Henley Group Throws in the Towel in SFSP Takeover Attempt
In what was widely interpreted as surrender in its eight-month effort to take over Santa Fe Southern Pacific Corp., Henley Group said Friday that it is abandoning its plan to mount a proxy fight to gain representation on SFSP’s board.
The disclosure, made in a filing Friday with federal securities regulators, followed a series of setbacks for Henley in its attempt to take over SFSP, a Chicago-based energy, transportation and real estate concern. Henley is SFSP’s largest shareholder, with 15.7% of outstanding shares.
The most recent, and perhaps most damaging, of the setbacks occurred March 11 when a Delaware court refused to grant Henley a temporary restraining order that would have barred SFSP from issuing $780 million in bonds as part of SFSP’s $4.7-billion payout to shareholders. Henley contended that the bonds would overburden the company with debt.
SFSP, best known as owner of the Santa Fe and Southern Pacific railroads, issued the bonds this week as part of a massive restructuring to make it less appealing as a takeover target. SFSP is in the process of selling its Southern Pacific line to Rio Grande Industries to comply with a government decree that it sell one of the railroads.
In an interview earlier this week, Henley Chairman Michael D. Dingman said the issuance of the bonds made SFSP a less attractive takeover target because the covenants associated with the issue would severely limit his restructuring options, were he to take control.
Will ‘Review Investment’
Dingman also expressed regret that Henley had resorted to litigation in the SFSP battle, saying, “We’ve never been plaintiffs in our life.” Dingman was not available for comment Friday.
In its filing Friday, Henley gave no indication what it will now do with its SFSP shares, saying only that it “will continue to review its investment . . . (and) may determine to purchase additional shares or to sell all or part of its investment.” Henley also said it would vote its shares “in accordance with its evaluation of any nominee being proposed for election to the board” at SFSP’s annual meeting scheduled in May.
But analysts said the announcement indicated that Dingman, in the words of one, was “giving up the fight.” SFSP executives were not available late Friday for comment on Henley’s disclosure.
“I think there is little to be accomplished in a proxy fight. Most of the (SFSP restructuring) steps that Henley has sought to prevent have been accomplished,” said Eli S. Lustgarten, an analyst with the Paine Webber investment firm in New York.
Laurence Lytton, an analyst with Drexel Burnham Lambert in New York, said that, although he wouldn’t rule out a future tender offer for SFSP by Henley, a more likely possibility is that Henley and SFSP will make an agreement for SFSP to buy or exchange assets for Henley’s shares.
“To some extent, that’s what (Henley and SFSP) negotiated six months ago, but now (Dingman) is bargaining from a position of weakness instead of strength,” Lytton said.
Another possibility, analysts said, is that Henley could sell its shares to Olympia & York, the Toronto energy and real estate concern that owns 10.2% of SFSP stock. O&Y; is in the middle of a tender offer for SFSP shares that could raise its stake to 19.6% of SFSP shares.
Henley also said in its Friday filing that it has moved for dismissal of its Delaware Chancery Court suit against SFSP that sought to invalidate provisions of SFSP’s “poison pill” anti-takeover defense.
Henley shares closed down 87.5 cents at $24.75 per share Friday, while SFSP shares were down 37.5 cents at $16.75.
