Tough challenges face a skilled manager at RCA
When Thornton Bradshaw was chosen last January as the fourth chairman of RCA in six years, the electronics and communications conglomerate (1980 sales: $8 billion) was already heading into trouble. Earnings were slipping, morale had been devastated by a decade-long succession of management fiascos, and Wall Street analysts were beginning to wonder whether the once high-flying firm would ever regain its former luster.
A year later, RCA's financial prospects appear, if anything, grimmer still. The company's once strong NBC television network remains a distant third in the ratings, behind both ABC and CBS. Meanwhile, the firm's SelectaVision video disc player units for home viewing of prerecorded video entertainment have so far failed to catch on with consumers. In addition, earnings in other operating divisions have continued to decline. One result is that overall corporate red ink in the third quarter of 1981 hit $109.3 million, the worst quarterly performance by the company since 1971.
Feelings of impending doom, however, are not in evidence inside RCA. A key reason is Bradshaw. Drawing upon a calm management style honed during 17 years as president of the Los Angeles-based Atlantic Richfield oil company, the new boss, 64, has put an end to years of boardroom intrigues at RCA and given the firm a badly needed sense of renewed confidence in its own future. Says he: "What I have been doing is spending a lot of time finding out what kind of a company this is so that we can decide where we are going to go."
Many of RCA's current woes stem from some hasty and shortsighted acquisitions that were made during the 1960s and '70s when the firm, like many other big American corporations, tried to boost earnings by diversifying into fields far outside its traditional lines of business. The entertainment and broadcasting company, for example, bought Random House publishing in 1966 and Hertz car rental in 1967. RCA's biggest acquisition of all was in 1979, when it paid $1.3 billion, or 40% over market value, for C.I.T. Financial Corp., a consumer loan and insurance firm. To raise the money, the company had to borrow heavily on the commercial paper market, where big corporations sell multimillion-dollar short-term lOUs to banks and other institutional investors.
When interest rates began to shoot up three years ago, so did the carrying costs on RCA's outstanding debt, which now totals $1.5 billion. By last October, interest payments for the first nine months of 1981 had reached $273.8 million, or nearly $78 million more than for all of the previous year. This created a major cash drain for the corporation as a whole. Said an RCA watcher: "Interest problems are the reason that company earnings collapsed in 1980 and 1981."
Bradshaw insists that he has made no decision either way about what to do with C.I.T. and Hertz. Says he: "Naturally, we will keep them as long as they pay their own way and provide funds for other corporate ventures. But we have not yet decided if they do fit into the future of RCA." Wall Street experts are doubtful, however, and believe that Bradshaw will soon unload one, or both, of these properties. It already sold Random House in 1980.