "credit to manager handling books" category only five years ago? (Rankings, compiled by the newsletter Corporate Financing Week, are arranged several different ways, since many deals are co-managed. This ranking is based on which firm was the leading manager and therefore given credit for keeping the books.) Sure enough, there, ahead of such well-known names as Lehman Bros. Kuhn Loeb Kidder. Pea-body ft Blyth Eastman Paine Webber E. F.

Hutton and ShearsonAmerican Express was Drexel with a total of 127 issues worth $7.6 billion triple the amount the year before. The trade magazine Investment Dealers' Digest, which also publishes a roster, pronounced Drexel's performance a "real shocker." Wall Street generally accepts the truism that strength in underwritingthe business of bringing a company's securities to market is important because it usually leads to other, more lucrative, fee-based consulting. Drexel's Bond Traders Like Their Daily Grind By THOMAS B. ROSENSTIEL. Timet Staff Writer The caterers begin serving lunch on the trading floor of Drexel Burnham Lambert's bond office in Beverly Hills about 10 a.m.

and everyone partakes. In the High Yield and Convertible Securities department, one is required to take the midday meal at the trading terminal. By the time they leave, between 5 p.m. and 6 p.m., most of the 120 who staff the office have been on the trading floor without interruption for 12 or 13 hours. "We get up at 4 a.m.," said one Drexel bond salesman, "and we don't go out to lunch, we don't take personal calls, we don't tell jokes, don't talk about the ball game.

No one in America works as hard as we do." While most brokerage houses scarcely trade high-yield bonds, at Drexel, the high-yield bond department and its unusual, Independent creator are the muscle that have helped the company ascend to the top tier of financial underwriter. That creator is Michael Milken, and his secret is a belief, nay faith, in the profit power of what were once called "Junk bonds." In large part due to Milken's efforts, the amount of new high-yield, low-rated bonds sold in America has quadrupled In the last three years alone, and Milken's office traded an astonishing two out of every three dollars worth. Milken also has devised half a dozen new types of low-rated bond fleaM TRADERS, Fte 4.