Federal Judge in New York Delays Ruling : Carbide and GAF Battle in Court

A federal judge Tuesday reserved decision on a request by GAF Corp. that a lawsuit charging it with violating federal securities and antitrust laws in its attempted takeover of Union Carbide Corp. be dismissed.

GAF argued before U.S. District Judge Jose A. Cabranes in New Haven that Carbide’s lawsuit, filed Monday, was improper in that it should have been made as a counterclaim to GAF’s action against Carbide in a New York federal court.

GAF’s lawsuit aimed at toppling Union Carbide’s defense to GAF’s $4.3-billion takeover bid is scheduled to be heard today in New York by U.S. District Judge Andrew Pollack.

Cabranes said he would rule Thursday on GAF’s claim to dismiss Carbide’s action. GAF has asked for a preliminary injunction that would prevent Carbide from implementing its defense.

In the New York case, GAF charges Union Carbide with using an illegal defense to frustrate GAF’s bid by confusing shareholders and give unfair advantage to friendly acquirers over those making hostile bids.

Meanwhile, Union Carbide said in documents filed with the Securities and Exchange Commission that it was considering other defensive actions that include a friendly merger with a company other than GAF or the sale of some of its large assets.

Also, the company was reported to have offered its five top executives at least $8.75 million in special compensation--so-called golden parachutes--in the event of an unfriendly takeover.

GAF, which on Dec. 10 launched an all-cash, $68-per share bid for Union Carbide, filed its suit Monday against the company and its directors. Carbide also filed its lawsuit Monday, initially in U.S. District Court in Bridgeport, Conn. It was transferred Tuesday to New Haven, Conn.

Bhopal Litigation

A Carbide spokesman would not elaborate on the SEC filings, in which it did not rule out a friendly merger with another company. Wall Street analysts have said the company would be a more attractive merger partner if it could quickly settle litigation over the more than 2,000 deaths in a chemical leak from a company factory last year in Bhopal, India.

Sources close to the settlement process have been quoted recently as saying that out-of-court talks among Union Carbide, lawyers and the government of India have escalated, with the company softening its position somewhat.

The company has not publicly commented on the progress of the talks.

According to Tuesday’s edition of the Wall Street Journal, so-called golden parachutes would be offered to 42 executives of Union Carbide in the event of an unfriendly change of control. The documents did not list the value of severance contracts that could be awarded to all 42.

Union Carbide spokesman Ed Van Den Ameele confirmed Tuesday that the company had offered the severance to its executives on Oct. 22, but he could not confirm the figures.

However, the Journal reported that the filing said at least $8.75 million would go to the company’s top five officers, representing payment of about three times their average annual compensation.

Of that amount, $2.87 million would go to Chairman Warren M. Anderson. The next four executives under Anderson are Alec Flamm, vice chairman; James M. Rehfield; executive vice president; J. Clayton Stephenson, executive vice president and chief financial officer, and Elio E. Tarika, executive vice president.

Van Den Ameele said the severance offer was made “to permit top management to focus on serving the best interests of shareholders. These contracts give them the financial security to do that.”