GAF Offers to Buy Borg-Warner in $3.16-Billion Deal : Calls Offer Friendly; Analysts Expect Bidding to Go Higher
After four months of stalking its quarry, GAF Corp. offered Tuesday to buy the much larger Borg-Warner conglomerate for $46 per share, or a total of $3.16 billion, but analysts predicted that the bidding would go higher.
The announcement came only four days after GAF increased its stake in Borg-Warner to 17.1 million shares, or 19.9%, when it bought most of Minneapolis financier Irwin L. Jacobs’ 12.4% stake in the Chicago company.
Jacobs had said he would be willing to buy the company for $44 per share if he could examine Borg-Warner’s books, but he never made a formal offer. GAF, of Wayne, N.J., first disclosed a 9.6% stake in Borg-Warner in late November, saying it might seek a merger.
GAF Chairman Samuel J. Heyman emphasized in a letter to Borg-Warner’s board of directors the friendly nature of GAF’s all-cash offer.
“I want you to know that we have a great respect and admiration for your company and its management and believe that the business philosophies of our two companies and their managements are fundamentally compatible,” Heyman said in the letter, which followed a Monday meeting in Chicago between the two firms’ top officials and investment bankers.
“We at GAF would view a combination of our two companies as a partnership and would be interested in discussing with you various measures designed to reflect that outlook,” Heyman said. Such measures include providing key roles of Borg-Warner’s senior management, board representation for Borg-Warner directors, a name change that would incorporate both the GAF and Borg-Warner names and “maintenance of a meaningful presence for the company in the Chicago community,” Heyman said.
Borg-Warner said Tuesday that it would not comment on the offer until the board “has had a chance to examine it thoroughly.”
The offer is conditioned, among other things, on the repeal of Borg-Warner’s “poison pill” preferred stock purchase rights, which let stockholders buy shares at half price in the event of a hostile takeover.
GAF said it intends to finance the offer with its own funds and bank borrowings from a group of banks headed by Chase Manhattan.
Analysts said GAF is most interested in Borg-Warner’s plastics and chemicals operations, which accounted for 74.3% of the company’s $206.3 million in 1986 earnings and 31.5% of its $3.3 billion in 1986 sales.
After GAF made a $201-million profit last year from its thwarted takeover attempt of Union Carbide, Heyman said he remained interested in buying other chemical operations.
Borg-Warner is a leading producer of ABS, a hard plastic used to make such things as telephones, appliances and office equipment. The company also makes automotive components and provides security and financial services.
As part of a restructuring begun last year, Borg-Warner is about to sell its Long Beach-based industrial products operations for $240 million to a private investment firm and senior management. The financial services operation is also on the block.
GAF probably would unload some of Borg-Warner’s other operations to pay off debt from the acquisition, said Dudley Heer, an analyst with the Duff & Phelps investment firm in Chicago.
“You have these nice words from Mr. Heyman, but the financial realities as I see them tend to make those words ring a little hollow,” Heer said.
Wall Street is betting that GAF probably will have to sweeten its offer to entice Borg-Warner to accept it.
Borg-Warner’s stock led the New York Stock Exchange’s most active list, rising $2 to $49.125, while GAF closed at $48.50, up $1.50.
“It’s a token offer for the time being,” said Anthony Ludovici, vice president and senior investment analyst for Tucker, Anthony & R. L. Day, a New York investment firm. Ludovici predicted that GAF will increase its bid to $48.50.
Richard Henderson, an analyst with Pershing & Co., said the bidding could go as high as $55 per share.
“The key question is what’s Borg-Warner’s response, because they have really got a chance of either taking the offer or enhancing shareholder value themselves” through a restructuring similar to one undertaken last year by Goodyear Tire & Rubber to rebuff Sir James Goldsmith, Henderson said. Goodyear bought back Goldsmith’s 11.5% stake as well as another 36.5% of its stock, which the company plans to pay for partly through the sale of assets.
GAF AT A GLANCE
Wayne, N.J.-based GAF Corp. is a leading manufacturer of specialty chemicals and roofing materials. It owns 19.9% of Borg-Warner and 10% of Union Carbide.
Assets: $680 million
Employees: 4,000
Shares outstanding: 35 million
12-month price range: $28.375-$48.50
Tuesday close (NYSE): $48.50, up $1.50
BORG-WARNER CORP.
The Chicago-based diversified company produces air-conditioning equipment, auto components, plastics and chemicals, as well as offering financial services through its Borg-Warner Acceptance Corp. unit.
Year ended Dec. 31 1986 1985 1984 Sales (billions) $3.3 $3.3 $3.9 Net income (millions) 206 180 206
Assets: $840 million
Employees: 80,000
Shares outstanding: 87 million
12-month price range: $25.75-$49.125
Tuesday close (NYSE): $49.125, up $2
