Polaroid Begins Buyback to Thwart Shamrock
Polaroid on Tuesday launched the first step of a $1.1-billion stock repurchase designed to thwart a hostile bid for the company by Roy E. Disney’s Shamrock Holdings.
The instant photography giant came out with an $800-million, or $50-a-share, offer for as much as 22% of its stock.
Polaroid’s tender offer apparently disappointed Wall Street traders and analysts, who had hoped that the company would offer as much as $52 a share. In composite trading on the New York Stock Exchange, Polaroid was off 37.5 cents Tuesday to close at $43.375.
The company’s stock buyback is planned to come in two steps. It is offering to buy up to 16 million of its 71 million shares for $50 each in the first phase.
In the second phase, Polaroid wants to spend an additional $325 million to buy shares on the open market or through “privately negotiated purchases.” That $325 million, however, is not being spent yet because it was raised through a private investment deal that Shamrock is trying to scuttle in court.
Shamrock President Stanley P. Gold, in a prepared statement, called the Polaroid offer a “coercive self-tender detrimental to Polaroid’s shareholders.” Shamrock, owned by the family of Roy E. Disney, Walt Disney’s nephew, owns 4.9 million shares of the Cambridge, Mass., company and is offering $3 billion, or $45 a share, for the stock it doesn’t own.
Polaroid’s announcement that it is considering privately negotiated purchases of its stock set off talk on Wall Street that the company might be considering ridding itself of Shamrock by paying greenmail to the Burbank investment company. Greenmail is a payment by a takeover target to a potential buyer. In most cases, the takeover target pays the suitor a premium not offered to other shareholders in exchange for an agreement not to pursue the bid.
A Polaroid spokeswoman said the company will not pay greenmail. And Gold has previously criticized the practice. But that failed to comfort some investors and analysts, who questioned why Polaroid would include a reference to a private share purchase if it weren’t considering buying out Shamrock.
“It makes me nervous. The only privately negotiated transaction I can see is with Shamrock,” said B. Alex Henderson, an analyst with Prudential-Bache Securities.
With Polaroid’s stock repurchase launched, Shamrock’s options are getting fewer. The company’s chief strategy is to try to unseat Polaroid’s board at the company’s annual meeting in May.
But Polaroid’s buyback plan makes that effort harder to accomplish. To succeed, Shamrock would need support from stockholders with slightly more than 50% of the outstanding stock, which could mean as many as 30 million shares. And Polaroid has placed stock with the voting power of 16 million shares in friendly hands: an employee stock ownership fund and an investment fund named Corporate Partners.
Once the buyback is finished, the acquired shares presumably would be retired, and those friendly shareholders could have close to a 30% stake in the company. The Polaroid spokeswoman said employees will decide how much, if any, of the stock owned by the employee stock fund is tendered as part of Polaroid’s stock repurchase. Since Polaroid employees are siding with management, it is widely believed that they will hang on to their shares to increase their clout.
Nick Pasquarosa, the most vocal spokesman for Polaroid’s 10,000 employees, said he could not predict how workers will react to the tender offer but said they do not want to lose the leverage they have in the takeover battle.
Shamrock’s only other hope is to overturn both the sale of shares to the employee fund and to Corporate Partners in Delaware state court. So far, however, its efforts there have been unsuccessful.
Traders speculated that Shamrock, now bidding $45 a share for the stock it doesn’t own, may raise its bid to as much as $52. But they also questioned the wisdom because it isn’t clear whether Polaroid is worth that much.
One reason is the uncertainty over how much Polaroid will recover in the damages phase of a patent infringement case it won against Kodak. The case stems from Kodak’s venture into the instant photography business in the 1970s. Polaroid could win as much as $11 billion, but most analysts believe it will be less, probably $1 billion to $2 billion.
