AFG Industries Accepts Buyout Led by Chairman
AFG Industries, a leading glassmaker, agreed Thursday to be acquired in an $885-million tender offer by an investor group led by its chairman, R. D. Hubbard, the company said.
Hubbard formed Clarity Holdings Corp. to handle the tender in which it will acquire 26,770,000 AFG shares, or 94% on a fully diluted basis, at $33 per share in cash.
The Irvine-based company’s shares closed $5.75 higher at $32.50 in heavy New York Stock Exchange trading.
Some analysts said Hubbard, who owns about 12% of AFG’s shares, may be seeking to prevent an outsider from taking over his company. A wave of takeovers has hit glass firms in the past year and shares of AFG’s competitor, PPG Industries, have risen in recent days on takeover speculation.
But Shearson Lehman Hutton analyst Gerald Odening said firmly, “This is not a defensive move.”
He said the takeover will give Hubbard the chance to carry out a wish to join the front ranks of takeover artists. Hubbard led AFG to large profits in losing takeover plays for Merabank, Lear Siegler Inc. and GenCorp in the past year.
“I think he styles himself as a member of the elite takeover artists,” Odening said.
“His motivation is pretty clear,” Odening said. “He used AFG as a public vehicle to engage in takeovers and greenmail of public companies . . . I would think that by going private he wouldn’t have to justify any of his moves to outside shareholders.”
Lovett Mitchell Webb and Garrison analyst Deborah Rodriguez noted that AFG has enjoyed annual revenue growth of 21% and earnings growth of 46% over the past five years.
Bateman Eichler, Hill Richards Inc. analyst Larry Selwitz observed that AFG has emerged as a low-cost producer at a time it is also aggressively expanding its business.
‘Need a Closer Look’
Odening added: “AFG is the type of company takeover artists would like. It generates excess cash, has a lot of assets to play around with and is right now in a pretty stable, predictable industry environment.”
In support of Hubbard’s bid, his financial adviser, Drexel Burnham Lambert, which has backed the executive in past forays, said it is “highly confident of its ability to raise all of the necessary financing to consummate the offer and the merger.”
Although the offer represents a premium of more than 30% over recent market prices of AFG stock, several large shareholders said Thursday that they are reluctant to tender their shares for $33.
“We’ll need to take a closer look at the offer, but it seems disappointing, and we’d rather just keep the stock,” said Susan Byrne, president of Westwood Management in New York, which owns more than 400,000 shares of AFG.
“The management is very talented, specifically Mr. Hubbard,” Byrne said. “We think the company is worth more than that. AFG’s prospects for future growth are very exciting.”
The company said if the tender were fully subscribed, each AFG share not bought would be acquired in a subsequent merger for cumulative redeemable preferred stock of the surviving company with a liquidation preference of $33 a share.
If the tender were not fully subscribed, remaining shares would be bought for a combination of cash and preferred, AFG said.
AFG said the tender will be conditioned on the receipt of 75% of the shares and completion of financing.
AFG said its financial adviser, Bear Stearns, has advised a special committee of outside directors that the offer is fair from a financial point of view, and the board has approved the transaction.
The company is now now the second-largest manufacturer of flat glass in the United States, behind PPG. It commands an estimated 20% of the domestic market for glass.
AFG INDUSTRIES AT A GLANCE
AFG Industries manufactures glass products used in housing construction. The Irvine-based company is also known for its takeover attempts of Lear Siegler and Gencorp in 1986 and 1987, respectively. AFG recently began operation of a 500-ton-per-day glass factory in Victorville and will open a similar facility in Kansas later this year.
Year ends Dec. 31
(in millions) 1987 1986 1985 1984 1983 Revenue $488.4 $405.9 $320.0 $281.9 $213.7 Net income $81.7 $62.9 $21.1 $18.1 $14.1
Assets $519.7 million
Number of employees 6,250
Shares outstanding 28.5 million
52-week price range $32.50-$21
Thursday’s closing price (NYSE) $32.50 up $5.75
Chief executive R. D. Hubbard
