Hong Kong Firm Buys 9.9% Cummins Stake
A Hong Kong concern said Wednesday that it holds a 9.9% stake in Cummins Engine Co. and will ask the U.S. government for permission to buy as much as 25% of the Columbus, Ind.-based diesel engine maker.
The announcement came less than two weeks after founding family members J. Irwin Miller, the 80-year-old retired chairman of Cummins, and his sister, Clementine, paid $72 million, or $5 million above market price, to free Cummins from the uncertainty of a possible takeover by Hanson Industries. Hanson is the American arm of the British conglomerate that has built a reputation as an aggressive corporate raider.
In a filing with the Securities and Exchange Commission, Hong Kong-based Industrial Equity (Pacific) Ltd. said it owns about 1 million shares in Cummins as of Tuesday and that it intends to file under the Hart-Scott-Rodino Act to seek approval to buy up to 25% of Cummins’ outstanding shares.
The firm, which is headed by New Zealand investor Ronald A. Brierley, 51, said it purchased the stake for investment purposes but reserved the right to change its plans.
The filing indicates that the Millers’ purchase won’t completely insulate the company, which said it has been searching for a wealthy, long-term investor to protect itself from a hostile takeover. Officials of Industrial Equity, which has holdings in financial services, oil and gas and automobile distribution, could not be reached for comment. But Cummins downplayed the announcement.
Some See Vulnerability
“We’ve only known of them (Industrial Equity) for one day but we don’t see anything in their profile to cause any alarm,” said Henry B. Schacht, chairman of Cummins. By contrast, he added, Hanson is more aggressive investment-wise and “very different company in terms of size and investment history.”
The Millers’ purchase from Hanson was notable because it was one of the few known instances of private “greenmail” in which a major stockholder paid a premium to buy back an outside investor’s holdings.
Yet some analysts believe that the move may have made Cummins more vulnerable to a takeover in light of the added debt that Cummins will incur when it buys the Millers’ Hanson holdings and 5% stake, as promised.
“The Miller situation did not preclude the acquisition of Cummins by someone else, although this appears to be a friendly equity investment,” said Gurudutt Baliga, an analyst at McDonald & Co.
In trading on the New York Stock Exchange, Cummins stock closed at $60.25, up $2.50.
