Gencorp Chief Blasts Shearson for Its Role in Takeover Fight

The head of Gencorp Inc. on Monday accused Shearson Lehman Hutton Inc. of violating its responsibilities as an investment banker by giving privileged information to hostile bidders during a 1987 takeover battle for the aerospace and rubber company.

Gencorp undertook a costly stock buyback and reorganization to block the unwanted takeover by two Texans, Cyril Wagner and Jack Brown, and is now 50% smaller than before the bid began.

Gencorp Chairman A. William Reynolds, testifying before a congressional committee, said: “Shearson Lehman acted improperly by advising and assisting in various capacities the Gencorp raiders despite having also acted as investment and financial adviser to Gencorp.”

Reynolds told the House Energy Committee’s subcommittee on oversight and investigations that Gencorp has filed a lawsuit arising from the takeover against Shearson, the New York-based brokerage.

$16 Million in Fees

Reynolds urged legislative curbs on investment bankers’ use of information to foster takeovers. He also urged research into the role of investment bankers instigating or initiating hostile tender offers.

“At a minimum there should be a specific prohibition on investment bankers’ use of information provided to them by clients in subsequent transactions in which that client is the ‘target,’ ” Reynolds said.

Reynolds’ remarks follow closely on complaints last month by the head of Sterling Drug Co., the pharmaceutical company recently acquired for $5.15 billion by Eastman Kodak after a hostile tender offer by Hoffmann-La Roche of Switzerland. Sterling Chairman John M. Pietruski blasted the Morgan Stanley investment bank for allegedly violating its professional relationship with Sterling by advising Hoffmann, a hostile bidder.

Gencorp became the target of an unsolicited hostile takeover in the spring of 1987, and Reynolds said that investment bankers for Wagner and Brown earned $16 million in fees alone.

Reynolds said that fighting off the takeover disrupted Gencorp’s reorganization and cost about 550 jobs. Reynolds said Gencorp ended 1987 as a company about half the size it was earlier and had sold its soft drink bottling and tire businesses to fend off the hostile raiders.

Shearson officials, who were quoted over the weekend as saying they had acted properly during the takeover fight, were scheduled to testify before the committee later.

Gencorp makes industrial plastics and rubber as well as electronics, ordnance, electronics and propulsion systems for the military.