Takeover time overtakes corporate hierarchies yet again
Just when America's chief executive officers thought it might be safe to venture back out on the golf course, the takeover blitz is on again. Carl Icahn -- who maneuvered into the captain's seat at Trans World Airlines last year -- now wants to own (for a while anyway) the nation's biggest steel company. Veteran New York raider Asher B. Edelman has gone west to seek his fortunes with Lucky Stores Inc. And a slew of other corporate and individual investors are suddenly getting the ``M&A'' (merger and acquisition) gospel.
Maybe they got bored watching the stock market tread water. More than likely, they've been thinking about tax reform.
``There is nothing like fear of the unknown to get tax accountants, lawyers, and merger and acquisition people moving,'' says Carl Shrager, manager of the Santa Barbara Fund, a Santa Barbara, Calif., mutual fund specializing in takeover stocks. ``And you tend to get more deals at the end of the fiscal year anyway due to tax and budget considerations. We're coming up on a really major silly season.''
Mr. Shrager contends the implications of tax reform are largely an enigma. But the corporate raiders are clear on how the law applies to mergers and takeovers now, so ``it's time to move before the rules change.''
Here's the rundown on who's dancing with (or trying to sidestep) whom:
Mr. Icahn has a ``friendly'' $7.07 billion, $31-a-share bid on the table for USX, the steel and oil giant. His stake is up to 11 percent and counting. USX has reportedly put its chemical business up for sale and is studying restructuring moves.
Icahn says he'll drop his bid if USX's efforts push the stock price over $31. If USX doesn't counter his offer, or rejects it, Icahn may team up with the striking labor union and make a hostile bid. He used a similar tactic to gain control of TWA.
BankAmerica received a $2.7 billion, $18-a-share, buyout offer from First Interstate last week. The board is expected to reject the bid, which analysts value at $14 a share. Another potential suitor, California's second-largest bank, Security Pacific, says it won't be a bidder -- but hinted it might buy a few assets to help BankAmerica fend off First Interstate. Samuel Armacost resigned as president over the weekend, saying ``a change in management is necessary to help restore confidence.''
In its effort to thwart Mr. Edelman's $35-a-share takeover offer, San Francisco-based Lucky Stores plans to close and sell its 80 Gemco discount stores for about $450 million after taxes. Dayton-Hudson is paying $374 million for 54 of the outlets. Edelman says he has the financing for a $40-a-share bid. But he claims the quick Gemco sale has cost the company $100 million to $200 million in extra taxes, reducing its value.
Allied Stores -- owner of Brooks Brothers, Jordan Marsh, Bonwit Teller, and Ann Taylor -- jumped into the waiting arms of mall mogul Edward J. DeBartolo last week. It accepted a $3.56 billion, $67-a-share offer in an attempt to foil a $66-a-share bid by Campeau Corporation, a Canadian real estate firm.
Since last month management at Viacom International, a cable-TV and entertainment company, has been trying to orchestrate a leveraged buyout. But last week Viacom's board rejected a $2.97 billion, $44-a-share package. A better offer may be in the wings. Sumner Redstone, owner of National Amusements, the eighth-largest movie theater chain in the United States, plans to boost his stake in Viacom to 24.9 percent. He now owns about 19 percent.
More takeovers are undoubtedly being hatched. Analysts say the forces boosting merger activity from about 1,000 deals in 1981 to some 3,000 this year are still at work. Bank deregulation is one key reason for this.
``More and more banks are willing to lend money to corporate raiders,'' says Shrager. ``These guys have established track records. Think about it. Carl Icahn can put together $8 billion anytime he wants to? M&As by private groups are now a legitimate investment for savings-and-loans. And the high returns are extremely attractive for them.''
Vulnerablity also stems from the lure of raising capital quickly and cheaply in the stock market. ``The traditional defense is to run a company well enough that your stock sells at a premium,'' Shrager says. ``But the reality is that stock prices ebb and flow. Fully 25 percent of publicly traded companies have too much stock out there [not owned by management] and its depressed.''
Takeover activity was perhaps the biggest factor on Wall Street last week. It helped the Dow Jones industrial average rally early in the week, but then market-leading IBM plummeted more than 11 points, reaching a 52-week low. That dragged down the Dow. It closed at 1,793.17 on Friday, up 18.99 points for the week.