Frates-Led Group Says It Is Seeking Control of Kaiser Aluminum
An investor group led by Tulsa, Okla., financier J. A. Frates said Wednesday that it is seeking control of Oakland-based Kaiser Aluminum & Chemical.
The group, which controls 5.65% of Kaiser’s common shares, said in a filing with the Securities and Exchange Commission that it wants to “recapitalize and restructure” the company.
In early 1984, Frates led the acquisition of Kaiser Steel, a separate company that, like Kaiser Aluminum, once was part of the Kaiser industrial empire.
The group said it had enlisted Bear, Stearns & Co. as its investment adviser to help develop a recapitalization proposal that would include “sales, refinancings, joint ventures and other transactions” to reduce the company’s $1.3-billion debt.
The group said it intends to focus on Kaiser’s aluminum and chemicals businesses. Kaiser Aluminum also has substantial real estate holdings in California, oil and gas operations and a trading subsidiary.
Restructuring Too Slow
Joining Frates in the bid to control Kaiser Aluminum is Jamie Securities Ltd., a New York partnership that owns 4.5% of Kaiser Aluminum’s outstanding 43.8 million shares. The Frates group owns 1.15% of the shares.
The investors, who started accumulating shares in June, contend that Kaiser’s management is restructuring the troubled company too slowly. Leonard T. Conway, a member of the investor group, said Frates met with Cornell C. Maier, Kaiser chairman and chief executive, in June, August and again earlier this month, urging him to “take more dramatic action.”
The company issued a brief statement saying that it could not comment on the investor group’s filing until it had been reviewed. However, the company indicated that its board of directors was committed to management’s efforts to revitalize the company.
A company spokesman said Maier was not available to comment.
Kaiser, the nation’s third-largest aluminum producer, has suffered losses in each of the last three years during a continuing worldwide slump in aluminum prices.
Stock Up 40% Since April
The company’s management has sold businesses unrelated to its aluminum and chemicals lines in an effort to streamline and reduce costs, but its debt has continued to grow. In April, it suspended quarterly dividend payments. Last year, Kaiser lost $53.9 million on sales of $3.2 billion. It employs 13,750.
Kaiser’s stock price has risen about 40% since April, and analysts speculated that the rise may have been driven by takeover rumors. However, the stock price barely moved Wednesday, closing up 12.5 cents at $17.625 a share on the New York Stock Exchange.
Several analysts said they were unsure of how to view the move by the Frates group. In some ways Kaiser is an unlikely target, since it has such a high percentage of debt, analysts said. Kaiser’s debt is 48% of its capital.
But other observers said the company appeared to be undervalued. Nick Toufexis, an analyst with Oppenheimer & Co. in New York, said a restructured Kaiser was worth up to $27 a share.
“It’s one of those things where the parts are worth more than the whole,” he said.
Toufexis said he believed that Kaiser’s management was “on the right track” with its restructuring efforts. He speculated that the investor group’s aims might be “more short term than (those of) management.”
Frates led an investment group that acquired Kaiser Steel for $374.4 million in January, 1984, with Perma Resources, another investment group that was led by Monty Rial. In April, the Frates group sold its interest in the steel company to Rial’s group.
Recently, the Frates group was involved in discussions with the employees of Frontier Airlines over the possibility of joining them in a takeover of that airline, but the group bowed out when Texas Air made a bid for the airline. The Frates group didn’t own any Frontier stock, a member of the group said.
Frates’ group, KACC Associates, is a partnership formed by New York-based Asset Management Associates and Tulsa-based Equivest Associates. Charles S. Holmes, the managing partner of Asset Management, served as a director of Kaiser Steel during the Frates group ownership. Frates is the managing partner of Equivest. One partner, Robert E. Merrick, also was a director of Kaiser Steel. Together, those partnerships, which include 10 individuals, own about 1.2% of the stock of Kaiser Aluminum.
Another 4.5% is owned by Jamie Securities Ltd., a New York partnership. Ed McCarthy, a general partner at Jamie, declined comment.
Separately, Kaiser said Wednesday that it sold for an undisclosed amount its fertilizer trading business to an investor group that includes management from the fertilizer group. The new company, named Kaichem International, will have its U.S. headquarters in Savannah, Ga.
The intended sale of the fertilizer business was a part of the company’s efforts to shed unrelated operations. In the past year, Kaiser Aluminum also has sold its refractories business and domestic agricultural chemicals operations.
