Shamrock Holdings formally abandoned its $3.2-billion, 8-month-old struggle to acquire Polaroid on Monday, less than a week after a Delaware court dealt the company a fatal blow in its attempt to gain control of the instant photography giant.
The agreement reached Easter Sunday between the two companies calls for Shamrock, a Burbank investment company controlled by Roy E. Disney, to drop all efforts to gain control of Cambridge, Mass.-based Polaroid for at least 10 years in exchange for a package that could give Shamrock a pretax profit of about $40 million for its failed takeover attempt.
Despite the profit awaiting Shamrock, President and Chief Executive Stanley Gold expressed deep disappointment at falling short of the main prize.
“We wanted the company and we are frustrated that we didn’t get it,” he said in a telephone interview after leaving New York, where the deal with Polaroid was signed. “The consolation prize is really only that: second best. I can’t say I’m thrilled.”
Part of Proceeds
Neither, apparently, was Wall Street. Polaroid’s stock dropped sharply Monday, falling $4.50 to close at $36 on the New York Stock Exchange.
Terms of the deal call for Polaroid to repurchase 27% of all its outstanding shares at a premium of $50, including 27% of the shares held by Shamrock. Polaroid also agreed to reimburse Shamrock $20 million for its takeover-related expenses and to spend $5 million in advertising on radio and television stations owned by Shamrock.
In addition, the settlement requires Polaroid to distribute to shareholders part of its after-tax proceeds from a copyright infringement suit that Polaroid has won against Kodak. Early estimates project that Polaroid could recover between $1 billion and $2 billion in damages from Kodak. Shamrock would benefit from the distribution if it still holds Polaroid shares when the payment is made.
However, I. MacAllister Booth, Polaroid’s president and chief executive, said he was pleased with the deal. He said the agreement would free Polaroid “of the huge future costs of fighting a disruptive takeover bid and enable all of us to devote our full energy, creativity and talent to building and realizing Polaroid’s enormous inherent values.”
Booth said the deal, which some have criticized as perhaps too favorable to Shamrock, spared the company legal and banking expenses that “could easily have exceeded” the cost of the agreement.
Gold said the deal leaves Polaroid in better shape than when Shamrock launched its takeover fight because the camera and film company is more focused on its operations and more aware of the needs of its shareholders. “You can call our deal what you want,” Gold said, “but we have added value to the company.”
Shamrock started its quest for Polaroid last July with an offer of $40 per share. At the time, Roy Disney, the 59-year-old nephew of Walt Disney, talked of plans to revitalize Polaroid, a one-time Wall Street favorite that had been slipping in recent years. Later, Shamrock raised its offer to $45 per share and had launched a drive to unseat the company’s board of directors.
But Shamrock’s attempts were thwarted last week by a Delaware court ruling that allowed Polaroid to repurchase 16 million of its own shares--the equivalent of about 27% of the outstanding amount--at a premium price of $50 each.
The fight for Polaroid, the company which pioneered instant photography and became one of the world’s best-known brand names, was noteworthy because of Polaroid’s creative use of an employee stock ownership plan, or ESOP, as a key defensive move.
The ESOP defense took advantage of a clause in the takeover laws in Delaware, where Polaroid and many other major companies are incorporated, that requires an unfriendly suitor to gain approval from 85% or more of a company’s shareholders in order to quickly finish a merger. Without 85% approval, it takes three years to complete a merger.
New Era of Defense
The stock for the ESOP was bought with borrowed funds that will be paid off over many years with money deducted from employee paychecks. That block, combined with the preferred stock sold to the friendly investment fund, Corporate Partners, and the reduction in shares that comes with Polaroid’s stock buyback, put close to 30% of the company’s stock into friendly hands.
The “Polaroid defense,” as it is being called on Wall Street, has been criticized as violating the spirit of ESOP-type programs and their goal of giving employees a stake in the company they work for.
Some analysts said the Delaware ruling allowing the Polaroid purchase could signal a new era in the kinds of defensive strategies planned by takeover targets.
“Up until now, attacking companies have been able to peel away layer by layer of companies’ defenses,” said Brian Fernandez, managing director of Brean Murray, Foster Securities Inc. in New York. “This is one of the first ways anyone’s found to be successful.”