SFSP Lures Ex-Foe Olympia & York to Side With It in Battle With Henley
Santa Fe Southern Pacific has lured a former enemy, Olympia & York Developments, into its camp in an effort to fend off a fight for control by La Jolla-based Henley Group.
SFSP won the new ally by giving the large Canadian real estate company two seats on its board. But Henley, despite what appears to be a major setback, apparently intends to pursue its quest for control of the big railroad and real estate company in which it has a 14.9% stake.
Henley Group had opposed SFSP’s planned $4.6-billion restructuring, which called for Santa Fe shareholders to receive a special $30-a-share dividend. Henley said this would result in Chicago-based SFSP taking on too much debt.
“Last Thursday, we took exception to the recapitalization plan,” said Norman Ritter, a Henley spokesman. “We also said we are going to press ahead with litigation and with the proxy contest. That still stands.”
However, Ritter declined to comment on Santa Fe’s addition of the two Olympia & York executives to its board.
ICC Denied Santa Fe Plan
The directors named over the weekend were Paul Reichmann, Olympia & York senior executive vice president, and Marshall Cohen, president of Olympia & York Enterprises, a subsidiary. Olympia & York is headquartered in Toronto.
At one point last year, Olympia & York indicated that it was considering the possibility of trying to take over SFSP. But it has backed away from that posture in recent months.
Cohen said in a statement that “Mr. Reichmann and I are very pleased to serve as directors. . . . We are supportive of the direction of the company’s restructuring plan and we accept the company’s proposal for the divestiture of the Southern Pacific” railroad.
The Interstate Commerce Commission last year denied Santa Fe’s plan to merge its two railroads, the Santa Fe and the Southern Pacific. SFSP has agreed to sell Southern Pacific to Rio Grande Industries of Denver for $1.02 billion and is awaiting ICC approval of the transaction.
Some analysts said SFSP’s step might not be such a severe setback for Henley.
“Henley has been flexible all along,” said Lawrence Litton, analyst with the New York investment banking firm of Drexel Burnham Lambert. “There is no blueprint which they are following that has every contingency in it. It is not at all clear or obvious that this is a major blow to Henley.
Remains Major Shareholder
“Henley remains a major shareholder in Santa Fe and now (another) major shareholder has representation on the board. This means that Henley will have a louder voice on the board than it did before this agreement.’ It was reported Monday that Olympia & York had increased its holdings in Santa Fe to 10.15% from 9.3%.
Litton added that one of Santa Fe’s “weaknesses was arguably its lack of real estate expertise and Olympia & York bring that expertise and a greater potential to maximize the potential of the (Santa Fe) real estate assets and that could be positive for all shareholders of Henley.”
That is apparently what Olympia & York has in mind as well. A spokesman said, “The purpose (of having board representation) is for Olympia & York and its financial advisers to work with Santa Fe and its financial advisers to understand the company and the proposed restructuring in as much detail as possible so that Olympia & York can work from the inside to help enhance the values to the greatest extent possible.”
Henley had filed a lawsuit in Delaware seeking to upset SFSP’s “poison pill” takeover defense. Henley’s goal when it filed the suit was to gain court approval of its idea of holding talks with Olympic & York concerning SFSP without triggering any provisions of the takeover defense.
SFSP’s poison pill defense would allow stockholders to buy shares at half the market price once anyone purchases 20% or more of SFSP stock.
On Sunday, Santa Fe dropped a provision that would have allowed shareholders to begin acquiring stock at half price if two stockholders, each with less than 20% of the stock, attempted any type of joint action against the company. The holdings of Henley and O&Y; total more than 20%.
