Fluor Clears ‘Poison Pill’ to Thwart Hostile Takeover

The Fluor Corp. board of directors Friday approved a “poison pill” plan to make the company less vulnerable to a hostile takeover. The action came just one month and one day after the Oct. 19 stock market crash. Fluor’s stock has lost 35% of its value during that period.

Tom Samuelson, a securities analyst with Duff & Phelps in Chicago, said the steep drop in Fluor’s stock value could make it a choice target for a corporate raider, despite the significant losses posted by the Irvine-based engineering and construction firm in the past two years.

Fluor officials, however, said they are not aware of any takeover bid. The “poison pill,” called a shareholder rights plan, is merely a precautionary move, Fluor’s chairman and chief executive officer, David S. Tappan Jr., said in a prepared statement.

Fluor spokesman Rick Maslin said Friday that under the plan adopted by the Fluor board, existing shareholders will receive rights enabling them to double their current stock holdings for half of the then-prevailing market price if a person or group acquires 20% or more of Fluor’s common stock.

The issuance of so many new shares would water down the “raider’s” holdings, and, in theory, make it financially unsound to continue seeking control.

The company said the new “shareholders rights” package will become effective Dec. 1 and will expire in 10 years.

In his statement, Tappan said the rights will protect the company against attempts to gain control through open-market purchases. At the same time, shareholders can vote to rescind the rights in the event of a takeover made through a formal tender offer for all of the company’s shares.

One securities analyst who follows Fluor said the rights plan is an attempt by management “to entrench” itself--a common criticism of most so-called poison pill plans.

Fluor is considered attractive now because earlier this year it sold most of its mineral operations, which were widely considered its problem areas, and the company has been restructured to focus more sharply on general construction and engineering.

The sales of the mineral units have generated a sudden large influx of cash for the company and put it in a position to start turning a profit in 1988, said Samuelson, the Duff & Phelps analyst.

In the absence of the shareholder rights plan, Samuelson said, a raider might consider buying all Fluor’s 79 million shares for about $1 billion at the current low market price and then use the revenue Fluor has amassed from the sale of its mineral assets to erase the company’s $400-million debt.

Another thing that might make the company attractive as a takeover target, Samuelson said, is that Fluor’s remaining engineering and construction operations require a minimal capital investment but produce considerable cash flow.

Samuelson said he believes that the shareholder rights plan is a purely precautionary move, following a precedent set by many other major firms that in recent years have acted to discourage takeovers. He said he has heard of no specific takeover bids for the company.

Fluor common stock closed at $14.75 per share Friday on the New York Stock Exchange, down from $20 a share on Oct. 15--the day the market began to slide.