Investor Group Spurned by Lear Siegler Tenders $2.2 Billion for Gencorp
An investor group controlled by AFG Industries Inc. and Wagner & Brown Wednesday launched a $2.2-billion takeover of GenCorp, the Ohio conglomerate whose diversified holdings include General Tire, Aerojet General and KHJ-TV in Los Angeles.
The bid, which includes a $100-per-share, all-cash offer for all shares, was coupled with a lawsuit filed Wednesday against the so-called “poison pill” anti-takeover defense that GenCorp officials adopted last month.
If successful, the investment group plans to break up GenCorp and sell off whole divisions of the 72-year-old concern.
The takeover attempt represents the second time in five months that the group has targeted a big company which has been attempting to reorganize in order to stave off potential raiders. Last October, the group launched an unsuccessful--though profitable--$1.4-billion effort to buy Lear Siegler Inc., the Santa Monica aerospace and manufacturing company that ultimately sought refuge in a private takeover. The investment group led by Irvine-based AFG netted about $36 million on the deal.
At the Akron, Ohio, GenCorp headquarters, officials said the move was a surprise and asked shareholders to take no action until the company evaluates the “unsolicited” proposal. The company, which has several additional anti-takeover measures awaiting shareholder approval later this month and has been trying to sell unwanted assets to generate cash, had no further response.
The offer from the investor group, which calls itself General Partners, sent GenCorp stock soaring $16.50 per share to $106.50 in moderate trading volume Wednesday. At one point during the day, shares, which had been rising steadily for the last month, were trading at $112 each.
Analysts said the fact that trading has already exceeded the bid price indicates that Wall Street anticipates further action.
One analyst said he thinks the bidding could reach $130 a share.
Indeed, although General Partners 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 so-called “shareholder rights plan” and gave shareholders the right to buy one preferred share for each share of common stock they hold. The partnership has asked the company to repeal the plan and filed suit Wednesday to have it invalidated in the event the company declines to comply.
In addition, shareholders are scheduled to vote March 31 at their annual meeting on other anti-takeover proposals, including increasing the number of outstanding shares, a reclassification of directors and the elimination of cumulative voting for directors.
Although GenCorp’s defensive strategies were put in place within the last month and coincided with the General Partners’ amassing of its stake in the company, GenCorp officials said Wednesday that there was no connection between the moves.
A company spokesman said officials had noticed the rise of the company’s stock over the last month but had attributed it to recent announcements about the sale of assets. Since Feb. 11, when the partnership started buying GenCorp shares, its price jumped from $75 to $90.50 by the close of trading on the New York Stock Exchange Tuesday.
Last week, the company disclosed an agreement to sell KHJ-TV, Channel 9 in Los Angeles, to Walt Disney Co. for $217 million. (Disney also agreed, in the complex deal, to pay $103 million to an investor group that has been challenging GenCorp’s license for the station.) Further, GenCorp has agreed to sell its RKO Pictures unit to its managers for about $48 million.
GenCorp also tentatively has agreed to sell WOR television, a metropolitan New York independent station, to MCA Inc. for $387 million.
General Partners 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 partnership said its offer is conditioned on gaining Federal Communications Commission approval to acquire GenCorp’s broadcasting licenses for its two television stations and 12 radio stations.
In addition to the broadcast properties, GenCorp businesses include a major tire manufacturer, the former General Tire & Rubber Co.; the Aerojet General aerospace and defense division based in La Jolla; DiversiTech General plastics unit based in Ohio and various soft-drink bottling interests. For the year ended Nov. 30, 1986, it had net income of $130 million on sales of $3.1 billion.
In a letter to GenCorp Chairman and Chief Executive A. William Reynolds, General Partners said it would sell the Aerojet General, broadcast and bottling units and keep the remaining plastics and tire-making operations. The partners said they would keep GenCorp’s headquarters in Akron.
Donald F. DeScenza, a securities analyst with Nomura Securities in New York, said the broadcast and aerospace units might fetch up to $1 billion each, with the bottling operation bringing in perhaps $200 million from potential buyers. He placed the value of the remaining tire operations at $500 million to $600 million and the plastic unit at $700 million to $800 million.
Although the plastics and tire-making operations have a potentially lower market value than other assets of the conglomerate, they appear to fit ideally what the partnership has said it wants to buy.
Earlier this month, R.D. Hubbard, chairman of AFG Industries, a 50% participant in General Partners, said he wanted to buy another heavy manufacturing operation to complement his existing glass-making business. Wagner & Brown, the other half of the partnership, has been interested in diversifying out of its oil and gas operations and into manufacturing.
To finance the takeover, General Partners said it has $250 million in equity and intends to finance the remainder with a $1-billion bank margin credit loan from a consortium of banks led by Wells Fargo Bank and a $1.25-billion senior subordinated bridge loan from Shearson Lehman Brothers Holdings Inc. The tender offer is scheduled to expire at midnight on April 14.
As a result of the bid, Standard & Poor’s placed both AFG Industries and GenCorp on its CreditWatch list with “negative implications.”
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: $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
