Borden Forges ‘Suicide Pact’ as Takeover Shield

The top 25 executives of consumer products giant Borden Inc., in something akin to a corporate suicide pact, said Wednesday that they have forged an anti-takeover plan that calls for all of them to quit the company if any one of them is fired after an unfair corporate takeover.

Borden chief executive Romeo J. Ventres, calling the defense a “people pill,” in contrast to the widely used “poison pills,” said that any bidder who tries to take over Borden at a low-ball price would face an executive suite exodus that could cripple the firm overnight.

“If I were an acquirer, I’d think twice about . . . risking the total loss of this operating management,” said Ventres, whose company produces Borden dairy products, Laura Scudder’s potato chips and other snacks, Cracker Jack candy, Elmer’s glue and dozens of other brands. “And, if I were a lender, I’d think twice about lending to somebody willing to take such a risk.”

In return for signing contracts pledging that they would join the pact, these top executives would get additional cash in their severance packages, called “golden parachutes,” the company said.

Major Firms Change Hands

The pact is a sign of the anxiety many corporate executives feel today, particularly in the consumer products industries, as the unabating takeover wave has engulfed company after company. As corporate chieftains and Wall Street buyout specialists have bid higher and higher for the values they see in brand-named products, such leading U.S. corporations as RJR Nabisco Corp., Pillsbury Co., Kraft Inc. and Beatrice Co. have changed hands.

And, recently, there has been new evidence of how difficult it is to defend a company against a determined bidder who is willing to pay mostly cash.

‘Poison Pill’ Rejected

Only two weeks ago, the Delaware Supreme Court threw out Pillsbury’s attempt to block an offer from Grand Metropolitan PLC, a British conglomerate, with one of the “poison pill” devices, which seek to block unsolicited takeovers by making them prohibitively expensive. Grand Met is now completing the acquisition.

“Some managements are feeling pretty hemmed in these days, as this desperate gesture shows,” said Gregg Jarrell, a finance professor and former chief economist for the Securities and Exchange Commission. “This one says: ‘We’re in the trenches, boys--fix bayonets.’ ”

Borden executives insisted that the company, which had 1987 sales of $6.5 billion, is not now faced with a takeover threat. But they acknowledged that the takeover boom has been very much on their minds.

“We read the papers and watch TV,” said Ventres, who struck on the idea while sweating in a sauna last March.

Wall Street analysts said the company’s stock is now trading at what many consider a depressed level, suggesting that some potential acquirers might consider a takeover offer.

Bloody Takeover Battles

Ventres said the recent history of bloody takeover battles shows that many acquirers have won companies by paying the shareholders less than they might have. He noted the case of the British conglomerate Hanson Trust PLC, which has so far raised $1.3 billion by selling off parts of SCM Corp., which it bought in 1986 for $930 million.

Some Wall Street analysts and takeover specialists said they thought that the “people pill” might cause some potential buyers to hesitate before making a bid or might result in a higher bid to avoid a court fight over some provisions of the device.

But several said it would probably prove to be more ingenious than effective.

“It’s definitely clever, but, if an acquirer were thinking of just selling off the pieces of the company, losing the management might not prove such a disadvantage,” said Richard Lowe, takeover specialist in Washington with the law firm of Proskauer, Rose, Goetz & Mendelsohn.

“The unemployment lines are filled with people who thought they were indispensable,” said Ralph Whitworth, executive director of the United Shareholders Assn., a “shareholder rights” group in Washington, D.C., formed by corporate raider T. Boone Pickens Jr.

Jarrell questioned whether the contracts would hold up in court and whether an acquirer might not be able to run the company using the Borden executives immediately below the top 25.

Also uncertain, he said, is whether the 25 executives would stand together, in a pinch, and actually quit the company.

“Top executives generally step on a lot of people getting where they are,” said Jarrell, who now teaches at the University of Rochester’s William E. Simon Business School. “They may not be willing to go quietly.”

To put the pact in effect, the executives late last month signed contracts committing them to quit if Borden were taken over in what they considered an unfairly priced deal.

The 25 executives have for several years had a severance compensation package that is collectively worth up to $27 million. The new contracts have increased the maximum value of these “golden parachutes” to $35 million.

To deal with the case of an executive who violates the pact by staying on, the contracts include a clause that Jarrell called an “exploding reverse golden parachute.” In such a circumstance, the salary of an executive who did not quit would have to be divided equally with the 24 who left.

That would mean that, to pay an executive a $150,000 salary, the acquirer would have to shell out $3.75 million, $3.6 million of which would be divided among the executive suite “loyalists.”

Borden executives said that they thought the pact would be particularly effective because the company is highly decentralized, largely consisting of a collection of regionally distributed brands run by managers who have been with the company for years. The average tenure of the 25 executives is 21 years, officials said.

It would be difficult for an acquirer to replace such people, they insisted.

Determination of Worth

If a takeover offer were made, the company directors’ first step would be to try to judge its fairness, based on complicated criteria for judging the company’s worth. A fair offer, under the new arrangement, would be one that took into account 100% of Borden’s value as an operating concern, plus 50% of the extra value the company might have to some bidder in a takeover.

The “people pill” would be defused if the offer at least matched that value. It would also be nullified if shareholders seem to be enthusiastic about the takeover. Specifically, the anti-takeover plan would be dead if 85% of the shares held by disinterested shareholders--neither management nor the bidder--are tendered.

But the “people pill” would be triggered if those conditions were not met and if the new owner demoted or fired a single one of the 25 top executives.