Forstmann Abandons Plan to Buy AFG of Irvine

The New York investment firm of Forstmann Little said Thursday it will not pursue its acquisition bid for Irvine-based AFG Industries, clearing the way for AFG’s management to proceed with a planned buyout of the glass-making firm.

AFG’s share price dropped sharply on the news, falling $5 to close at $31.625 per share in heavy trading on the New York Stock Exchange. AFG stock had traded as high as $37.125 per share Thursday before Forstmann disclosed that it was pulling out.

In a brief press release, Forstmann said it was dropping a proposal made last week to acquire all of AFG’s stock for more than $33 a share, or a total of $940 million.

The investment firm, which specializes in friendly leveraged buyouts, did not say why its acquisition plan was halted.

Forstmann Little revealed its interest in AFG in response to a buyout offer made two weeks ago by a management group headed by AFG Chairman R. D. Hubbard, who has built AFG into the nation’s second-largest manufacturer of flat-glass products.

AFG attorney James Bradford said the management group intends to proceed with its cash tender offer for up to 94%, or 26.8 million shares, of AFG stock at $33 a share. The remaining shares would be exchanged for preferred stock or a combination of cash and preferred stock.

“The management group is continuing with its tender offer. We expect that there will be no change in the time frame of the offer and that it will be successfully completed by the March 28 deadline,” Bradford said.

After Hubbard’s group announced its buyout proposal, Forstmann said it was interested in acquiring the company at a price exceeding the management group’s offer of $33 per share. Forstmann declined to specify how much more it would be willing to pay and requested an opportunity to review AFG’s financial records. The company agreed to let Forstmann look at the books last week.

Analysts speculated that after reviewing AFG’s records, Forstmann might have decided that it was not prepared to enter a potential bidding war for the company. “Forstmann Little obviously looked at the numbers and didn’t like what it saw,” said Gerald Odening, an analyst with Shearson Lehman Hutton.

“Forstmann Little may have come away from the meetings with the realization that R. D. Hubbard was prepared to go to the mat to take the company private,” said Larry Selwitz, a securities analyst with Bateman Eichler, Hill Richards in Los Angeles.

Another factor that may have dissuaded Forstmann Little from pursuing the deal was the possibility that Hubbard, should he lose control of the company, would hire away AFG’s key managers for his own future projects, according to Selwitz.

On Wednesday, AFG disclosed to the Securities and Exchange Commission that two AFG shareholders have filed lawsuits charging that the per-share purchase price of $33 offered by the management group is too low. The lawsuits claim that the acquisition agreement between AFG and Clarity Industries “constitutes self-dealing, deception and unfair dealing.”

AFG attorney Bradford said, “The allegations in the lawsuits are unfounded, and we believe the company will be exonerated.”