Frates Group Ups Ante for Kaiser Aluminum Shares

A group led by Oklahoma investor J. A. Frates on Wednesday sweetened its bid to take over Kaiser Aluminum & Chemical by offering a combination of cash and securities that the group valued at $21.50 per share.

The Frates group, which wants to replace the Kaiser Aluminum board with its own slate of 11 directors, previously had offered to buy the Oakland-based company for $20 per share, including about $7 cash and $13 in securities. Kaiser Aluminum’s management rejected that proposal, calling it “vague and highly conditional.”

Under the latest offer, the Frates group would pay $772 million for the 35.9 million Kaiser Aluminum shares that the group doesn’t already own. The Frates group, which has said it intends to “recapitalize and restructure” the company, has an 18.6% stake in Kaiser Aluminum.

The Frates offer proposes to exchange for each share of Kaiser Aluminum stock a package that includes about $8 in cash and $13.50 in senior securities--preferred stock and debentures--and common stock “of the recapitalized company, which would provide stockholders with a continuing equity participation in the company’s assets and earnings,” Frates said in a letter to Kaiser Chairman and Chief Executive Cornell C. Maier.

Reviewing Offer

Frates said it isn’t possible to determine the exact composition of the cash-and-securities package until the group is given access to Kaiser Aluminum’s books.

Kaiser Aluminum said in a statement that the company is reviewing the offer. Although Kaiser Aluminum did not immediately reject the proposal, the company did note in its statement that “the company wants its shareholders to be aware that this communication (by Frates) is no less speculative and no less conditional than the group’s previous ‘proposal.’ ”

Kaiser Aluminum said it will “fully communicate its views” after a full review of the proposal.

The Frates group raised its offer after some shareholders told the group that the price was too low “in light of the stock market and some improvements since the original offer was made in the price of aluminum,” said Leonard T. Conway, a member of the Frates group. “On balance . . . they (shareholders) have reacted favorably to the thrust of our proposal to seek to reduce debt through asset sales and to focus on the aluminum core business.”

Seeking Negotiations

Kaiser Aluminum, which contends that the Frates group has no restructuring plan for the company, recently announced a major reorganization that includes forming a holding company and five subsidiaries, refinancing its debt and raising new capital.

Conway said the group has asked Kaiser Aluminum’s management to begin negotiations on the proposal.

“We have indicated to the company that, notwithstanding their previous unwillingness to discuss this with us or to enter into negotiations, that they would give this proposal serious review and enter into negotiations with us,” he said.

As with the first offer, the latest Frates proposal is conditioned on whether the group’s investment adviser, Bear, Stearns & Co., can raise the money to finance the bid through an offering of so-called junk bonds, which are low-rated, high-yield securities.

Analyst Nick Toufexis of Oppenheimer & Co. said he had expected the Frates group to up the ante, adding that another price increase to the $23 range could be in the works. “You’ve got to convince the shareholders that you’re for real, and that’s the basic task that the Frates group has to accomplish,” he said.