Follow-Up: Not What Dr. B Ordered
from
March/April 2006
by Bonnie Azab Powell
“One of the surest ways to destroy a company is to take it
public,” J. Robert Beyster, founder of Science Applications
International Corp., the giant defense contractor, once observed.
Beyster—“Dr. B” to the employees to whom he handed 90% of the company’s
shares—will soon be seeing his fear put to the test. Last fall SAIC
(fiscal 2005 revenues: $7.2 billion) announced plans for an initial
public offering sometime this year, after it douses some contractual
fires. Beyster’s successor as chairman and CEO, Kenneth Dahlberg, has
the backing of both SAIC’s board and its more than 43,000 employees,
who hope to benefit handsomely from the potential $1.7 billion deal.
Dahlberg,
60, a former top executive at General Dynamics Corp., took over from
Beyster as CEO in 2003 and has radically restructured the famously
decentralized company, whose product line includes robots, combat
guidance systems, and software that can parse Arabic (“A Company Tom
Clancy Would Love,” Corporate Board Member, September/October 2002).
But there have been bumps under Dahlberg, including a
$115-million-and-counting loss on a security contract for the 2004
Summer Olympics. When Beyster, now 81, gave up the chairman’s job and
retired for good in 2004, some three and a half decades after he
started the company, he told employees they had been “left a precious
thing.”
SAIC’s market appeal could be precious indeed: Defense contractors are popular investment bets during the war on terrorism. Besides, raising cash is not the corporate goal. While the bulk of the IPO proceeds will go to current and former employee-shareholders as dividends, making millionaires of many of them, SAIC’s aim is to save the $500 million a year it spends to buy back stock from employees so it can use the shares to facilitate acquisitions. A restructuring will swap new shares for the old ones based on a complicated formula—the result of which is that after the IPO, employee-owned preferred shares will make up 80% to 90% of the total and have 10 times the voting rights of common shares. This leaves control of the company in employee hands. Will investors really want to buy what’s left? Or will Dr. B be proved right?
