Polaroid Profit Drops; Higher Tax Rate Cited

Polaroid Corp.--the target of a $2.3-billion takeover attempt by a group headed by the nephew of Walt Disney--on Thursday blamed a higher effective tax rate for a 17.6% decline in second-quarter profit.

The maker of instant photography equipment released its earnings report one day after Burbank-based Shamrock Holdings, which is owned by Roy E. Disney and his family, launched its $40-a-share bid for Polaroid.

But Wall Street’s enthusiasm for the takeover apparently waned as Polaroid stock fell 12.5 cents to close Thursday at $39.875 on the New York Stock Exchange. On the previous day, Polaroid shares had shot up $6 in heavy trading.

“There is a greater number of uncertainties than they (investors) originally thought,” said securities analyst Charles K. Ryan at Merrill Lynch Research.

Shamrock, which must still obtain loans to finance the acquisition, is seeking to overturn anti-takeover defense measures Polaroid adopted last week. It is also looking to void Polaroid’s plan to issue 10 million new shares to an employee stock ownership plan. The new shares could boost the cost of a Polaroid takeover by $400 million, analysts said.

In its earnings report, Polaroid said second-quarter profit fell to $22.5 million from $27.3 million during the year-ago period. Polaroid said an increase in its worldwide effective tax rate to 52% from 34% was the primary reason for the decline.

Pretax operating profit, however, rose 9% to $45.7 million for the quarter. Sales increased 8% to $483.3 million.