Polaroid Rejects Shamrock Offer; Battle Is Expected

Polaroid Corp. on Tuesday rejected Shamrock Holdings’ buyout offer, setting the stage for a likely hostile takeover bid for the instant photography company.

Polaroid’s decision, which came during a directors meeting at its headquarters in Cambridge, Mass., was widely expected. Polaroid has resisted talks with Shamrock since learning earlier this year that its stock was being accumulated the Burbank investment firm, which is owned by the family of Roy E. Disney, nephew of the late Walt Disney.

In addition to rejecting Shamrock’s offer, Polaroid tightened its takeover defenses. The company adopted a plan that allows shareholders to receive newly issued preferred stock anytime a hostile suitor acquires 20% or more of the company. The previous threshold, set two years ago, was a 40% stake. The move is intended to make a takeover prohibitively expensive.

Shamrock owns 4.9 million Polaroid shares and has proposed a two-part bid to Polaroid’s directors. The base price being offered is $40 a share, or $2.28 billion, for the 52.2 million shares it doesn’t already own.

In addition, Shamrock is offering to pay shareholders 40% of any amount Polaroid receives from a patent-infringement lawsuit against Eastman Kodak stemming from Kodak’s venture into the instant photography business. Some securities analysts have estimated that Polaroid could recover $1 billion to $2 billion from Kodak, which would give Shamrock’s bid a value of more than $3 billion.

Polaroid, which is asking for $5.7 billion in damages, won the infringement suit. Hearings to determine the amount of damages are scheduled for January.

To support its takeover effort, Shamrock also has gone to court in Delaware to invalidate Polaroid’s new employee stock ownership plan. The ESOP was issued 9.7 million shares of stock that Polaroid employees will be allowed to purchase over 10 years.

Polaroid Stock Gains

Shamrock argues that the stock was issued to entrench Polaroid’s management by putting shares in friendly hands. Shamrock is not offering to buy that stock and is seeking to force Polaroid to rescind the issuing of the stock.

In a prepared statement, Polaroid said Shamrock’s proposal “was still subject to significant ambiguities, uncertainties and conditions,” among them financing. Polaroid also said it cannot take back shares issued to the ESOP.

A spokesman for Shamrock declined to comment. A source close to Shamrock, however, dismissed the suggestion that Shamrock’s financing is shaky, saying that Shamrock is nearly finished arranging the $1.3 billion in bank financing that it needs for a bid.

Polaroid’s stock closed at $43.375 a share in New York Stock Exchange composite trading, up 87.5 cents.