Accusation by Institutional Shareholder : Gencorp Bid Called ‘Greenmail’
The proposed $2.2-billion buyout of Gencorp by an aggressive investment partnership is nothing more than attempted “greenmail,” the company’s largest institutional shareholder charged Thursday.
Mario Gabelli, an investment adviser whose client accounts hold more than 6.5% of Gencorp’s shares, said he plans to introduce a shareholder resolution at the March 31 annual meeting banning the preferential repurchase of shares from takeover raiders, a practice known as “greenmail.”
A spokesman for General Partners, the investor group that includes AFG Industries of Irvine and Wagner & Brown of Midland, Tex., said the charges are “simply false” and reiterated earlier claims that the partnership’s object is solely to acquire Gencorp.
“There is no interest in greenmail,” he said.
The charges and denials came as Gencorp shares continued to climb in trading on the New York Stock Exchange, fueling speculation that another offer will be made for the company. In moderately active trading Thursday, Gencorp shares rose $2 to $108.50. On Wednesday, when the takeover bid was launched, the stock jumped $16.50 a share.
Says They’re Not Serious
Gabelli claimed that the strategy of General Partners--the same investors who tried unsuccessfully last year to take over Lear Siegler Inc.--shows that they are not serious about operating the Akron, Ohio-based conglomerate that includes General Tire Co., defense contractor Aerojet-General and a host of radio and television stations.
He said the plan to sell Aerojet, “Gencorp’s crown jewel,” and keep the underperforming tire-making operation “doesn’t make sense” and leaves him convinced that the investors, who already own nearly 10% of Gencorp stock, are looking to sell the shares for a quick profit at the expense of the company and other shareholders.
While others watching the acquisition attempt were more charitable toward General Partners, there is a growing consensus among analysts that the partnership’s $100-a-share offer unveiled Wednesday is just the beginning of what could be prolonged maneuverings for control of the under-valued conglomerate.
Harry Millis, an analyst with the Cleveland office of the McDonald & Co. investment firm who has watched Gencorp for 25 years, said he expects the firm to launch an aggressive buyback of its shares.
Millis, who said he has talked to company officials about their strategy, said one potential scenario has the company offering up to $110 a share for 50% of its stock.
Although the move would force the company to borrow as much as $1.2 billion, Millis said the debt could be repaid with the receipts from the sale of certain assets.
Among those, Millis listed the company’s entertainment division, already in the process of being dismantled for sale, and the Pepsi- Cola bottling operation in Georgia.
That strategy would leave Gencorp with its tire-making, aerospace and plastics operations, which last year generated sales of $2.65 billion and operating profits of $226 million. Jean-Claude Gruet, an analyst with Salomon Bros. in New York, speculated that an “aggressive” aerospace company might be interested in buying Gencorp to keep the Aerojet unit and sell the remainder. Gruet estimated Gencorp’s value to such a buyer at between $110 a share and $120 a share.
Meanwhile, General Partners pushed ahead with its effort to win Gencorp.
Mindful of the flap that Sir James Goldsmith’s attempted takeover of Goodyear Tire caused in Ohio last year, the three principals of the partnership reportedly met Wednesday with state legislators to smooth their way into the state.
According to a report in the Akron Beacon Journal, Cyril Wagner and Jack Brown of Wagner & Brown and AFG Industries Chairman R. D. Hubbard met with three state legislators in Columbus on Wednesday to assure them that they had no interest in harming the already-strained Ohio economy.
A General Partners spokesman would not comment on the report.
Last year, in the middle of the Goldsmith-Goodyear battle, the Ohio legislature passed legislation to stave off the potential takeover.
Eventually, Goldsmith gave up his attempt and sold his shares back to the company at a hefty profit, a move that provoked charges of “greenmail.”
Although General Partners has denied any interest in greenmail, it has made money by investing in takeover targets. The partners’ profit on the unsuccessful Lear Siegler takeover was $36 million. At the current price of Gencorp shares, the partnership’s stake is worth $236 million, more than $58 million greater than what it paid for it between Feb. 11 and March 17.
