Santa Fe Southern Pacific on Tuesday declared a special dividend of $30 a share--$25 in cash, payable Feb. 16, and $5 in securities, payable March 1--a payout totaling about $4.7 billion.
Significantly, however, Santa Fe said it is cutting the annual dividend to 10 cents from $1 a share to help pay the special dividend.
Observers said both actions indicate that the Chicago-based railroad, real estate and natural resources company is attempting to satisfy short-term investors who have bought the stock because the firm is a prime takeover candidate. Such shareholders may prove to be important allies of management in a proxy fight that SFSP is likely to have with La Jolla-based Henley Group, which owns 14.9% of SFSP.
Santa Fe has been rumored as a takeover target for months. Henley last year offered to pay about $7 billion for the SFSP shares it does not already own but Santa Fe rejected the bid. Then last week, Henley said it plans a proxy fight in an attempt to elect its own slate of directors at SFSP's shareholder meeting, tentatively scheduled to be held in April.
Stock in Play
Henley has also asked a Delaware court for an order allowing it to hold talks with Olympia & York Developments of Toronto to seek help in forming the slate of alternative SFSP board members without triggering a provision of SFSP's "poison pill" anti-takeover defense that would significantly dilute Henley's holdings. O&Y; owns a 9.3% stake in SFSP.
Tuesday afternoon, Henley spokesman Norman Ritter said, "We understand that Santa Fe Southern Pacific will soon make available a significant amount of additional information relative to today's announcement. After we have had an opportunity to analyze this information, we may comment on Santa Fe's plans."
Anthony Hatch, transportation analyst of New York-based Argus Research, said, "The stock has been in play. It appears that they are trying to satisfy those shareholders who have less than long-term interest in the stock. They are saying 'OK, we'll give you more now and less later."
$3.9 Billion Required
In the statement announcing the special dividend, which followed a two-day board meeting in San Francisco, Robert D. Krebs, president and chief executive of SFSP, said the distribution will be funded by cash received from the proposed sale of the Southern Pacific railroad and of non-core businesses as well as by the assumption of additional debt. The cash required would be $3.9 billion.
"This dividend is an important step in the restructuring program we announced in June, 1987, which we have been pursuing methodically ever since," he said. "The plan represents a balance of short-term and long-term investment goals, as it provides significant up-front value now in the form of a $30 dividend, while allowing stockholders to benefit from continued ownership in what we believe will be a viable company with good potential for future growth."
The company said a group headed by Morgan Guaranty Trust of New York and Security Pacific National Bank of Los Angeles has signed a credit agreement to lend the company the necessary funds.
Santa Fe also announced that it had completed the sales of Robert E. McKee, its general building contractor, and of Bankers Leasing & Financial. It also has definitive agreements to sell Santa Fe Pacific Timber and two pipeline systems and expects to close these shortly.