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Polaroid Announces $1.1-Billion Buyback to Repel Shamrock

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Times Staff Writer

Polaroid Corp., fighting off a hostile takeover bid by Shamrock Holdings, said Monday that it will spend $1.1 billion to buy back its own shares and will sell a minority stake for $300 million to a friendly investment fund. The moves may signal an end to Shamrock’s six-month quest for the company.

The Cambridge, Mass., instant photography giant also hinted that it may give shareholders some of the damages it recovers from Eastman Kodak in a major patent infringement case. Analysts have said Polaroid could recover as much as $2 billion in damages from Kodak.

I. MacAllister Booth, Polaroid’s president and chief executive, defended Polaroid’s plan in an interview. “We think we have done the right thing and the fair thing. There’s nothing to be embarrassed or worried about,” Booth said.

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Monday’s announcement is the latest setback for Shamrock, a Burbank investment firm, owned by the Roy E. Disney family, that has been seeking Polaroid since July and raised its offer for the company nearly two weeks ago to about $3 billion from $2.4 billion.

Unless Shamrock can successfully sue to overturn Polaroid’s plan, the battle to acquire Polaroid, the pioneer in instant photography and one of the nation’s best-known brand names, may soon be over.

A source close to Shamrock said the company sued in Delaware late Monday and would disclose the details of the lawsuit today.

Court Success Doubted

Traders and analysts said, however, that they doubt that a Shamrock court challenge would be successful, noting that placing shares in the hands of friendly investors is relatively common. In 1987, for example, Solomon Inc. sold preferred stock representing 12% of the securities firm’s voting power to investor Warren E. Buffett’s Berkshire Hathaway Inc. when it appeared that investor Ronald O. Perelman might launch a bid for Solomon.

Polaroid sold the minority stake to Corporate Partners, a fund organized by the Wall Street firm Lazard Freres, which raised $1.55 billion last year from institutional investors. The fund is believed to be the first on Wall Street whose mission is to act as a “white squire,” Wall Street jargon for someone who buys a minority stake in a company to help it fend off a hostile suitor.

Corporate Partners is buying $300 million in preferred stock from Polaroid that can be converted into about 6 million shares at $50 each. In addition, Corporate Partners received warrants--securities that allow investors to buy a specific number of shares within a given period at a certain price--for 635,000 shares.

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10% to 15% Stake Likely

Those shares Corporate Partners controls are likely to eventually represent a stake in Polaroid of 10% to 15%, depending on how much of its common stock Polaroid can buy for the $1.1 billion it plans to spend. Based on Monday’s closing price of $40.625 in composite trading on the New York Stock Exchange, the money would buy about 27 million shares, or nearly 38% of Polaroid’s 71.6 million shares outstanding.

The selling of the stake to Corporate Partners makes a takeover more difficult because Polaroid has already sold a nearly 13% stake in the company to an employee stock fund. Shamrock in December lost a bid to challenge that plan in Delaware Chancery Court and is appealing now to the Delaware Supreme Court.

Polaroid’s financial restructuring comes less than two weeks after Shamrock raised its offer and threatened to launch a proxy fight to unseat Polaroid’s directors at the company’s annual meeting in May.

Shamrock President Stanley P. Gold called Polaroid’s plan a “thinly veiled effort to stuff the ballot box in anticipation of its annual meeting.” He said that “there appears to be no discernible business purpose” for Polaroid to issue the preferred stock to Corporate Partners.

‘More Than a Hint’

Booth said in the interview that Polaroid’s reference to the Kodak damages in its announcement, which the company said would be used “to enhance short-term value to shareholders,” is “more than a hint” that money would be distributed to stockholders.

“Our intention here is to give them their share of the recovery quickly,” he said.

A federal judge in Boston found in 1985 that Kodak violated Polaroid patents during a brief venture into the instant photography business in the 1970s. The damages phase of the trial is scheduled to start April 17.

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Booth said the announcement was not prompted by the increase in Shamrock’s bid or by the threat of a proxy fight. Rather, he said, it was because Polaroid reached an agreement Sunday with Corporate Partners after negotiating with the fund since last fall.

The fund’s managing partner is Lester Pollack, a lawyer and Wall Street veteran once nicknamed “the third Tisch brother” when he worked in the 1970s alongside investors Laurence A. Tisch, chief executive of CBS, and his brother, Preston Robert Tisch, president of Loews Corp.

Pollack, who was elected as a Polaroid director on Sunday, said in an interview that Corporate Partners believes that cost cutting by Polaroid--estimated to save about $100 million annually--has been effective and that the company has a number of strengths.

“It is a unique franchise, recognized name and strong research and development. It is not without risk, but it has sound prospects,” Pollack said.

POLAROID’S GAMBIT

The instant photography giant’s financial restructuring calls for . . .

Spending about $1.1 billion to repurchase common stock. Based on Monday’s closing price of $40.625, that would buy more than a third of its 71.6 million shares outstanding.

Selling $300 million in preferred stock--convertible into 6 million shares of common stock at $50 each--and warrants for 635,000 shares to Corporate Partners L.P., an investment fund organized by the Wall Street firm Lazard Freres & Co. to invest in firms fighting hostile bids.

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Possibly distributing to shareholders some damages recovered in a patent infringement case it has won against Eastman Kodak. Analysts estimate that Polaroid may recover $1 billion to $2 billion in the damages phase of the trial, scheduled to start April 17. Los Angeles Times

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