CORPORATE RUCTIONS:MFS and HTMS uncertain about who will own them

Two leading toll systems companies are in a state of limbo. MFS Transportation Systems (MFS/TS) plans to merge with TransCore are for the moment on hold. And Raytheon’s Highway (previously Hughes) Transportation Management Systems (HTMS) unit in Fullerton CA is yet again for sale. Israel’s electronics giant Tadiran has had talks with Raytheon about a purchase of HTMS but nothing has been consummated. One participant said there was a desire on both sides to make the sale but “there’s a lot of corporate bureaucracy on both sides.”

The last couple of months have seen considerable turmoil at MFS/TS, with close to ten percent of the staff (220) out. That includes the top two there, former president Michael Breslin and Joseph Barba. Neither was formally terminated, as we go to press, but both were under instructions not to come to work pending discussion of their status. Without a formal announcement of any change a nice press kit arrived from MFS/TS reporting E-ZPass progress with Sam Donelson named as the new president. His chief operating officer is John Berry.

Able Telecom a Miami-based trunk telephone line installation company currently has control of MFS, both its Mt Laurel NJ based Transp Systems group which has been a major player in toll system integration, and a network group which does trunk cabling work, out of a head office in Omaha NE. Both were a spinoff of the large highway construction company Kiewit and Sons, then were part of WorldCom, the trunk telephone company now merging with MCI. Control passed to Able this summer, but Able is strapped for cash and has financed the purchase with high interest seller-debt, and is the subject of at least two serious law suits alleging misconduct and illegality. Able officers, who themselves have changed with bewildering speed have said they wanted MFS mainly for its network side, which puts MFS/TS on the market. Breslin as head of MFS/TS following the Able takeover wanted to see the unit merged with TransCore. He initiated what was formally announced as an arrangement for TransCore to assist in management of MFT/TS, but there was also an agreement that this was a preliminary to negotiating terms of a TransCore purchase of MFS/TS.

A Memorandum of Understanding between the two companies according to a stock exchange filing Oct 22 said “TransCore would render advice on how to profitably operate the Transp Systems (unit). TransCore would be compensated in the form of a premium over their costs or by an allocation of the profits and losses (sic)... The MOU also contemplates that TransCore would be granted an option to purchase (MFS/TS). The purchase price would be the net book value...”

The arrangement was to terminate Nov 1.

Top TransCore officals from the head office in Harrisburg PA, Russell Lewis and John Worthington, spent several weeks with the run of MFS at Mt Laurel late October.

An MFS/TS officer told us: “They looked at everything. They know everything there is to know about our business. Nothing was held back. Then suddenly they were out of there.”

It is unclear whether TransCore decided not to pursue a purchase/merger and walked out, or whether Able showed TransCore the door, but both sides say that, for now, nothing is going on between the two.

Breslin who was enthusiastic about a merger with TransCore also clashed with John Berry over problems MFS/TS has had in completing the San Francisco Bay area toll systems job called ATCAS. Breslin held Berry responsible for mishandling ATCAS as project manager. Berry resigned from MFS in Sept and joined Able. Within weeks he arrived at Mt Laurel as an Able employee alongside Able then-CEO Butch Dale.

For several weeks Dale, with Berry as his adviser, were esconced in the Mt Laurel offices “cleaning house” for the new owner and talking to the TransCore execs. Meanwhile Dale and Breslin clashed, it is reported, because Breslin was being asked to “quiet down the customers” with what Breslin regarded as “fairy tales” about the strength of the the new Able-MFS/TS team. And it didn’t help that his old rival Berry had Butch Dale’s ear.

In a memorandum circulated to employees Nov 6, after the TransCore deal had fallen through Butch Dale said that TransCore would continue to work closely with MFS in a “management consultant capacity” and would “support MFS specifically in the risk mitigation area.” The memo also referred to unspecified “unsubstantiated rumors” that were “freeflowing throughout the building” and which he said were untrue. He warned employees to stop the gossip and do their jobs. (See memo below.)

Incidentally your correspondent met Butch during IBTTA in Houston. He is quite a guy. Our immediate thought, we must admit, was that they needed precisely Butch’s kind of managerial muscle to clean house at the memorable Hotel Montagu where we were staying. (See last issue)

In the field

The good news for MFS/TS is that out in the field where it matters most several of their customers speak well of their work. Ed Gross head of the New Jersey Turnpike and leader of the Regional Consortium of five NJ and Delware agencies that are installing E-ZPass told us that MFS/TS is delivering to schedule on their major $488m job — the world’s largest ever contract for electronic toll installation and operations. It will involve ET at 700 toll lanes, 650km of fiber-optics, a customer service center and a massive violations processing house which is to be a major source of revenue underpinning the project.

Atlantic City Exwy, DE switch-ons

MFS/TS successfully switched on electronic toll (ET) systems for the public on the Atlantic City Exwy (ACE) and at the Delaware barrier on I-95 Nov 11. The switch-on was quite smooth, according to those we spoke to, and the systems are working to everyone’s satisfaction. Ed Gross told us MFS/TS is on schedule also with their fiber work and cabling on the major turnpikes in the state. They are due to open ET on the DE-1 toll road to Dover by Feb 99. The bulk of the work will be on nearly 600 toll lanes of the 277km Garden State Pwy and 237km of the NJ Turnpike, due for implementation “in 2000” according to press materials.

Other information suggests New Jersey officials are very concerned about the situation at their principal contractor, but clearly so long as the job is going as required by contract, they have no legal basis for any moves.

In Colorado (E470) and California at the Bay bridges MFS projects are still struggling.

HTMS

HTMS is another electronic toll systems group in an uncertain state. Raytheon its current owner is doing massive reorganization (euphemism for layoffs and moving survivors around) as part of its takeover of Hughes, and the HTMS unit is a tiny part of an enormous purchase. HTMS was being actively offered for sale under Hughes and Tadiran looked carefully at making an offer for it then, but it passed to Raytheon with the bulk of the Hughes empire.

Israel has an ambitious toll road program of its own with the HTMS system part of the proposal selected for the large Cross-Israel Highway. Tadiran is the major supplier of longlife batteries for toll transponders all around the world, and it has an extensive international network of business relationships for its radars and other electronic equipment. It may be well placed to harness HTMS technology to new toll roads in Europe, Asia and Latin America.

HTMS’ unique technology for open-road ET and imaging of license plates is apparently quite successful on 407ETR in Toronto and it has a modest revenue stream from transponder sales to the trucking industry in the US. But its status as an unwanted child, first of Hughes and now Raytheon, seems to have hampered it in developing serious new business. (Contacts Butch Dale, Able 561 688 0400, HTMS 714 446 2255)

LATE NEWSBREAK: Just as we were about to go to press there is another upset at Able. Really! A new Chairman of the Board, Frank Swartz, and a new CEO and President, Bill V. Ray have been appointed by the board. This is one bruisin brawlin bunch of ditchdiggers!

Billy Ray, the new top guy was a chief financial officer of Able at the time of the MFS-buy in May this year, but the then Prez and CEO Frazier Gaines of Able filed an SEC notice accusing Ray of several counts of financial misconduct which ended: “Mr Ray is no longer an officer of the company.” (See previous page.)

Well now Billy’s back at Able, bigger than ever! And Gaines is down. But where’s Butch? No mention of him at all. We’re calling the Montagu, but ‘fraid meanwhile them presses have to roll.