Goldsmith Withdraws Zellerbach Bid After It OKs Spin-Off Plan

Sir James Goldsmith on Friday withdrew his $42.50-per-share tender offer for Crown Zellerbach after the forest-products company’s directors approved a plan to spin off its timberlands and its fast-growing specialty packaging operations.

The Anglo-French financier’s retreat capped a week of feverish activity during which Dayton, Ohio-based Mead Corp. offered, and then withdrew, a $1.36-billion, or $50-per-share, “white knight” deal to acquire Zellerbach.

Goldsmith said in a statement that he was dropping the tender offer “in view of the actions taken by Crown Zellerbach’s management and board of directors, the attitude Crown Zellerbach manifested to us in telephone conversations yesterday (Thursday), the confusion created by the proposed transaction between Crown Zellerbach and the Mead Corp. and the complex proposed restructuring plan of Crown Zellerbach.”

In composite trading Friday on the New York Stock Exchange, Crown Zellerbach’s common closed at $41, down $2.625, on volume of 846,500 shares.

Although Zellerbach’s decision to split the company into three parts frustrated Goldsmith’s bid, he remains a potentially pivotal player in determining Zellerbach’s future.

‘Situation Far From Over’

On Friday, Goldsmith, who owns 9.4% of Zellerbach’s common according to his latest filing with the Securities and Exchange Commission, specifically “reserved the right” to buy additional shares in Zellerbach or to make another bid for the company.

Goldsmith is known as a tenacious fighter; for example, it took him two years to win control of Diamond International, the last forest-products company he acquired. His proxy fight to elect representatives to Zellerbach’s board continues.

“The situation is far from over,” said George Adler of the brokerage firm Smith Barney. “I don’t think Goldsmith will stop. He doesn’t want the stock price to drop except to buy more shares. He’s left all of his options open.”

“It’s all a guessing game about what will happen,” said industry analyst John Maack Jr. of S. G. Warburg, Rowe and Pittman, Akroyd Inc. “The company has made no specifics available, and, for the time being, there’s going to be a lot of sitting and waiting.”

Despite Goldsmith’s withdrawal, Zellerbach will proceed with the spin-off. It lost no time in mounting a public-relations offensive to justify the board’s action. For the first time in months, company President William T. Creson made himself available for press interviews.

The plan to spin off Zellerbach’s timberlands and its high-growth packaging unit “is our attempt to do for all our shareholders what Jimmy Goldsmith was attempting to do only for himself,” he said.

Under the plan, Zellerbach will offer to acquire about 50% of its shares outstanding by exchanging, for each share, units of a liquidating limited partnership that will own about 1.6 million acres of the company’s forest land and shares of a newly formed corporation that will operate Zellerbach’s specialty packaging business.

Mead Offer Withdrawn

As a result, Creson said, “our shareholders will have the opportunity to own interests in three separate companies. They can focus their investments on our core pulp and paper business, our land or the fastest-growing segment of our company,” the specialty packaging business.

He denied that the move amounted to a liquidation of Zellerbach, noting that the remaining company will still have annual revenue of $2.5 billion.

The proposal from Mead, which Zellerbach’s board approved Thursday, was withdrawn later that day when Mead’s directors balked, Creson said. Under it, Mead would have acquired all of Zellerbach’s common shares for $50 per share--70% in cash and 30% in Mead common and preferred stock.

Pending completion of the spin-off, Creson added, Zellerbach “is willing to negotiate with any responsible party” wishing to acquire the entire company.

Zellerbach also had tried Thursday to settle its dispute with Goldsmith when Creson offered the financier two seats on the company’s board if Goldsmith would agree to limit his investment in the company to no more than 19.5% for the next three years. But Goldsmith, seeking the right to acquire 33% of the company, balked.

As a result, Zellerbach said, the company decided to “unilaterally” proceed with its spin-off program.

Calling the timberland spin-off the largest such distribution ever undertaken, Zellerbach said that “we believe this bold step will enhance value for our shareholders by giving them the opportunity to share directly in timberland appreciation and sale on a tax-advantaged basis.” The timberland partnership is expected to dispose of its land over the next five to eight years, Zellerbach said.

At the same time, the new company that will operate Zellerbach’s specialty packaging operations--which the company has dubbed “Growco,” for growth company--should command a higher price-earnings ratio than Zellerbach currently does.

The price-earnings ratio--the market price per share relative to the annual earnings per share--is a rough measure of whether a stock is fairly priced.

And the old Crown Zellerbach likely will have higher earnings per share because the company will be retiring about 50% of its shares outstanding.

In effect, Zellerbach’s directors are betting that investors will place a higher value on the sum of the company’s individual parts than they currently do on the whole.

That may or may not happen; in the meantime, however, Zellerbach’s directors have at least temporarily derailed Goldsmith’s takeover plan and bought themselves some time.