Strong Wills Clash in Fight for Kaiser Aluminum : Key Players’ Styles a Study in Contrasts
The last time Cornell Maier and Joe Frates saw each other, neither was very pleased.
It was at a meeting Sept. 18 in the Oakland headquarters of Kaiser Aluminum & Chemical.
Frates, flanked by some of his partners and financial advisers, walked in with a plan for the friendly takeover of the troubled company.
Kaiser Aluminum Chairman and Chief Executive Maier, surrounded by his top executives and financial advisers, replied through a lawyer that he didn’t have authority from the board of directors to discuss the sale of the company with Frates or anyone else. With that, the short meeting ended.
“We thought that was kind of cheeky, to put it mildly,” Maier says.
Frates, who is now trying to oust Kaiser Aluminum’s board, says he doesn’t understand management’s unfriendly attitude. Frates’ subsequent calls to Kaiser Aluminum, including one on Dec. 5 when Frates and the group of investors he heads made its first actual takeover offer, have gone unanswered.
“They wouldn’t talk to me on the phone, wouldn’t return my phone calls, wouldn’t accept our proposal, never took a look at our proposal,” Frates said. “We don’t like to try to assess blame in any circumstance, but we don’t understand why we haven’t been able to talk to them. If that has produced the hostile situation, why then we think it is their responsibility. . . . “
For its part, Kaiser Aluminum has said the Frates group’s proposal is so conditional that it doesn’t constitute an offer at all.
At the heart of the fight for control of the nation’s third-largest aluminum company stand two men--one a low-profile investor from Oklahoma who has never been involved in a hostile takeover, the other a highly visible and vocal chief executive who has never worked for another company.
The Frates group, which has accumulated slightly more than 20% of Kaiser Aluminum’s shares, also includes a reclusive British heir, Frates’ sons, his son-in-law and some longtime associates.
The prize, Kaiser Aluminum, has rolled up $471.3 million in losses (restated to reflect an accounting change) during the last four years, thanks to a depressed aluminum industry, an eight-fold increase in power rates in the Pacific Northwest where 60% of Kaiser Aluminum’s domestic capacity is located and a drought in Ghana that knocked out the company’s most efficient smelter.
Maier says a restructuring plan begun in 1981 and cost-cutting programs are turning Kaiser Aluminum around and the company will return to profitability this year.
The Frates group has offered to pay about $8 in cash and $13.50 in securities for each share of Kaiser Aluminum, up from the original December proposal of about $7 in cash and $13 in securities.
The exact composition of the offer can’t be determined yet, the group has said, because Kaiser hasn’t made its books available.
Plans to Shrink Firm
If the takeover is successful, Frates has said he would reduce the company’s heavy debt load by selling, refinancing or joint venturing many of the company’s assets, shrinking Kaiser Aluminum by half and focusing it on aluminum and industrial chemicals business.
Kaiser Aluminum recently announced a restructuring plan that involves forming a holding company with five subsidiaries, refinancing bank debt and raising new capital by issuing stock or subordinated debt. The Frates group has called the plan a move to entrench management and has responded with a drive to replace Kaiser Aluminum’s 12 directors with the group’s own slate of 11, including Frates and two former Kaiser Aluminum executives.
Frates is stumping the country meeting with investors--20 institutions hold about 60% of the company’s stock--asking them to sign and send in their white shareholder consent cards, which are like proxies, supporting the Frates group’s slate. Maier is doing the same but is asking for the blue consent revocation card. Frates has until March 22 to drum up a majority vote.
Besides their interest in Kaiser Aluminum, Frates (pronounced Fray-tus) and Maier have several things in common.
Both are in their 60s--Frates is 65 and Maier is 61.
Both have a strong interest in their pet causes--for Frates it is a drug education program for young people while Maier devotes his time to minority youth unemployment and educational problems.
Both Frates and Maier spent their early careers in sales.
Frates started as a salesman at his father-in-law’s pipe-tool company, called Ridge Tool, in Elyria, Ohio.
Rode the Circuit
Maier began at Kaiser Aluminum in a clerical engineering job but quickly became a salesman in the company’s key Kansas City office. He made a weekly circuit of a territory that encompassed Missouri, Kansas, Nebraska, Oklahoma, Arkansas, eastern Colorado and Memphis, Tenn.
Frates has always avoided public attention. Until this takeover fight he shunned interviews. He isn’t even listed in such common directories as Who’s Who and Standard & Poor’s Register of corporate executives and directors.
“He has not had a high profile in our community, I must admit,” said Clyde C. Cole Jr., president of the Tulsa Chamber of Commerce. “Certainly he has a high degree of credibility in the community. . . . His reputation in Tulsa is of being a man who is fair in his dealings.”
Joseph Anthony Frates III was born in Miami, Okla., to a “comfortable” family. His father was a railroad executive who later turned to real estate and insurance. J. A. Frates, as he is known, spent his early years in the Tulsa area but was sent away to prep school in New Hampshire.
At the request of his parents, both Christian Scientists, Frates attended Principia College in Elsah, Ill., a small liberal arts college that accepts only Christian Scientists as students. Frates said he is not a practicing Christian Scientist, although, “I still believe in a lot of their values.”
“That religion, as well as other religions, teaches you that you need to deal with people the way you want to be dealt with,” he said, adding that “I also believe in medical attention at the proper time.”
Maier’s early years were much different.
Maier’s mother supported him and his older sister by working as a grocery store clerk in Selby, S.D., population 500. Maier helped out during the summers by working on nearby farms.
Moved to Los Angeles
The family left that small town and moved to Los Angeles when Maier was 16. He spent his senior year studying at Dorsey High School, whose enrollment was four times the size of Selby’s entire population.
“That was quite a switch,” Maier said. “I had never seen a black, I had never seen a Hispanic, I had never seen an Oriental, and there are a lot of other races in Los Angeles that I’m sure I had never seen.”
After World War II, Maier studied at UCLA while working at a Ralphs grocery store, then transferred for his final year to the University of California at Berkeley. He earned an engineering degree in 1949 and joined Kaiser Aluminum after a job iNterview for which he had to borrow a suit from his brother-in-law.
Frates came back from the war and was hired by his father-in-law. He held various jobs at Ridge Tool in both the sales and manufacturing sides and years later bought out his father-in-law and partners.
“That was really the basis of my business experience and background,” Frates said. “I built the company into a major international company and merged it into (St. Louis-based) Emerson Electric” during the mid-1960s, receiving 1.2 million shares of Emerson stock in exchange. Frates still sits on the Emerson Electric board.
Worked His Way Up
Maier is the first chief executive to work his way up through the Kaiser Aluminum organization with experience in many of the company’s domestic and overseas operations. When Maier took over the president’s job in early 1972 at the age of 47, he became the youngest executive to head the company. Maier captured the chief executive title in mid-1972 and became chairman in 1978.
In a company history, two of Maier’s supervisors from his sales trainee days recalled deciding that they had better be “pretty good” to Maier because “some day we’d be working for him.”
In 1971, Frates moved back to Tulsa to take over his family’s real estate business, which was to fall on hard times during the early part of the decade “as did all real estate companies,” he said.
“It was a function of the market problem,” Frates said. “We survived it and survived it very well I might say. We lived up to all the obligations either legal or moral and paid off all the debts and the company’s very sound now.”
That privately held company, once called Frates Properties and then Fracorp and now Realvest, has 10,000 acres under development now “in one form or another” in several states, 3 million to 4 million square feet of office buildings, about 2 million square feet of shopping centers and several multifamily housing developments, Frates said.
Bought LBJ’s Ranch
One of his most interesting real estate deals was the 1972 purchase of former President Lyndon B. Johnson’s ranch near Austin, Tex. “It was a fun negotiation,” Frates said. “He lived up to his reputation. . . . He was a tough dealer.”
Frates owns a 20% stake in Associated Inns & Restaurant Co. of America, a $275-million, Denver-based hotel management company with 12,000 rooms and 10,000 employees, that he helped finance. A Realvest subsidiary owns a substantial amount of the land on which Associated Inns’ hotels sit.
Frates, his family and associates, through Frates Enterprises, also have made investments in oil and gas, manufacturing, distribution, trucking, leasing and banking during the last 25 years, often providing or arranging financing in exchange for an ownership stake. Frates declined to reveal the size of the holdings of Frates Enterprises and Realvest.
A white-knight group led by Frates in 1983 bested financier Irwin Jacobs in a bidding contest for Fontana-based Kaiser Steel, which is now unrelated to Kaiser Aluminum. Both companies were once was part of Kaiser Industries before it underwent a voluntary liquidation in 1977. The Frates group later sold its 50% stake in Kaiser Steel to its partner, Perma Resources of Colorado Springs, Colo., for $40 million--a substantial profit on the group’s $1-million investment.
Sought Other Firms
Frates has headed groups that made unsuccessful bids for Frontier Airlines and Revlon.
Frates, who has been married for 44 years and has three children and 11 grandchildren, spends his leisure time at golf, tennis and photography. Maier, a bachelor, said that for recreation “I work for the company, and I work in my garden.”
Frates is described by those who know him as “introverted,” “quiet and unassuming” and “one hell of a nice guy.” A former associate who asked to remain anonymous said that Frates is “to my surprise being from Oklahoma--and I guess it shows how much I know about Oklahoma--a very cultured and classy gentleman.”
Maier, according to one former Kaiser Aluminum employee, is “tough as hell” and yet “tremendously people-sensitive.”
“You haven’t seen anything until you’ve seen Cornell put a bunch of kids--many of them underprivileged--on a bus to a (Golden State) Warriors’ (basketball) game, sit in the stands eating hot dogs and having a ball,” he said. “I don’t mean he’s soft in any sense. He isn’t a social worker or a bleeding heart.
“He demands excellence. He gets quite impatient with mediocrity,” he said. “The people on his team would charge barriers and leap off cliffs for him.”
The Frates group also includes Alan E. Clore, a reclusive British investor, Swiss citizen and son of the late Sir Charles Clore, who was one of the richest men in Britain and a famed corporate raider.
Takeover Specialist
Alan Clore, 42, is also a takeover specialist who gained control of Gulf Resources & Chemical in 1982 following a bitter proxy fight. He resigned as chairman in May, 1985, after narrowly winning a similar fight with dissident shareholders for control of the board.
Clore has provided the bulk of the Frates group’s $115-million investment in Kaiser Aluminum.
Maier contends that two close Frates associates and members of the group’s board slate--accountant Robert Merrick and lawyer Charles Holmes--”are the doers and the thinkers and the brains behind the organization. . . . Frates is really the front guy.” Leonard Conway, a member of the Frates group, replied that “Mr. Frates is doing as much work as anyone else.”
Frates said he is offended by Kaiser’s tactics during the takeover battle, such as hiring detectives to check into his background and attacking the records of Clore and Holmes.
Kaiser Aluminum has pointed out in letters to shareholders Clore’s problems at Gulf Resources and Holmes’ recent conviction for negligence and fraud in a case involving allegations of legal malpractices, which is being appealed, and a 1982 censure of Holmes and his company by the National Assn. of Securities Dealers. The company also has objected to $14 million in fees paid to the Frates group during its Kaiser Steel tenure.
“I think it’s diversionary,” Frates said. “They have very little positive to talk about in their recent record and, therefore, they have to divert attention away from the real issues.”
Maier said the Frates group has made a “non-proposal.”
“Now he’s saying to the shareholders, ‘Throw out the Kaiser board, put in our board--which is handpicked by him--and then we’ll negotiate with ourselves and decide what if anything we’ll propose to shareholders,’ ” Maier said.
The Frates group has said that if it is unsuccessful in the current consent solicitation battle, it will attack again at Kaiser Aluminum’s annual meeting, which probably will be held in April or May.
