Subsidiaries May Benefit From Viad Spin-Off

Viad Corp.'s spin-off of its payment services division early next year will leave Exhibitgroup/Giltspur and GES Exposition Services as the parent company's biggest revenue generators.

And although E/G and GES together didn't send any operating income to the corporate bottom line last quarter, Viad CEO Robert Bohannon is confident they'll contribute a significant amount again once an economic turnaround is in full swing.

Bohannon recently told an investors conference that the separation of Travelers Express/MoneyGram will benefit E/G and GES in a number of ways, including making it easier for them to raise money. And although the tradeshow industry has been hit by challenges in recent years — including Sept. 11 and the popping of the dot-com and telecommunications bubbles — Bohannon believes the two companies are poised for growth. "The economy is going to rebound. We think there's some great upside potential with these companies," he said at the FTN Midwest Research conference last month.

E/G and GES comprise Viad's convention and event services division. The Chicago-based E/G, which designs and builds custom exhibits for the tradeshow industry, contributed $62.4 million of Viad's $439.8 million in sales during the second quarter of this year. GES, headquartered in Las Vegas, generated $161.5 million in the quarter.

By comparison, Travelers Express/ MoneyGram, which constitutes Viad's payment services division, racked up about $200 million in sales. Two other Viad businesses — Brewster Transport and Glacial Park — brought in $12.3 million.

Kartik Mehta, an analyst with FTN, said E/G and GES should get more attention once the payment services division becomes a separate company. "We think the spin-off is a really good idea. Right now you have the MoneyGram part of the business and the convention part of the business that really don't belong together," he said. "As separate companies, they will focus on individual strengths and be better off."

In 2001, tradeshows ended their nearly three-decade-long growth spurt and for only the second time in recent memory began registering declines in attendance, square footage and exhibitors. Both service contractors and exhibit design companies were hurt by declines in exhibitor numbers and budgets.

Like their competitors, GES and E/G were both forced to trim expenses. Some of the cost savings came from rolling out new processes and centralizing operations. E/G cut its manufacturing facilities from 15 to four, its information technology systems from seven to one and replaced 15 processes with one standard process.

Kim Fracalossi told the investors conference that when she became E/G's CEO and president in July 2002, she found a decentralized organization that had grown through acquisition and had a high cost structure. In the intervening months, costs have been cut and a new sales organization put in place. "With all the work we've done over the past 1½ years, we're ready for the pent-up demand we see. As the market grows, we're positioning ourselves to steal share from the competition," she said. "We're pretty excited about where we're at right now."

Fracalossi estimates that E/G commands 15 percent of the market. While competitors have gone out of business or filed for bankruptcy, she said, E/G has managed to hold onto existing customers and attract new ones. "Although the budget recovery is not as quick as anticipated, we do believe it will happen. This is a very viable industry, a viable market and it will continue to grow."

GES CEO Paul Dykstra also told the investment conference that he foresees a turnaround. But, he cautioned, "It's tough to tell when we're going to get the big economic push."

GES, which Dykstra noted produced one-third of the largest 2002 shows, last year established a national call center and expanded service hours to provide better service to exhibitors. The national center lets managers of shows in different regions place all their orders at once.

The cost reductions in the convention and events division have not come without a price. Viad took a $66.1-million restructuring charge related primarily to the division in the third quarter of 2001. In the fourth quarter of 2002, Viad recorded a $20.5-million restructuring charge related to closing facilities within the division.

Viad in July announced its plans to spin off Travelers Express. The proposal is still subject to a satisfactory ruling from the Internal Revenue Service and the obtaining of investment-grade ratings for its debt.