Lockheed Chairman Tellep Questions Simmons’ Ability to Manage Firm
Lockheed Corp. Chairman Daniel M. Tellep took the offensive Sunday in the battle with a group that wants to replace the aerospace firm’s board of directors--questioning the motives and managerial skills of Harold C. Simmons, the Texas financier who leads the rival group.
In an interview Sunday at Lockheed’s headquarters in Calabasas, Tellep defended his record since he became chairman and chief executive in January, 1989. He cited recent cost-cutting and restructuring at Lockheed and raised questions about Simmons’ intentions.
“Simmons, thus far, hasn’t revealed any plans for Lockheed,” Tellep said. “The only concrete plan he has put forward is a plan for taking over.”
Tellep also said Simmons has not addressed questions involving who would manage the company if his proxy campaign against the current board is successful.
Simmons “has never claimed he would operate the company himself,” Tellep said. “I don’t think he would try to run the company on a day-to-day basis. . . . Shareholders will have to ask themselves: ‘What about this uncertainty?’ ”
Simmons last month nominated his own slate of 15 candidates, including himself, for the Lockheed board. They are vying for shareholder votes that will be cast at Lockheed’s March 29 annual meeting. Simmons controls N. L. Industries, a Houston-based chemical company that has accumulated 18.9% of Lockheed’s stock, most of it during the past year.
Simmons has tried to woo Lockheed shareholders by chiding the company’s board about the company’s 1989 financial performance, citing a recent decline in the value of Lockheed stock. The stock price, which reached a 12-month high of $54.75 in the third quarter of last year, closed Friday on the New York Stock Exchange at $35.75.
Commenting on speculation that a Simmons-controlled board might sell some Lockheed assets, Tellep on Sunday disclaimed knowledge of Simmons’ plans but cautioned against any breakup of major operating units.
Tellep said Lockheed’s operations are interdependent and that certain units rely on the technology and expertise of others to develop products and attract business.
“If someone started breaking it up, . . . the parts couldn’t help each other,” Tellep said. “Any split-up diminishes the value of the whole.”
Tellep also said shareholders should consider the experience of Lockheed’s present board when they are called to vote. “Our board has dealt with difficult problems for years. Our board stacks up well compared to Simmons’,” he added.
Tellep also questioned Simmons’ opposition to the “poison pill” anti-takeover provision in Lockheed’s by-laws. Under the provision, the company has the right to sell additional stock to current shareholders at a discount if one shareholder acquires 20% or more of Lockheed’s shares.
Tellep said the provision was designed to force suitors to offer to buy all shares of Lockheed stock at a “fair price.” Without such a provision, he said, a shareholder could get control of the company by gradually buying shares until a 51% stake is obtained.
Simmons apparently wants to take control of the company without paying stockholders a “premium,” Tellep said.
Simmons was not immediately available for comment.
The Lockheed chairman said he decided to offer interviews to the news media Sunday and today because of the controversy surrounding the struggle over the company. “We think there is an enormous amount of interest in this story,” he said, “and we want to do more . . . to tell our story.”
Lockheed will take its message directly to shareholders by staking out positions and publishing the information in newspaper advertisement this week, Tellep said.
During the interview, Tellep also responded to a Simmons message put forth in newspaper advertisements last week. The ads said Lockheed’s board was unable to “compete effectively in the changing environment of the space and defense” industries.
However, Tellep said Lockheed had coped effectively with cuts in Defense Department spending over the past four years and that the company has adopted restructuring plans that will reduce its reliance on defense-related spending. At present, 75% of Lockheed’s revenues stem from Defense Department contracts, Tellep said, but by the mid-1990s, the figure will be down to 65% to 68% of revenues.
Tellep said he is unhappy with Lockheed’s stock value, attributing the decline to “industrywide” woes relating to “fixed-cost development contracts” with the government, pacts that do not allow contractors to recoup losses from cost overruns. He said the industry lost $2.5 billion last year on fixed-price contracts.
Lockheed suffered losses of $430 million, he said, on two major fixed-cost projects--the P-7A Navy patrol aircraft program and on building the wings for the C-17 military transport plane for which McDonnell Douglas is the prime contractor. Tellep said top Pentagon officials are now concerned about the financial problems of the defense industry and about the cost overruns and losses associated with fixed-cost pricing.
For all of 1989, Lockheed posted earnings of $2 million on sales of $9.9 billion, compared to a profit of $624 million on sales of $10.4 billion the year earlier. However, Tellep noted, Wall Street analysts have projected an improvement in the aerospace firm’s earnings this year.
