GenCorp Files Suit to Thwart Takeover by General Partners
Less than a week after being hit with an unsolicited $2.2-billion takeover move, GenCorp filed suit Monday to block the effort, claiming that it violates federal securities and stock-financing regulations.
Further, the suit alleges that General Partners, the investment group that tried unsuccessfully last year to buy Lear Siegler Inc., has launched a highly leveraged buyout offer solely to make money on the company’s stock, not because it truly wants to buy and operate GenCorp’s diversified holdings. The Akron-based conglomerate makes General Tires, owns Aerojet General in La Jolla and holds 15 broadcast stations, including KHJ-TV in Los Angeles
General Partners includes AFG Industries of Irvine and Wagner & Brown of Midland, Tex.
The suit asks the court to halt the partnership’s efforts to increase its stake in GenCorp through its tender offer. The partnership now controls nearly 10% of GenCorp’s shares.
Despite the suit, a spokesman for GenCorp’s would-be buyers said they have talked to the company’s chairman and still hope that GenCorp will accept “a negotiated transaction.” The partnership declined comment on the suit that was filed in U.S. District Court in Columbus, Ohio.
Annual Meeting March 31
The partnership also began Monday to solicit proxies from GenCorp shareholders for the March 31 annual meeting when a vote is scheduled on a series of anti-takeover proposals. GenCorp has proposed staggering directors’ terms, increasing the number of its shares and eliminating cumulative voting for directors. Although the partnership owns 9.8% of GenCorp’s stock already, all the shares were purchased after Feb. 10, the date of record for ownership for voting at the annual meeting.
In New York, meanwhile, investment manager Mario Gabelli filed notice with the Securities and Exchange Commission that his institutional clients now own nearly 7.3% of GenCorp’s shares, about 150,000 shares, or 0.8%, more than they did last week when the General Partners launched its buyout.
Gabelli, who has already labeled the General Partners effort a “greenmail” attempt, declined to comment on the latest purchases. However, Gabelli earlier said he would vote against GenCorp’s “anti-takeover” proposals that are up for approval at next week’s annual shareholder meeting in Akron.
GenCorp’s suit against its would-be buyers charges that the partnership’s takeover efforts are illegal because they violate U.S. Securities and Exchange Commission and Federal Reserve Board disclosure and financing requirements for takeover attempts.
According to the suit, the proposed financing of the takeover is illegal because it requires the partnership to borrow more than 50% of the value of the stock to be purchased. Federal Reserve Board regulations limit the amount that can be borrowed at 50% of the stock’s value.
The General Partners proposal calls for it to acquire GenCorp for a total of $2.2 billion, of which they would invest just $250 million in cash and other collateral. The remainder would be financed through bank and other borrowings, primarily junk bond financing, arranged by the partnership’s investment bankers, Shearson Lehman Bros. of New York.
In addition, the suit claims that the partnership has violated federal disclosure regulations by failing to reveal “the illegal nature of (its) proposed financing scheme” and its true intentions for acquiring GenCorp stock.
The suit claims that the partnership is engaging in “manipulation of the trading market” because its goal is to make money on GenCorp’s stock, not to actually complete the purchase of the company.
The partnership, the suit charges, wants only “to put GenCorp into play” and make money by selling at a substantial profit the shares they acquire in the process of the takeover attempt.
Cites “History”
To buttress its charges, GenCorp cites the “long history” of two of the three partners, Cyril Wagner and Jack Brown, two oil and gas investors from Midland, Tex. The two teamed up with R.D. Hubbard, chairman and chief executive of AFG Industries, last year in an unsuccessful takeover attempt of Lear Siegler. Although the three lost that attempt, they realized a gross profit of nearly $38 million on the company’s stock.
Before joining forces with Hubbard, the suit charges, Wagner and Brown acquired a reputation for “reaping enormous profits by putting publicly held companies in play through the guise of making or threatening to make a tender offer.”
The suit says that since 1983, the two “have used this ploy” six times without once completing an offer. Among the uncompleted offers were bids for Unocal Corp.
“This past practice indicates that (the partnership’s) stated objective . . . is false and illusory,” the suit says.
