Pacific Lumber Takeover Queried : Stock Control May Have Been Hidden, House Panel Says
The takeover of Pacific Lumber Co. in 1985 may have been helped by the hiding of control of some stock through a technique known as “parking” to circumvent federal disclosure rules, a congressional staff report said Monday.
Companies like Pacific Lumber, whose trees are being rapidly cut down to pay takeover debts, are easy targets for corporate raiders, warned Rep. Ron Wyden (D-Ore.), a member of the House Banking, Finance and Urban Affairs subcommittee on oversight and investigations.
A memorandum by the subcommittee staff said Los Angeles securities executive Boyd Jefferies, who pleaded guilty to parking stock for Ivan F. Boesky, may have carried out similar arrangements for Charles Hurwitz, head of Maxxam Group Inc., which acquired Pacific Lumber.
A company or person owning 5% or more of a firm must make a public disclosure, which usually drives up the price of a stock and alerts management that a takeover attempt is under way. “Parking” means that the stock is being held by someone other than the company pursuing the takeover, making it unnecessary to file the 5% disclosure form.
“ ‘Parking’ stock makes it difficult for regulators to detect a failure to file . . . disclosures” with the Securities and Exchange Commission, the report said.
“The staff believes there was an undisclosed arrangement with Jefferies & Co. to ‘park’ the Pacific Lumber stock until such time as the tender offer would be announced,” the subcommittee report said.
Hurwitz strongly denied any improprieties at a subcommittee hearing Monday that was convened to review the takeover. “Let me state categorically for the record that I know of no illegal or improper activities in connection with this transaction,” he said.
Insider Trading Concerns
Maxxam bought 500,000 shares of Pacific Lumber from Jefferies & Co. but still was under the 5% ceiling needed for disclosure, Hurwitz said.
As the tender offer for Pacific Lumber was being prepared in September, 1985, the stock jumped to $33 a share from $29, Hurwitz noted. “This price jump has raised concerns about possible insider trading,” he told the subcommittee. “I share those concerns. Insider trading is abhorrent, illegal and it distorts the market.”
Hurwitz added: “To my knowledge, no one at Maxxam or any of the people working for us were responsible for leaking any information about this transaction or responsible for any illegal trading.”
The Pacific Lumber takeover by Maxxam was financed by a $300-million bank loan and $450 million in high-yield “junk bonds.”
To pay off the debts from the takeover, Maxxam has terminated Pacific Lumber’s pension plans, sold all non-timber assets, doubled the cutting of redwood trees and purchased another mill to handle the increased lumber output, the subcommittee report said.
The company is cutting trees at a furious pace to help pay for its own takeover, Wyden said. “I’m not convinced it’s responsible for management to cut trees to pay debts to people who live thousands of miles away,” he said in an interview after the hearing. “This case has enormous implications,” he said. “Undervalued timber companies can be a real target. Someone will try to grab the assets and go for short-term profits.”
Pacific Lumber, the staff report said, “is unique because it owns more than half the remaining . . . redwood forests in private hands--more than all its competitors combined.”
