Investor Group Spurned by Lear Siegler Tenders $2.2 Billion for Gencorp
The investor group that failed last fall in an attempt to buy Lear Siegler launched a $2.2-billion tender offer Wednesday for Gencorp, whose diverse holdings include General Tire, defense contractor Aerojet-General and KHJ-TV Channel 9 in Los Angeles as well as other broadcast outlets.
The bid, for $100 cash per Gencorp share, was coupled with a lawsuit filed Wednesday against a so-called “poison pill” anti-takeover defense that Gencorp directors had adopted last month.
If successful, the investment group said it will break up 72-year-old Gencorp and sell off some of its divisions. In a letter to Gencorp Chairman A. William Brown, the group, which includes Irvine-based AFG Industries and Wagner & Brown, a Texas oil and gas drilling firm, said it would sell La Jolla-based Aerojet-General and Gencorp’s broadcast and bottling units while keeping its plastics and General Tire operations.
Second Target in 5 Months
The takeover attempt represents the second time in five months that the group has targeted a big company that has been attempting to reorganize in order to stave off potential raiders. Last October, the group launched an unsuccessful $1.4-billion effort to buy Lear Siegler, a Santa Monica aerospace and manufacturing firm that eventually escaped through a private buyout. Nevertheless, the AFG-led group made $36 million on its Lear Siegler investment.
Officials of Akron-based Gencorp said the bid came as a surprise and asked shareholders to take no action until the company evaluates the unsolicited proposal. The company has several additional anti-takeover measures awaiting shareholder approval later this month and has been trying to sell unwanted assets to generate cash.
News of the offer sent Gencorp stock soaring $16.50 per share to $106.50 in moderate trading on the New York Stock Exchange. Analysts said the stock’s sharp rise indicates that Wall Street anticipates the bidding will go higher. One said he believes the price could reach $130 a share.
Although General Partners, as the AFG-led group is formally known, already owns a 9.8% stake in Gencorp and claims to be the company’s single largest shareholder, its takeover proposal faces formidable obstacles.
Last month, for example, Gencorp directors adopted a “poison pill” shareholder rights plan, under which holders get the right to buy one preferred share for each share of common stock they hold. The lawsuit filed Wednesday seeks to invalidate that plan.
In addition, Gencorp shareholders are scheduled to vote March 31 on other anti-takeover proposals, including an increase in the number of outstanding shares, a reclassification of directors and the elimination of cumulative voting for directors.
A company spokesman said officials had noticed the rise of the company’s stock over the last month, but attributed it to recent announcements about the sale of assets. Since Feb. 11, its price has risen $31.50 a share.
Last week, the company agreed to sell KHJ to Burbank-based Walt Disney Co. It also agreed to sell its RKO Pictures unit to that division’s managers. Previously, Gencorp had agreed to sell WOR-TV in metropolitan New York to Los Angeles-based MCA Inc.
The AFG-led investor group said Wednesday that its offer is contingent on overcoming the anti-takeover measures, either in the courts or through a proxy fight. In addition, the group said its offer is conditioned on gaining Federal Communications Commission approval to acquire Gencorp’s broadcasting licenses.
In addition to the broadcast properties, Gencorp businesses include General Tire & Rubber Co., the nation’s fourth-largest tire maker; Aerojet-General, an aerospace and defense division; Diversitech General, a plastics maker based in Ohio, and various soft-drink bottling interests.
Financing Arrangements
To finance the takeover, General Partners said it has $250 million on hand and will use for the remainder a $1-billion loan from a consortium of banks led by Wells Fargo and a $1.25-billion “bridge” loan from Shearson Lehman Bros. Holdings.
Donald F. DeScenza, a securities analyst with Nomura Securities in New York, said Gencorp’s broadcast and aerospace units might fetch as much as $1 billion each, with the bottling operation bringing in perhaps $200 million from potential buyers.
Although the plastics and tire-making operations have a potentially lower market value than other Gencorp assets, they appear to fit what the partnership has said it wants to buy.
Earlier this month, AFG Chairman R. D. Hubbard said in an interview that he wants to buy another heavy manufacturing operation to complement AFG’s existing glassmaking business. Wagner & Brown has been interested in diversifying from its base in oil and gas operations.
GENCORP AT A GLANCE
The fourth-largest U.S. tire company, Akron, Ohio-based Gencorp Inc. also has major holdings in aerospace and defense, plastics, soft drinks and broadcasting. Tire operations accounted for 36% of sales and 31% of profits in fiscal 1986.
Year ended Nov. 30 1986 1985 1984 Sales (billions) $3.02 $2.72 $2.18 Net income (millions) 49 7 75
Assets: $1.13 billion Employees: 28,000 Shares outstanding: 22.24 million 12-month price range: $64.75-$106.50 Wednesday close (NYSE): $106.50, up $16
