Irvine Firm’s Link to S. Africa Is Targeted : Anti-Apartheid Laws Cited as State, L.A. Officials Focus on Bank Loan
The planned purchase of an Orange County technology firm this week by the subsidiary of one of South Africa’s largest conglomerates is causing concern on the part of state and Los Angeles officials because of a possible conflict with anti-apartheid investment laws.
A British subsidiary of South African conglomerate Barlow Rand Ltd. is acquiring 90% of Melles Griot, an Irvine laser and optics manufacturer, in a $38-million deal scheduled to close Friday. The transaction is believed to be Barlow Rand’s first bid to buy a U.S. firm.
Assemblywoman Maxine Waters (D-Los Angeles) said she intends to ask state officials to see whether loan arrangements between Union Bank in Los Angeles and Melles Griot violate California’s anti-apartheid law.
And the legal counsel to Los Angeles Mayor Tom Bradley said Union Bank might need to end its relationship with Melles Griot to avoid a possible violation of an anti-apartheid law adopted by the City of Los Angeles two years ago.
A spokeswoman for Waters, who sponsored the state anti-apartheid law enacted last year, said the assemblywoman is concerned that Union Bank’s decision to let Melles Griot’s new owner assume an existing loan may conflict with the law.
Banks Cannot Loan to S. African Firms
The anti-apartheid statute prohibits California banks from making loans to South African companies. A violation could result in the state withdrawing current deposits or investments with Union Bank and refusing to deal with the bank again.
Union Bank executives declined to discuss details of the Melles Griot loan, but said their actions have been taken with the advice of bank lawyers.
“In 1985, Union Bank adopted a policy that it would not approve any loans to public or private companies in South Africa, including subsidiaries, and will not renew existing loans,” said Susan Murdy, a bank spokeswoman.
“The exception is when it’s necessary to facilitate repayment of loans,” she said. “We intend to comply with the laws of city, state and federal governments.”
She would not say whether the Melles Griot loan arrangement was consistent with the bank’s South Africa lending policy.
Times Inquiry Caught Government Attention
State and city officials were not aware of the Melles Griot situation until The Times learned of the South African ownership and inquired about the applicability of anti-apartheid laws to the Union Bank loan, which has become an issue among some bank employees.
Pat Trendacosta, Union Bank’s manager of government relations, said staff attorneys had reviewed state and federal anti-apartheid laws for possible violations.
“All commercial banks are sensitive to these new laws,” said Trendacosta, the bank’s key officer on South Africa policy. “A lot of work went into making sure we are in compliance with them.”
The laws are aimed at pressuring the white-run South African government to end apartheid, a national policy of racial segregation that isolates blacks and other non-whites from whites in most activities, including education, employment, housing and politics. The Los Angeles law is similar to the state law and carries similar sanctions.
Despite the questions raised about the Union Bank loan, the scheduled sale of 90% of Melles Griot to J. Bibby & Sons in Liverpool, England, is expected to proceed as planned, said William Johnson, vice president for finance at Melles Griot.
4 Divisions Earned $20.4 Million
Bibby operates four divisions that convert and make paper, provide specialized maintenance services, make medical and biomedical equipment and laboratory glassware and distribute scientific instruments. It earned $20.4 million on annual sales of $502.6 million for the fiscal year ended Sept. 27, 1986.
In September, 1985, Barlow Rand, which is based in Boksburg, South Africa, acquired 86.5% of Bibby. With more than 300 operating companies in mining, manufacturing, merchandising, agriculture and real estate, Barlow Rand is one of largest conglomerates in South Africa. It generated sales of $7 billion and net income of $171 million for the fiscal year ended Sept 30.
Neither Bibby nor Barlow Rand officials could be reached for comment.
Bibby is Barlow Rand’s biggest acquisition in the United Kingdom and is the vehicle that Barlow Rand expects to use to add more companies--particularly U.S. firms--to its stable, said Richard Knight of the American Committee on Africa, a New York-based anti-apartheid group.
Knight said he believes that the planned purchase of Melles Griot is Barlow Rand’s first attempt to buy a U.S. company.
Produces Laser and Optics Products
The privately held firm, founded in 1969 by Jan A. Melles and Richard P. Griot, produces laser and optics products for medical and computer industries.
The company employs 475 people worldwide--about 120 of whom are in Tustin and Irvine--and had sales of about $40 million last year. Most employees are involved in marketing and distribution, a spokesman said.
Proceeds from the change in ownership are expected to give Melles Griot the ability to expand its electro-optical operations, Griot said last month.
After the acquisition, Griot is expected to retire from his post as chairman, but Melles will stay on as chief executive. Griot did not return calls during the past week, and Melles is in Europe.
As the company’s banker, Union Bank has routinely loaned money to Melles Griot, Johnson said. A standard feature of such business loans is an acceleration or default clause, which requires the loan to be paid in full if new owners acquire all or a controlling interest in the company.
In such circumstances, bankers elsewhere said, banks typically collect the entire amount by making a new loan to the new owners. Concerned that renewing a loan to the new Melles Griot owners may violate anti-apartheid laws, however, Union Bank decided to waive the clause and allow the Bibby-operated company to continue repaying the loan, Johnson said.
No Comment on Union Bank’s Role
Murdy said she could not comment on whether Union Bank would continue as Melles Griot’s banker.
Neither bank nor Melles Griot executives would discuss how many loans are involved or the amount or purpose of the loans.
A Union Bank employee who requested anonymity said Melles Griot owes the bank $7 million to $10 million. The employee said the new loan arrangements had upset some executives who strongly supported anti-apartheid activities.
The purpose for a loan is a key factor in determining whether it violates city, state or federal laws.
“As long as the South African parent company does not get any direct contribution or benefit from the loan, under federal law, it’s not a problem for an American-based subsidiary to borrow money here,” said a U.S. Treasury official, who asked that his name not be used.
The Treasury Department takes a broad view of what constitutes a contribution or credit, he said. Loans used for local operations of a subsidiary, he said, are exempt.
The state and city laws, however, are much broader.
The state law, for instance, prohibits banks from lending to companies that are “ultimately” owned or controlled by a South African company.
“That means a company or its subsidiary doing business anywhere in the world,” said Sandra Simpson-Fontaine, chief of staff for Assemblywoman Waters.
She said Waters will contact officials with the state Treasury Department or another state agency and ask them to look into the deal.
“Assemblywoman Waters definitely plans to take action. It’s just a matter now of learning what direction to go in,” Simpson-Fontaine said.
Law Designed to Prevent Windfalls
The Los Angeles law is designed to prevent a South African company from getting a windfall--such as the assumption of a major loan--through its purchase or operation of a U.S. subsidiary, said Mark Fabiani, counsel to Mayor Bradley.
If it became involved with a South African firm, Union Bank would be required to notify the city of its involvement, Fabiani said.
“If the bank has a legal way to get out of the loan, we want them to do it,” he said. He said the city may determine that a continuation or assumption of the loan would essentially constitute a new loan and violate the law.
The law does not address that issue directly but does allow lenders to collect on loans made before the law was enacted two years ago. And it would require withdrawal of deposits from Union Bank only if the city was depositing cash or if either party were amending the terms, such as the interest rate, said Peter Echeverria, an assistant city attorney.
The state and Los Angeles routinely funnel millions of dollars into the state’s major banks, including Union Bank, officials acknowledged. But they have not yet determined how much government money was on deposit with the bank.
Union Bank, which is primarily a business bank, is itself in the throes of an ownership change. Its British parent, Standard Chartered, is selling the bank to California First Bank, which is 77% owned by Japan’s Bank of Tokyo.
