Texas Investor’s Group Has 5.3% Lockheed Stake : Company Overhaul Aimed at Thwarting a Takeover May Be Announced Today

Texas investor Harold C. Simmons has acquired 5.3% of Lockheed, worth about $150 million, and disclosed Monday in a Securities and Exchange Commission filing that his investor group “may consider seeking control of the company in the future.”

After a board of directors meeting Monday, Lockheed Chairman Daniel M. Tellup said he would make a major announcement this morning. The announcement is expected to disclose an overhaul designed to thwart Simmons through the sale of some smaller units and possibly some real estate.

A Lockheed source close to the board said the actions would not affect the firm’s major aircraft operations in Los Angeles. Analysts have long speculated that the company might sell off valuable property in Burbank and some smaller commercial operations, including its Calcomp unit in Anaheim.

Lockheed has been the subject of repeated takeover rumors in recent years. It is one of the lowest-valued companies in aerospace, one of the lowest-valued industrial groups traded on major stock exchanges.

Stock Gains $3

On the possibility of a takeover battle, Lockheed shares soared in trading Monday to $49.75, a $3 gain. The investment firm of Paine Webber will announce this morning that it has changed its recommendation from “neutral” to a “strong buy” on Lockheed, based on the potential for a pay-out to shareholders, according to Paine Webber analyst Jack Modzelewski.

Aerospace analysts disagreed as to whether the Simmons action would force Lockheed into restructuring, but agreed that Simmons lacks the financial muscle to acquire Lockheed on his own.

In a telephone interview Monday, Simmons said: “Lockheed could probably increase total shareholder value by a restructuring. They could pay out a substantial amount by taking on some debt.”

But he added: “I don’t know that much about Lockheed. I bought it not anticipating any restructuring, but because it has a low price-earnings ratio (the price of a stock divided by earnings per share) and has a potential for appreciation.”

In a letter to Tellup included with his SEC filing, Simmons said: “We view Lockheed has a well-managed company. We have no plans or desire to disrupt management. We expect to be a constructive, long-term shareholder.”

Contractors Dwindling

Since Lockheed is the eighth-largest prime military contractor, any suitor may have to have tacit approval from the Pentagon. Lockheed holds contracts to produce vital secret weapons such as the F-117 stealth fighter, various reconnaissance satellites and the Trident II nuclear missile.

Some experts said they doubted the Defense Department would intervene against a corporate raider in the absence of a compelling threat to national security. On the other hand, raiders and their leveraged-buyout techniques have generated harsh criticism in Congress and the public, which might encourage Pentagon intervention.

“It would certainly be something to talk about at the highest levels, (with) the secretary of defense and the secretary of the Air Force,” said Verne Orr, former Air Force secretary, in an interview Monday. “We are already down to six major air-frame contractors.”

An obvious potential attraction to Simmons or any other investor is believed to be Lockheed’s pension fund, which has at least $1 billion more in assets than it anticipates needing to provide benefits to current and future retirees.

Simmons has successfully tapped these so-called excess pension funds in other takeover battles, most notably in his takeover of Amalgamated Sugar in 1983.

That move, however, drew from the Labor Department and private individuals charges that Simmons had violated the Employee Retirement Income Security Act. A federal judge found that Simmons had violated the law but said it did not appear to be “willful.”

In its recent annual report, Lockheed disclosed that it had $1.4 billion in pension assets “in excess of projected benefit obligation” as of Dec. 25, 1988. The total plan was valued at $4.9 billion.

Pay-Back Agreements

Within the past two years, the Defense Department has asked all major contractors to agree voluntarily to pay back to the government excess pension-plan assets if their pension plans are terminated. Such terminations in the past have resulted in large windfalls to the companies involved. A Lockheed spokesman said the company has not signed the agreement.

The government is seeking the return of the excess pension funds because it paid most of the contributions to begin with. Lockheed derives most of its revenues from government work--77% of it in 1988 and 82% in 1987.

But some experts question the legality of any government effort to recover excess pension funds, even under such a voluntary agreement.

Although analysts said Simmons does not have the financial wherewithal to acquire Lockheed, they disagreed on whether he could put the company into play as an acquisition target.

“There is some up side and not much down side,” said Joseph Campbell of Paine Webber. “I place a low probability of Simmons being able to buy the company, but this (Simmons’ action) might be the last straw in pushing a restructuring.”

Paul Nisbet of Prudential-Bache Securities, however, has recommended that investors sell Lockheed shares. He said he did not expect Simmons to be successful in any takeover attempt or in putting the company into play.

Peter L. Aseritis of Smith Barney said: “We speculate that he is trying to put Lockheed into play with the hope that a white knight like Ford, Rockwell, Boeing or some other large U.S. industrial company would move to acquire Lockheed, while simultaneously allowing Mr. Simmons to cash in his ownership stake at a nice profit.”