(FORTUNE Magazine) – WALL STREET LIKES A SPINOFF KNOWN AS DINGMAN'S DOGS Its real name is Henley Group, a money-losing bunch of businesses Allied-Signal did not want. Chief Michael Dingman plans to make it pay by buying and selling companies. Many investors think he can -- so Henley is planning the biggest U.S. stock issue ever. AS A MAN who likes to fix things, Michael Dingman must think he is in heaven. In his garage sits a 1948 Lincoln Continental he is restoring to its original luster, and in his office is the business of the Henley Group, a sputtering heap of a corporation where Dingman, 54, has enthusiastically undertaken repairs as chief executive. Henley, which became a public company in May, consists of 35 diverse and depressed businesses spun off from Allied-Signal Inc. Dingman's plan: spruce them up, possibly merge them with newly acquired companies, and eventually sell or spin them off. The job will tax his abilities to the utmost. Yet so formidable is his reputation on Wall Street that Henley is audaciously offering $1.6 billion of new stock -- the biggest U.S. stock issue ever -- to provide Dingman with money for acquisitions. According to a prospectus filed with the Securities and Exchange Commission, if Henley had existed last year it would have lost $26.8 million on sales of $3.2 billion. Four companies account for the bulk of its business and illustrate its prospects. Fisher Scientific, a Pittsburgh distributor of health care supplies such as test tubes and blood-testing equipment, is mildly profitable but is being hammered by fierce cost cutting in the industry. The Green River operation in Wyoming loses money producing soda ash, used in making glass, for a glutted market. M.W. Kellogg Co. is an engineering and construction firm in Houston that builds fertilizer and petrochemical plants and oil refineries around the globe, not an attractive business with oil prices half what they were a year ago and with many Third World countries strapped for cash. Signal Environmental Systems, whose plants burn garbage to produce electricity, shows promise, though it has also been hurt by falling oil prices. Other Henley companies are stumbling performers in promising fields. Gyrex Corp. makes circuit board components; King Marine produces boating equipment such as depth finders; and Engineering Research, a defense contractor, builds wings and warheads. Helen Walters, a security analyst with Smith Barney, estimates that each had sales of $10 million last year and that none earned a dime. She says, ''I can't think of why Dingman would want to keep any of these.'' The trait Henley's businesses share, besides bleak bottom lines, is that Allied-Signal chief Edward L. Hennessy Jr. did not want them. Allied, a chemical giant, and Signal, an aerospace and engineering company, merged in the fall of 1985, and Hennessy decided to concentrate mainly on two industries: aerospace and electronics. That left 35 businesses that did not fit. Because selling them one by one would take years and tie up his managers, Hennessy chose to unload them all in one bold stroke. He would bundle them into a new corporation and give Allied-Signal stockholders one share of the new company for every four shares of AlliedSignal. For Allied-Signal the deal looks good. Henley assumed $300 million of Allied-Signal debt, and Allied got rid of $4 billion of assets that as a group were not earning the company a cent. To profit in case Henley takes off, Allied-Signal kept Henley stock that will represent about 16% of the shares if the new stock offering succeeds, and Hennessy sits on the board. Before Hennessy could sell the idea to the Allied-Signal shareholders, he had to find a leader for the new company. Dingman had been president of Signal when the company merged with Allied, and he got the No. 2 slot at Allied- Signal plus a promise of the top spot when Hennessy retires in 1990. At a meeting of top executives after Allied-Signal's board approved the spinoff, Hennessy asked for volunteers to head the new company. Dingman's hand shot up. Aggressive and ambitious, he wanted to run his own show again. Henley stock, which will not be distributed until May 27, opened for trading over the counter on May 9 at $23 a share and has held around that price, representing a market value of $1.5 billion. That in itself is quite a price for what one of Henley's Wall Street fans describes as ''a pile of junk with a lot of potential.'' If Henley's new stock offering sells at about that same share price, as the company and security analysts expect, it will raise Henley's market value to $3.1 billion. But Wall Street analysts are not forming their opinions by poring over the past performance of the Henley companies. Because Dingman will probably buy and sell companies rapidly, tracking earnings does not lead far. As Hennessy himself confesses, Henley ''is not an investment that lends itself to financial analysis.'' To add to the mystical aura surrounding this stock, Dingman is vague about his plans. He will not say which companies he wants to sell fast, which he wants to polish, or which new ones he might buy. Some analysts speculate he might build up Fisher Scientific, then spin it off; in April he announced plans to pay Warner-Lambert $164 million for IMED, a medical equipment company that fits with Fisher. Until Dingman announces further plans, the debate on Wall Street will be over his methods and ability. The bulls, led by I. W. ''Tubby'' Burnham II, the founder of the Drexel Burnham Lambert investment firm, say Dingman's record of earning money for shareholders makes Henley a good buy. They recall how, after he made partner at Burnham & Co., a predecessor of Drexel Burnham Lambert, he left and with a partner put $1 million into a New York investment firm called Equity Corp., which they used to acquire other businesses. In 1971 Dingman renamed the growing conglomerate Wheelabrator-Frye and moved it to that tax- averse state, New Hampshire. He eventually built its annual sales to $1.5 billion. In 1983 Dingman merged Wheelabrator with Signal Cos. in a deal that brought Wheelabrator stockholders $53 a share; shortly before, Wheelabrator stock had been selling at around $33. Dingman became president of Signal under Chairman Forrest Shumway and helped strengthen the bottom line by getting rid of underperforming businesses. He also played a major role in selling Signal to Allied for $45 a share, vs. a market price of $31 shortly before the deal. An investor who bought Wheelabrator stock in 1971 and held on through Dingman's career up to the present would have increased his money more than sixfold. Over the same period, Standard & Poor's index of 500 stocks only about doubled. Tubby Burnham's conclusion: ''This is a bet on one guy, Mike Dingman, and it's worth making.'' Henley bears -- a rare breed on Wall Street these days -- are suspicious. Some think Dingman has had a lot of luck and is overdue for a fall. Others acknowledge his abilities but argue that this time he has taken on more than he can handle. Says one security analyst: ''Mike Dingman may be a magician, but he is not a miracle worker.'' Dingman, a director of Allied-Signal and Time Inc., publisher of FORTUNE, is at least a hard and fast worker. He makes quick decisions and expects his staff to implement them immediately. Likable and humorous, he can also crack the whip, and often considers weekends and holidays just additional workdays. Arthur Temple, a fellow director of Time Inc. and a longtime friend of Dingman's, agrees that he has a demanding personality. ''I went sailing with him once in Maine,'' Temple recalls, ''and I'd rather be a galley slave than go sailing with him again.'' MANY MEMBERS of Dingman's management team have worked with him for 15 years. The No. 2 man at Henley is Paul Montrone, 45, recently rated by executive headhunters in a FORTUNE survey (February 3) as one of the most likely chief executives of the future. He helped Dingman build Wheelabrator-Frye through acquisitions and was Allied-Signal's executive vice president for finance and + administration before coming over to Henley. Marc Stern, 42, Dingman's top administrator, was an associate at the New York law firm Debevoise & Plimpton before he joined Wheelabrator in 1974. Stern will oversee Henley's legal, personnel, and public relations departments. Dingman doesn't believe in hierarchies, and so, like the rest of his top 18 executives, Montrone and Stern are called managing directors. Dingman says he will make Henley a success by giving managers of the 35 businesses independence -- and strong incentives -- to do their own repairs. As David Summers, 56, one of his top lieutenants, explains, Dingman's system is simple, though brutal: ''If you do well, you're rewarded. If not, you're out.'' Summers and Harold Eastman, 47, who helped Dingman run Wheelabrator- Frye, fly around the country checking on Henley operations, roaming shop floors, grilling managers. On a recent trip, Eastman descended 1,600 feet into a soda ash mine to ask workers how to improve productivity. Once a month the head of each Henley company meets with Summers or Eastman to review financial results, market strategy, and progress toward productivity goals. Henley executives believe that by giving their managers one Draconian rule -- perform or else -- instead of a lot of complicated instructions, Henley's companies will become more innovative and profitable. Says Paul Montrone: ''In a big corporate environment, a company might not be doing well. Get that business out from under the corporate umbrella, away from all the controls, the bureaucrats, and the rules, and all of a sudden that company flourishes.'' If a company needs strategic help, Henley executives say they will be there to lend a hand. By pushing most of the day-to-day operating chores onto local managers, Dingman claims he can run Henley with a headquarters staff of no more than 25 executives. The atmosphere at Henley headquarters is decidedly shirt-sleeves. Says Frank Prezelski, a security analyst at Shearson Lehman Brothers: ''You won't see Henley forming study groups to form study groups to study study groups.'' Even Henley's board is small, consisting of Dingman, Hennessy, and three outsiders: John C. van Eck, chairman of International Investors, a New York financial services firm; James Shepley, former president of Time Inc.; and Richard Cramer, of Winchester Partners, a San Diego venture capital firm. As Hennessy points out, ''Mike will be able to make a few phone calls and get a board decision fast.'' Though Henley is officially headquartered in New York City, that is the last place to catch one of its top executives. Dingman lives in La Jolla, California, where Henley has inherited a lavish office complex from Allied- Signal. It is sometimes dubbed Taj Mahal West by Wall Streeters, but its architecture is actually Spanish, with columns, arches, and ceramic tile floors. Marc Stern also resides in La Jolla, while Paul Montrone still lives near the old Wheelabrator headquarters in Hampton, New Hampshire. Henley's top public relations man, Norman Ritter, lives in Maine. The Henley team necessarily spends a lot of time in the air -- the company owns four jets and a helicopter. Dingman does not see that as inefficient, claiming, ''One executive with a jet plane can do more in a week than ten who stay at corporate headquarters reading reports.'' BESIDES the $1.6 billion in cash he expects to receive from Henley's new stock offering, Dingman has a cushion of about $200 million in liquid assets bequeathed by Allied-Signal in the spinoff. These include 10% of Mack Truck stock and 13% of Pullman-Peabody. A potentially giant bonus on Henley's balance sheet is Signal Landmark Properties, which owns 3,471 acres on the island of Hawaii and 1,250 acres at Bolsa Chica, California. Bolsa Chica is waterfront property near Huntington Beach, carried on the Henley books at $26 million. Dingman claims that over many years, ''if developed properly, Bolsa Chica is worth hundreds of millions.'' Dingman has a lot to gain if he can make Henley pay. He owns 357,233 shares of Henley stock, worth $8.2 million, most of which he got as part of the spinoff deal. While the stock option and bonus plans for Henley executives have not been set, the plans will probably pay off lavishly if Henley turns around. In the past Dingman has used such incentives to pay his stars far more than they might have earned at other big corporations. Set against the reasons Henley should succeed is a stark fact: it consists of companies that other talented managers, including Forrest Shumway and Ed Hennessy, could not make go. The stock is not for widows and orphans, or for investors who want a fast killing. Dingman could spend years on what needs doing at Henley. The company's promise comes from Dingman's standout record of making money for shareholders. For that reason this investment demands an unusually heavy commitment of faith -- which Wall Street seems eager to make. BOX: INVESTOR'S SNAPSHOT HENLEY GROUP SALES (YEAR ENDED 12/31/85) $3.2 BILLION CHANGE FROM YEAR EARLIER N.A. NET LOSS $26.6 MILLION CHANGE N.A. RETURN ON COMMON STOCKHOLDERS' EQUITY -1% FIVE YEAR AVERAGE N.A. RECENT SHARE PRICE $23 2 PRICE/EARNINGS MULTIPLE 14 TOTAL RETURN TO INVESTORS (12 MONTHS TO 5/9) N.A. PRINCIPAL MARKET OTC 1Pro forma results. Company formed May 1986. 2Stock trading on a when-issued basis.