USG to Recapitalize in Effort to Thwart Hostile Bid

USG Corp., fighting to thwart a hostile takeover, said Monday that it will restructure and pay shareholders $42 a share in cash and debt securities plus stock in a newly recapitalized company. The plan is valued at $2.2 billion, USG said.

The USG proposal follows a conditional new offer by Desert Partners LP over the weekend to boost its existing bid of $42 a share to $45, or $2.3 billion, if a friendly deal can be worked out.

“The recapitalization is being offered as an alternative to an unsolicited, coercive and inadequate tender offer . . . by Desert Partners,” Chairman Robert Day said in a statement.

Wall Street, too, was unimpressed by the Desert Partners bid, and USG’s shares rose just 50 cents to $41.50 on the New York Stock Exchange in moderate trading. Traders had been predicting during the day that USG would respond with a recapitalization plan.

The Chicago-based building materials company said its plan gives shareholders $37 in cash, interest-bearing securities with a stated value of $5, plus stock in the new company.

Under the restructuring, USG said it will sell its under-performing Masonite Corp., which makes a patented wood fiber widely used in construction and furniture.

Masonite last year had revenue of $500 million, about one-sixth of the company’s total of $2.9 billion, but was a small portion of the company’s $204-million net profit. It will also sell Kinkead, a smaller division that sells tub and shower enclosures.

USG said several big banks have agreed to provide $1.65 billion of the total cost of the plan, which will pay out an estimated $2.1 billion to shareholders and with transaction costs was valued at $2.2 billion.

The remainder will be raised in a $550-million sale of debt securities to be handled by the investment banking firm of Salomon Bros. and co-managed by Goldman Sachs.

The recapitalization and restructuring will be submitted to a special shareholder vote on June 24.

The announcement follows Desert Partners’ revised offer of $45 a share, up from $42 a share, for 76% of USG stock. The new offer made this weekend was conditioned upon USG’s management negotiating a merger transaction.