Owens-Corning Acts to Fend Off Offer by Wickes

Taking dramatic steps to fend off an unwanted bid by Wickes Cos., Owens-Corning Fiberglas said Thursday that it has approved a plan to put more control of the company into the hands of management and employee stock ownership plans.

At the same time, the building products maker said the plan would force a restructuring of its business that would involve the sale of assets, including a unit for which it paid $415 million just last year.

Although the company would not put a price on the deal, it said it is raising $1.8 billion in debt financing but paying off $193 million in existing debt. Based on that and assuming that it sells the unit for about what it paid, the deal would appear to be close to the $2-billion offer made by Santa Monica-based Wickes.

‘Not Painless’

However, William W. Boeschenstein, Owens-Corning chairman, said in a long statement issued late in the day: “The board believes that the recapitalization is a financially superior alternative to the Wickes tender offer. . . . The plan is not painless, but we believe it is necessary in view of the unsolicited and inadequate Wickes tender offer.”

He added that “the response of our stockholders in the capital markets has made the immediate maximization of stockholder value a necessity for us.”

Shares of Owens-Corning, based in Toledo, Ohio, have risen steadily on the New York Stock Exchange since word first spread that Wickes wanted to buy the company. The stock was trading at under $54 on July 28 and closed Thursday at $80.75. Wickes closed unchanged on the American Stock Exchange at $5.12 1/2.

Wickes, which owns 8.5% of Owens-Corning and launched a hostile $74-a-share tender offer for the rest on Aug. 12, issued a terse response to the announcement: “We’re currently evaluating the Owens-Corning Fiberglas proposal. We will have further comment at an appropriate time.”

On Tuesday, the company had indicated its willingness to consider sweetening its offer.

Commitments for $1 Billion

Owens-Corning said it has received commitments for $1 billion in financing from two major banks that have agreed to try to form a syndicate to raise the rest.

Daniel D. Bayston, an analyst with Duff & Phelps in Chicago, said the plan indicates that Owens-Corning “had a difficult time finding a third party to outbid any additional offer Wickes may come to the market with.”

He added that the recapitalization will further weaken Owens-Corning’s balance sheet, which is already highly leveraged with about $518 million in debt.

Observers indicated that Wickes Chairman Sanford C. Sigoloff is not likely to give up without a fight. “Contacts have led me to believe that this could be a long, drawn-out affair with some rancor,” said Gregory H. Kieselmann, an analyst with Morgan, Olmstead, Kennedy & Gardner in Los Angeles. “We could see some suits and countersuits.”

Sigoloff was thwarted earlier this year in an effort to buy National Gypsum, which agreed instead to a buyout by management.

No Interest for 5 Years

Under Owens-Corning’s recapitalization plan, shareholders will receive for each Owens-Corning share $52 in cash, a debenture with a face value of $35 and one share of common stock in the recapitalized company.

The debentures presumably would sell at less than the principal value on the open market. They also would not accrue or pay interest for five years. Moreover, the company said its debt agreements would preclude the payment of dividends on the new common shares. In addition, each common share held by four company employee benefit plans would be converted into 5.6 new common shares, the company said. Those four plans now hold about 5% of the company’s 29.8 million outstanding shares. Under the new plan, they would control 22% of 38 million outstanding shares.

Each new share would represent only 79% of the equity that it now represents, the company said, adding that the reduction allows stockholders to have proceeds taxed as capital gains, which receive more favorable treatment than regular income.

Management would also emerge with a sizable stake in the restructured company. Terms call for 1 million new shares to be purchased at fair value by about 150 members of management. Boeschenstein said these managers would also, “as a future incentive,” be entitled to an additional 1.5 million shares with restricted voting rights. Moreover, he said, they will receive options to buy 1.5 million shares.

Rights to the 4 million additional shares, combined with the 1% already owned by officers and directors, would give them 11.3% in the new company. Including all management options and restricted stock, there will be about 41 million shares and options outstanding, the company said.

Owens-Corning said that it plans soon to mail proxies detailing the recapitalization and that it has scheduled a special meeting Oct. 9 for stockholders of record Sept. 8 to vote on the plan.

At the meeting, stockholders will also be asked to vote on the company’s existing common share purchase rights plan, commonly known as a “poison pill.” Such plans are designed to thwart unwanted takeovers. Wickes has challenged Owens-Corning’s plan in Delaware Chancery Court.

Among the assets that Owens-Corning will sell is its aerospace and strategic materials group, which was purchased a year ago from Armco for $415 million. The company had said earlier that it planned to sell off parts of that unit.

“The recapitalization of Owens-Corning requires that the company rationalize its businesses and redirect its corporate strategy to focus the company on its cash-generating, core businesses,” Boeschenstein said.