Foreign Firms Active in Friendly Takeovers of American Companies

Publicity surrounding the hostile takeover of Pillsbury Co. by the English company Grand Metropolitan has focused attention on recent efforts by overseas firms to acquire U.S. corporations.

Those efforts include the pending acquisition of Computer Consoles Inc., a Massachusetts firm that employs more than 350 people at its computer products division in Irvine, by a large British computer concern.

A recent report by the General Accounting Office showed that foreign companies successfully completed only six hostile takeovers of U.S. companies in the first half of this year out of 11 attempted.

But the report also showed that 203 U.S. companies were acquired by foreign firms through more friendly means in the first 6 months of 1988.

And in the last month alone, European companies have quietly made friendly bids for four U.S. firms, according to filings in the Securities and Exchange Commission:

- STC, a London-based firm, successfully bid $168 million for Computer Consoles, which is headquartered in Waltham, Mass.

- Pharmacia AB, a Swedish company, made a $55-million offer for Electro-Nucleonics of Fairfield, N.J., which makes medical equipment. The New Jersey firm agreed to the buyout.

- A French company, Framatone SA, offered to acquire Burndy Corp., a Norwalk, Conn., electronics manufacturer, for $340 million. Burndy’s directors encouraged shareholders to accept the offer.

- Another French firm, Pechiney SA, bid $1.3 billion for Triangle Industries Inc., a New York wire and vending machine manufacturer. Triangle’s board endorsed the offer.

Unlike hostile takeover activity, friendly foreign acquisitions are not necessarily viewed with suspicion.

“In some aspects, they may be spearheading a revival” by bringing new technology and management skills to American companies, said Monty Graham, a senior fellow at Institute of International Economics. “We see it as more a blessing than as a problem.”

But Graham, who is writing a book on foreign investment in the United States, said this wave of foreign acquisitions may have peaked.

The 203 U.S. companies acquired by foreign firms in the first half of this year compared to 326 for the whole of 1987, according to the GAO report. The number of U.S. companies acquired by American firms dropped to 1,340 for the first 6 months in 1988 from 3,198 for all of 1987.

Rep. Byron L. Dorgan (D-N.D.), said he requested the GAO report at the beginning of the year to find out the numbers of foreign takeovers to determine what kind of policy Congress should be studying.

The number of foreign acquisitions “is a significant number, and it’s growing and growing rather rapidly,” Dorgan said. “There are virtually no hostile acquisitions in Japan or West Germany. This country has become a playground for international speculation.”

Foreign ownership of U.S. companies in certain industries, especially defense, can cause problems, he said. Dorgan said he may introduce legislation in Congress to discourage takeovers.

The National Assn. of Manufacturers is more concerned with the amount of debt involved rather than whether the buyer is from the United States, said spokesman Howard Lewis.

Many foreign takeovers are not leveraged buyouts, and the acquired companies are generally left intact. In a leveraged buyout, the buyer borrows large sums and often sells off some company assets after the acquisition to help reduce the debt load.

Critics contend that buyouts are one of the factors influencing American businesses to concentrate on short-term profits at the expense of long-term growth, unlike their foreign counterparts.

Spokesmen for two of the U.S. companies targeted by foreign buyers said they do not expect much disruption of their operations or their employees.

Richard Krieger of Computer Consoles said he thinks STC will leave the company “relatively alone” because of the long working relationship between the two companies. Its employees might benefit from the takeover because of STC’s greater size, he said.

Computer Consoles’ Irvine division, which manufactures mid-size business computers, accounted for slightly less than half of the company’s $148 million in revenue last year. Computer Consoles also produces communications systems and business software.

The $168-million bid by STC, a supplier of computers, office systems, communications equipment and software, has been unanimously endorsed by the board of Computer Consoles.

Burndy employees view the acquisition as a positive step, and the privately held Framatone can bring a long-term view to Burndy, said Jeanette Clonan of Burndy.

A study done by Pharmacia AB in 1985 said the company needed to form a cooperative venture with a U.S. company, and it chose to go after Electro-Nucleonics the same year, according to its SEC filing. Pharmacia, based in Uppsala, Sweden, wants to make Electro-Nucleonics its North American headquarters for its diagnostics business.

“The combined resources of Pharmacia and Electro-Nucleonics are essential to meet the emerging needs for more cost-effective medical-diagnostic systems on a global scale,” said Vincent Abajian, chairman of Electro-Nucleonics.

Pharmacia, an international manufacturer of biotechnological and medical-diagnostic products, reported sales of $545 million in the first half of the year--about 18 times as much as Electro-Nucleonics.

“For most of these (employees), it’s just a change in ownership,” said Robert Litan, a senior fellow at the Brookings Institute. “My impression is that the American companies that they acquire are left to their own.”

Foreign investment in the United States has been occurring for years, and foreign acquisitions have become somewhat inevitable because of the U.S. trade deficit, said Stephan Cooney, also of the National Assn. of Manufacturers.

“They are making the investment, and they are taking the risk,” Cooney said. If Europeans lent money instead, those debts would have to paid off whether or not the U.S. economy remained strong.

Reasons for the current spate of foreign buyouts are not clear. Educated guesses ranged from concern that Congress will pass bills restricting takeovers to the fear that the United States might become more protectionist after 1992, when the European Common Market takes a number of steps to ease trading among its countries.

The GAO said the dollar amount of foreign acquisitions has risen from $18.8 billion in 1985 to $20.2 billion for the first 6 months of this year.