GAF Says It May Increase Carbide Stake : Strategy Could Lead to ‘Combination’ of the Firms, SEC Told
in addition to the more than 5% that it already owns--as part of an investment strategy that could lead to a possible “business combination” between the two chemical companies.
In papers filed with the Securities and Exchange Commission, GAF also confirmed that it now owns 3.94 million shares--or 5.6%--of Union Carbide’s stock, which it bought for $192 million on the open market during the past three months.
GAF said it has considered several possibilities in making the investment, including a “business combination,” but added that no final decision has been made.
Nonetheless, GAF’s statement fueled heated speculation on Wall Street about the kind of combination being considered.
Lining Up Big Investors
Charles Rose, analyst for Oppenheimer & Co. in New York, said GAF has limited resources and thus is likely to increase its stake in Union Carbide by no more than a few percentage points. However, Rose said that speculation in the investment community is rife that GAF may be lining up big investors to help finance a takeover attempt.
The GAF move means even more uncertainty for Union Carbide, which is still trying to explain what happened last Sunday when a chemical leak at one of its plants in West Virginia injured 135 people. At a Union Carbide plant in Bhopal, India, a poisonous gas leak killed 2,000 people last December.
Union Carbide’s stock has been on a roller-coaster ride since the Dec. 3 Bhopal incident, at one point falling from $46.50 a share to $32.75 in just seven days. But the stock has since rebounded. After jumping $3.25 to close at $52.125 on Tuesday, the stock closed Wednesday at $51.75, down 37.5 cents, in heavy trading. (The value of Union Carbide’s assets is $68.25 a share.)
GAF said in its SEC filing that it “intends to review its investment in Union Carbide on a continuing basis” and “increase its equity position” based on several factors, including the price and availability of Union Carbide’s shares and subsequent developments affecting the company.
The statement also noted that the “continuous review” could also result in a decision to “reduce or dispose of its investment position.”
Dealings With Union Carbide
One source close to GAF contended that the company’s statement was not a threatening one. For example, he said, GAF said that it has “no present plans” to pursue any business combination, and it pointed out that the purchases don’t need to be reported to the Federal Trade Commission or the antitrust division of the Justice Department under provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976. (That act requires companies mulling certain mergers to notify the Justice Department or FTC at least 30 days before the deal is to close.)
GAF is a supplier, customer and competitor of Union Carbide, whose widespread operations include petrochemicals, consumer products, industrial gases and metal products. But GAF, headquartered in Wayne, N.J., doesn’t appear to have the muscle to take on Union Carbide, whose $9.51 billion in revenue in 1984 was 13 times what GAF generated.
The difference in size has led to some speculation among investors that Union Carbide could fend off a hostile bid by making a counteroffer for GAF. Another possibility, according to Wall Street sources, is that GAF will lead a proxy battle to unseat Union Carbide’s board of directors.
A Union Carbide spokesman had no comment on GAF’s moves, saying: “I have no idea what they are doing.”
Union Carbide’s board recently took several steps to make hostile acquisitions more difficult. According to one measure, a special shareholders meeting may be called only by the board of directors or top officers--not the stockholders.
GAF’s business affairs in recent years have been highlighted by the continued sale of unprofitable businesses, prolonged litigation over its asbestos operations and a proxy fight in 1983 led by investor Samuel Heyman that replaced the company’s previous board of directors.
Heyman is now GAF’s chairman and chief executive.
GAF was founded in 1842 as as a photo shop in New York and eventually evolved into a giant in the consumer photography market, right behind Eastman Kodak and Polaroid. But it dropped out of that business in the late 1970s because those operations had turned into a money loser.
About 87% of GAF’s profits came from its chemical businesses in 1984.
