GAF Makes Hostile Offer for Carbide : Seeks to Hike Stake in Troubled Firm to 80%; Analysts Say Other Bids May Emerge

Union Carbide, still struggling to restructure and settle litigation spawned by the tragedy in Bhopal, India, on Monday became the target of a hostile takeover attempt by much smaller GAF Corp.

GAF, a Wayne, N.J., chemical and building materials concern, said it intends to raise $3.26 billion to offer $68 in cash for each of 48 million Union Carbide shares. The block, combined with the 6.96 million shares already held by GAF, would give the suitor 80% ownership of Danbury, Conn.-based Union Carbide.

GAF said it would offer cash for the remaining shares if Union Carbide’s management agrees to a takeover and preferred stock worth $68 a share if it does not. GAF would need $4.59 billion to pay cash for all of the company’s shares.

Up to $1.5 billion of the financing will come from a bank loan and the remainder from the private sale of bonds by financial adviser Drexel Burnham Lambert.

A Union Carbide spokesman declined comment, but company officials have said in the past that Union Carbide would strongly resist any takeover attempt.

Coup for Heyman

If the GAF bid succeeds, it could hasten resolution of the Bhopal lawsuits, for GAF Chairman Samuel J. Heyman has publicly complained that Union Carbide has not done enough to settle the litigation.

Success of the bid would also represent another coup for Heyman, 47, a one-time Connecticut prosecutor and shopping center developer who gained control of GAF in a proxy battle two years ago. Heyman, whose company is one-tenth the size of Union Carbide, was unavailable for comment.

On news of the bid, Union Carbide shares jumped $3.375 to $66.375 on trading of 2.83 million shares. GAF’s stock spurted $9.625 to $57.25. Union Carbide’s stock fell to as low as $32.75 after the December, 1984, gas leak in Bhopal, which killed more than 2,000.

Dozens of lawsuits have been filed against Union Carbide as a result of Bhopal, and courts have not yet decided whether they should be tried in the United States or India. Damages sought run into the hundreds of million of dollars.

Analysts said Monday’s increases in both firms’ stock prices reflected some investors’ expectation that other offers might be forthcoming.

“This may be just an opening bid, with several more to come,” said James Wilbur, analyst with the investment firm of Smith Barney, Harris Upham in New York.

Analysts said that, since GAF’s stock accumulation was first disclosed in August, Union Carbide has presumably had enough time to fashion a careful defense. They speculated that Union Carbide might fight back by seeking an outside ally--a “white knight”--or by selling GAF some assets for its stock, or even by trying to buy back all of its own stock.

GAF last year earned $56.7 million on sales of $731.3 million, while Union Carbide earned $323 million on sales of $9.5 billion.

Union Carbide has announced that it will take a $1-billion charge as part of a restructuring that also involves the sale of less profitable businesses and the elimination of 4,000 jobs.

Analyst Wilbur speculated that Union Carbide might line up as a white knight a foreign oil company that wishes to expand its chemical business in the U.S. market. Others speculated that Union Carbide might seek a merger with a large diversified manufacturer.

“You can bet they haven’t just been sitting there doing nothing since they heard GAF was buying stock,” said William Young, analyst and vice president at the Dean Witter Reynolds brokerage in New York.

In a letter to Union Carbide Chairman Warren Anderson, Heyman said that, if the bid succeeds, he will sell off Union Carbide’s less profitable assets, as Union Carbide now intends to do. But he insisted that GAF would not liquidate Union Carbide, nor is it trying to “greenmail” the company.

However, analysts said Heyman might be happy to have Union Carbide swap one or two choice assets, such as the company’s engineering plastics or acetylene divisions, for GAF’s stock block. Union Carbide, though burdened by low-profit units that make basic chemicals and metals, has many profitable businesses, including its consumer products divisions.

Heyman’s declared interest in remaking Union Carbide is in keeping with what he has done at GAF. Since taking control in 1983, he has won plaudits by cutting the company’s staff, shedding slower-growing divisions and increasing productivity.