SFSP to Soften Its Anti-Takeover Stance

Santa Fe Southern Pacific Corp. said Wednesday that it would amend its anti-takeover defenses to allow 80% or more of its shareholders to accept a cash bid over management’s objections. It was a rare action by a company to make itself more vulnerable to a hostile bid.

The amendment would take effect once approved by the Delaware Chancery Court, where shareholder suits are challenging the railroad, energy and transportation company’s “poison pill” takeover defense, the company said.

Santa Fe’s poison pill, a legal device designed to make hostile bids for the company prohibitively expensive, allows shareholders the right to purchase additional stock at a 50% discount when an investor gains 20% of its shares without management support.

Called Cosmetic

The change would mark the first time a major U.S. corporation has amended its poison pill to give shareholders a deciding voice in the company’s sale if the vast majority tender their shares in a fully financed, all-cash offer, said John Coffee, a takeover specialist at Columbia Law School.

In Santa Fe’s case, however, the amendment is mostly cosmetic since a large chunk of the company’s stock is controlled by insiders, Coffee said.

“This company is still takeover-proof,” Coffee said.

No party has a bid for Santa Fe currently outstanding.

Olympia and York Developments Ltd., the Toronto-based real estate firm that last January considered launching a bid for Santa Fe, owns 19% of the company and holds two seats on the Santa Fe board.

Another two board seats were given to Itel Corp. in the fall after the transportation company bought a 17% stake in Santa Fe from another potential bidder, Henley Group Inc.

Coffee said the change in Santa Fe’s takeover defense would serve to discourage a judge from requiring a company to redeem its poison pill in face of a tender offer.

Such an order toppled Pillsbury Co. recently. About 84% of shareholders in the Minneapolis-based food and restaurant company tendered their shares to the British distiller Grand Metropolitan PLC. But Pillsbury management resisted the $5.7-billion bid until a Delaware judge overturned its poison pill.

In contrast, St. Louis-based clothing and furniture maker Interco Inc. this fall relied on its poison pill to help repel a hostile $2.6-billion bid from the Rales brothers of Washington, even though 93% of its shareholders were ready to sell. The Raleses eventually dropped their offer.

12 Suits Filed

The Santa Fe board has been under pressure to cancel its poison pill since its May 24 annual meeting, when 59% of Santa Fe shareholders voted in favor of a such a proposal.

At that time, 12 shareholder suits were filed in Delaware Chancery Court seeking a cancellation of the pill.

One lawyer in those suits said the poison pill modification provides a good compromise: It significantly enhances shareholders’ rights but preserves management’s ability to devise alternatives to a takeover, such as restructuring and paying a special dividend.

“One arrow in the board’s quiver has been dulled. But there certainly are other arrows” for a board to resist takeover, said Bruce McNew, attorney at the Wilmington, Del., firm Greenfield & Chimicles.

The Delaware court set a Feb. 15 hearing date to consider the poison pill amendment, the company said.