Henley Group Has Raised SFSP Stake, May Seek Control
Henley Group has increased its holdings in Santa Fe Southern Pacific Corp. to 14.1% of the firm’s outstanding shares from 5% and said it may try to take control of the Chicago-based transportation, energy and real estate company through a tender offer or merger.
In a filing Wednesday with the Securities and Exchange Commission, Henley said it had a “high regard for SFSP’s management and directors” and would work with SFSP “in a constructive fashion to maximize stockholder values.” Toward that end, Henley may seek representation on SFSP’s board, initiate a tender or exchange offer for remaining SFSP shares, solicit proxies or propose a “business combination” between the two companies.
In the filing, Henley said it was drawing up a specific plan “for the combination of Henley and (SFSP)” but gave no details. A conglomerate of manufacturing, chemical and medical-supply concerns, Henley cautioned that it has “not yet determined to pursue any specific plan or proposal, and there can be no assurance as to whether or when any . . . will be pursued.”
Henley, which is based in La Jolla, said it bought 14.2 million SFSP shares between Oct. 19 and 26, paying between $39.72 and $52.67 per share. Added to the 7.9 million SFSP shares acquired late last year, Henley now owns 22.1 million shares. Henley’s decision to raise its stake coincided with the “historic decline in stock prices” on Oct. 19.
Henley’s additional stock purchases come amid SFSP’s sweeping corporate restructuring efforts designed to thwart unwanted suitors, including Henley and Olympia & York, the Toronto real estate company that on Sept. 28 announced it had acquired 6.2% of SFSP’s shares.
SFSP is in the process of complying with an Interstate Commerce Commission order to divest itself of its Southern Pacific Transportation Co. railroad. In addition, SFSP has said it may repurchase up to 38% of its outstanding shares as well as sell off other energy, transportation and real estate-related assets.
Analysts said Henley’s stock purchases are a way of forcing SFSP to the table.
More Active Role
Henley Chairman Michael Dingman “is now the dominant player,” said Joel Price of Donaldson, Lufkin & Jenrette. “He’s laid back and watched the play develop, and when it got into the third act he took a unique opportunity to make a move when the stock price plummeted.
“As for the restructuring, I don’t think SFSP can pull the whole thing off,” Price said.
Richard Fischer of Merrill Lynch said Henley’s stock purchases are a way of securing “a more active role in the future of the company, taking advantage of the market’s decline.” He theorized that Henley’s ultimate goal may be to acquire some of SFSP’s real estate, which, he said, accounts for a disproportionate percentage of SFSP’s earnings.
The “specific plan” Henley mentioned in its filing could involve the distribution of “certain of (SFSP’s) railroad assets to stockholders or another disposition of some or all of (SFSP’s) railroad assets in accordance with the order of the ICC.”
Since first acquiring shares in SFSP, Henley has made overtures about the two teaming up for “business combinations” as a way of increasing the market value of SFSP assets. In Wednesday’s filing, Henley said it approached SFSP in August about buying its San Jose-based Bankers Leasing & Financial Corp., but that the “cordial and constructive” discussions did not lead to an agreement.
Henley was also rebuffed when it approached SFSP about a “possible acquisition” of the Southern Pacific rail line. Henley is not one of the seven companies that are currently bidding for the railroad. The bidders have offered between $750 million and “well over $1 billion” for the railroad, SFSP spokesman Robert Gehrt said.
Gehrt said the company had no comment Wednesday on Henley’s investment, although SFSP has made it clear in the past that it intends to remain independent. SFSP shares closed at $46.50 per share Wednesday, up $1.875, while Henley stock closed at $18.50, off 50 cents.
Of the $950 million that Henley spent acquiring the stock, exclusive of brokerage commissions, $260 million came from Henley’s reserves of cash and short-term investments and the remainder from a bank credit agreement that provides for Henley to borrow up to $2.5 billion.
Henley Chairman Dingman was unavailable for comment Wednesday.
Last July, Henley said it might increase its holdings in SFSP when it filed under the Hart-Scott-Rodino Act for permission to buy up to 24.9% of SFSP’s outstanding shares. On Wednesday, Henley said it planned to continue buying shares and to refile for permission to acquire a stake of more than 50% of SFSP.
