TW Services, Inc.

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TW Services, Inc.

Post Office Box 904
Paramus, New Jersey 07653-0904
U.S.A.
(201) 712-0500

Public Company
Incorporated: 1980
Employees: 120,000
Sales: $3.57 billion
Stock Index: New York Midwest Pacific

TW Services has had a short but turbulent history. Although it was incorporated in 1980, for several years it conducted no significant business operations and all of its common stock was owned by Trans World Corporation. It only came into its own on December 30, 1986, when all of the voting shares of TWS were distributed to Trans World stockholders.

Trans World Corporation, formed in 1978, was a holding company that owned TWA, Hilton International, Spartan Food Systems, Inc., Canteen Corporation, and Century 21 Real Estate. Although its major holding was the airline, Trans World’s many other subsidiaries made it the most diversified of all the airline companies.

In 1980, Trans World’s efforts to rescue its ailing airline caused the chairmen of its other subsidiaries much frustration as they had to hold back their expansion plans in order to leave funds available for TWA. For example, the chairman of Spartan, Charles J. Bradshaw, had to scale down plans to build 250 new Quincy Family Steak House units over five years to 50 over two years.

In April, 1983, Odyssey Partners, a private Wall Street group, tried to press Trans World to separate its various units, but the company didn’t make the move at the time. Instead, to fend off raiders, Trans World’s management decided in December of that year to spin off the airline from the rest of the company; the move was completed in February, 1984.

Once the airline was gone, the remaining subsidiaries were all profitable. Chairman and CEO L. Edwin Smart planned to make the company more service-oriented. The recession of the early 1980s had affected some of Trans World’s units more than others. Canteen Corporation, an operator of vending machines and factory cafeterias, saw revenues dip as industrial workers were laid off. As a result, Canteen shifted its focus, becoming an institutional supplier. It also looked for more business at service-oriented firms, especially in the health-care and recreational fields.

Century 21, Trans World’s real estate subsidiary, suffered from the slow housing market, but by 1983 it had an 11% market share of retail home sales. Expansion plans for the subsidiary included moves into related service areas. A franchise agreement with C. Itoh to open a network of offices in Japan was also signed.

The Spartan division did well throughout the period. Its Hardee’s operation, which generated more than half of Spartan’s sales, prospered, and its Quincy Family Steak House chain continued to expand successfully in the South.

In 1983, Hilton International was the only subsidiary still having problems. Although still making a profit, it continued to be affected by recession that lingered in other parts of the world, even though it had lifted domestically.

Trans World continued its expansion into the food service business in 1985 with the purchase of Interstate United, a Chicago-based company. Interstate’s business concentrated on schools, sports arenas, and hospitals. Also in 1985, Smart agreed to sell Century 21 to Metropolitan Life Insurance Company as part of his strategy to concentrate on Trans World’s “core” food and lodging businesses.

The next year Smart decided that he wanted to acquire a nursing home corporation, American Medical Services. Charlie Bradshaw, president and CEO of Trans World, disagreed with the purchase—not his first entanglement with Smart, but his last. Bradshaw had come to Trans World by way of Spartan Food Systems, and Smart had hoped to make Bradshaw his successor. Bradshaw and his partner had built up Spartan from one Hardee’s franchise in 1961 to 250 Hardee’s and Quincy Family Steakhouses when Trans World bought it in 1979. Bradshaw then continued to run Spartan from its headquarters in South Carolina. But in 1984, bored and tired of corporate bureaucracy, he told Smart that he wanted out. Smart convinced him to move to New York as president of Trans World, not anticipating the clash of styles that subsequently erupted. Bradshaw kept trying to buy one restaurant chain after another; Smart and Frank L. Salizzoni, vice chairman, kept finding reasons to reject each potential acquisition. When Salizzoni and Smart came up with the American Medical Services deal, Bradshaw disagreed with the argument that hotel management expertise would apply to nursing home management and felt that the purchase would pull Trans World away from its principal businesses. At the board meeting where the issue was discussed, Bradshaw was the only one to vote against the nursing home deal. Before the day was over, he had resigned from his position at Trans World and was back home in South Carolina.

The last quarter of 1986 brought upheaval to Trans World. In October, Ronald O. Perelman, owner of Mac Andrews and Forbes Holdings, Inc. and the chairman of the Revlon Group, Inc., made a bid for the company. In response, and to repel Perelman, the company announced a liquidation plan in November that called for the sale of Hilton International and the possible sale or recapitalization of its other subsidiaries. The pieces of the company that were left would be known as TW Services. On December 30, 1986, Canteen, Spartan, and all other directly owned subsidiaries except Hilton International were merged into TW Services. Hilton International was soon sold to UAL, Inc., the parent company of United Airlines. With the merger, Canteen and Spartan became divisions of the TW Services, and American Medical Services became a subsidiary.

Smart retired as chief executive in April, 1987. Frank Salizzoni took the job and immediately set to work. Just as he warmed his seat, an investment banker from Merrill Lynch & Co. called to ask him if TW Services would be interested in buying DHI, the parent of Denny’s and several other restaurant chains. Salizzoni was, and the deal was completed in September, only two and a half months later, making TW Services the owner of 1,200 Denny’s restaurants, 70 El Polio Loco chicken restaurants, and a 42% interest in the Winchell’s Donut Shops chain. Management believed that this acquisition would complement TW’s strong holdings in institutional services and its fast-food restaurants and steak houses.

By the end of 1988, not even two years after the company had assumed its present form, rumors about another takeover attempt, this time by Conisten Partners, started to surface. After months of haggling and the adoption of the “poison pill” measure, TW finally agreed to a buyout by Coniston in June, 1989. Under the agreement, Conisten bought 30 million TW shares, bringing its ownership to about 80% ofTW.

TW Services, in all its incarnations, has gone from a company based in the travel industry to one primarily involved with supplying food, both on an institutional level to schools, sports facilities, and cafeterias, and on the retail level at both fast-food restaurants and mid-priced sit-down steak houses and coffee houses.

Despite the company’s protean tendencies, TW’s core businesses today are well-established ones. Though the company’s future under is new owner is still uncertain, TW looks settled for now in the food industry.