SCM Permitted to Sell Units to Avert Takeover

A federal judge gave the go-ahead Tuesday for SCM Corp. to sell its chemical pigment and Durkee foods businesses, a key step in SCM’s effort to avoid a hostile takeover by Hanson Trust PLC of London.

U.S. District Judge Shirley Wohl Kram rejected Hanson’s argument that SCM stockholders would be hurt by the proposed $430-million sale of the two units to an investor group headed by Merrill Lynch & Co. and SCM’s top management.

The Merrill Lynch group is proposing to acquire all of SCM for $74 a share, and SCM granted the group the option to buy the two businesses in the event that an unwelcome suitor, namely Hanson, tried to buy SCM.

The proposal is known as a “lock-up option,” since it is designed to “lock up” a deal with a friendly partner while discouraging a hostile bidder.

Hanson had urged the judge to block the Merrill Lynch group from exercising the option. Hanson’s lawyers said they will appeal Judge Kram’s decision and seek to prevent the sale from going forward in the meantime.

The judge ruled that SCM’s 12-member board, particularly the nine directors who are not SCM executives, had valid grounds for approving the Merrill Lynch deal, despite Hanson’s argument that the two businesses are worth up to $700 million.

The judge relied on the “business judgment rule” by which the courts ordinarily refuse to second-guess the decisions of management, unless there is a showing of fraud or other misconduct.

Though its pigment and food lines represent more than half of SCM’s earnings, the company is probably best known for its Smith-Corona line of typewriters.