Suit Seeks to Block Carbide Sale of Assets : Rights Holders Claim Deal Is Undervalued
Union Carbide’s pending $2.2-billion sale of its Eveready, Prestone, Glad and other consumer products businesses is undervalued and should be called off, company shareholders alleged in a class-action lawsuit filed Thursday in Los Angeles Superior Court.
Union Carbide undermined the sale price by improperly attaching long-term supply and executive employment contracts to the purchase agreements, the lawsuit charged.
As a result, the price of Union Carbide’s publicly traded rights to proceeds from the sale dropped to about $32 each from an anticipated $40 to $48, the lawsuit alleged.
“We want to hold up the sale,” said William Lerach, a San Diego attorney who filed the lawsuit on behalf of Los Angeles investors Sy Richard Lippman and Ralph R. Scott, who own both Union Carbide stock and rights. “We want a true auction. You don’t have to retain management with fat employment contracts or have to buy a carload of raw materials on long-term supply contracts.”
Suit Alleges Fraud
The lawsuit alleges fraud, breach of contract, conspiracy, securities law violations, negligent misrepresentations, fraud and unjust enrichment. It also claims that $100 million in “grossly excessive” expenses will be deducted from the divestiture proceeds--funds that otherwise should have been paid to rights holders.
Danbury, Conn.-based Union Carbide earlier this year said it would sell off its well-known consumer products businesses in order to avoid a hostile takeover attempt by GAF Corp.
According to the divestiture plan, Union Carbide would keep about $1.1 billion of the proceeds--the book value of the divested enterprises--and distribute the remaining proceeds--which eventually totaled $1.1 billion--to shareholders. In lieu of an immediate distribution, and pending the sale of its consumer products businesses, Union Carbide issued publicly traded rights.
Only investors who still hold title to those rights, not stockholders who sold all of their shares, are a party to the lawsuit, Lerach said.
Union Carbide officials said Thursday that they hadn’t seen the lawsuit and would not comment on its allegations.
The company required potential bidders for the consumer products businesses to sign exclusive supply contracts with Union Carbide. The requirement, according to the lawsuit, discouraged would-be buyers--who may have developed their own supply sources--and slashed the eventual selling price.
At one time, more than 50 companies expressed interest in buying the operations, the lawsuit claimed, but only a “relatively few . . . ultimately pursued” the purchase.
Included in the divestiture is the sale of its Eveready and Energizer batteries businesses to Ralston-Purina for $1.4 billion. In addition, the company sold its home and automotive products division--makers of Prestone antifreeze and Glad plastic bags--to a group of its own managers in an $800-million leveraged buyout organized by First Boston Corp.
Had it been successful in its takeover bid earlier this year, GAF had planned to pay for its acquisition of Union Carbide by selling off the same consumer products operations.
Both Ralston-Purina and First Boston were named in the lawsuit, as was Morgan Stanley & Co., which advised Union Carbide in its campaign to thwart GAF’s takeover bid.
Also named as defendants were Union Carbide Chairman and Chief Executive Warren M. Anderson; J. Clayton Stephenson, Heinn F. Tomfohrde III and Robert D. Kennedy, executive vice presidents, and directors John J. Creedon, Roberto de Jesus Toro, Harry J. Gray, James M. Hester, Jack B. Jackson, Horace C. Jones, Ronald L. Kuehn Jr., C. Peter McColough, William S. Sneath, Russell E. Train and Kathryn D. Wriston.
