Simmons’ Takeover Bid Defeated, Lockheed Says
Lockheed Corp. declared Tuesday that it had defeated by about 60% to 40% Texas billionaire Harold C. Simmons’ effort to take control of the giant aerospace firm’s board of directors.
However, four so-called shareholder rights initiatives championed by Simmons were approved by the shareholders, according to the preliminary results released Tuesday. Lockheed initially opposed the initiatives but later withdrew that opposition.
Simmons had harshly criticized Lockheed’s board and management for the company’s declining profits, its drop in stock price, and its strategy of diversification.
Lockheed, headquartered in Calabasas and one of Southern California’s major employers, had originally been expected to turn back Simmons’ challenge by a much wider margin. However, Simmons picked up the support of some major institutional investors, including the California Public Employees’ Retirement System, because of his shareholder rights initiatives.
The preliminary results were also released Tuesday by NL Industries, the Houston-based chemical firm controlled by Simmons, which was the Texan’s vehicle in the battle.
The outcome was crucial because the takeover fight involved the nation’s sixth-largest defense contractor. Lockheed supplies missiles, planes and technology to the Defense Department and is a contractor for the National Aeronautics and Space Administration. It has about 83,000 employees nationwide, about 18,500 based in Southern California.
The campaign for the proxies, or votes, of shareholders came to an end March 29 at Lockheed’s annual meeting in Burbank. The preliminary count, tallied by an independent company specializing in corporate elections, showed that 52 million of the 63 million outstanding shares were voted, Lockheed said Tuesday.
The 14 incumbent board members won reelection, receiving support ranging from 58% to 61% of the votes, although many shareholders split their votes between the incumbents and Simmons’ slate. Simmons’ slate--which included former Texas Sen. John Tower, retired Adm. Elmo R. Zumwalt III and Simmons--received support in the 40% range.
Lockheed Chairman Daniel M. Tellep said in a statement released Tuesday that, “While the results are not yet official, we are confident that the final outcome will confirm the preliminary tally. We are extremely gratified at the strong show of support we received from Lockheed shareholders.”
The company’s non-defense-related ventures--computer graphics operations and some segments of Lockheed’s electronic systems and technology services divisions--were a bone of contention in the campaign. Calling it “failed diversification,” Simmons told shareholders he would concentrate on Lockheed’s core business of aerospace and defense-related contracting if his slate of directors won election.
Tellep responded by saying that Lockheed must reduce its reliance on military business because of reductions in Pentagon spending. He has also said that the technology services area has provided Lockheed with its fastest-growing sales operations.
Simmons said his campaign has forced Lockheed management to respect and respond to the issue of shareholder rights, which is aimed at making corporate management more responsive to shareholders’ wishes.
Rights activists commonly support measures such as confidential voting in corporate contests and generally oppose anti-takeover provisions known as poison pills because they limit or eliminate a shareholder’s right to sell stock.
“The shareholders have spoken clearly on these issues,” Simmons said Tuesday, “and we will expect Lockheed’s board of directors to take prompt action to implement the shareholders’ wishes.”
The backers of shareholders rights won a clean sweep, according to the preliminary tally, approving:
- A proposal calling for Lockheed to require that all shareholder voting be kept confidential. About 60% of the shares were voted in favor of the initiative, a non-binding resolution. Tellep has said he would establish confidential voting if the proposal passed.
- A ban on “greenmail” payments. A company pays greenmail by buying back stock from a corporate raider at a price higher than the market value. About 97% of the Lockheed shares were voted in favor of the ban, and the company had said before the votes were counted that it plans to prohibit such payments.
- A corporate bylaw forcing Lockheed to opt out of strict anti-takeover provisions under corporate law in Delaware, where Lockheed is incorporated. Shareholders backed the proposal with 62% of Lockheed’s stock. The binding resolution forces Lockheed’s board to eliminate a provision that legally stalls any corporate raider from acquiring control of Lockheed for a three-year period.
- A proposal to eliminate Lockheed’s poison-pill defense against takeovers. However, Lockheed said only that it would reconsider its position on this issue. The non-binding proposal, which received 57% of the vote, calls for the elimination of a provision that allows Lockheed to sell stock to current shareholders at a discount if an “unfriendly” shareholder acquires 20% of Lockheed’s stock. Such a sale would reduce the relative size of the hostile buyer’s stake in the company.
The passage of the initiatives marks a milestone in the shareholder rights movement, according to some industry analysts.
“This whole battle shows that the terms of the proxy fight have changed,” said Howard Sherman, an analyst at Washington-based Institutional Shareholder Services. “Past proxy fights have related only to financial performance. The issues of corporate governance and shareholder rights were as big a part of this proxy battle as anything else.”
Indeed, some analysts note that some institutional investors sided with Simmons primarily because of his stand on shareholder rights issues. Analysts said Lockheed management is likely to be more responsive to suggestions by shareholders because of the strength of Simmons’ challenge.
NL Industries, of which Simmons is chairman, is Lockheed’s largest shareholder with 18.94%. Simmons accumulated most of the stock during the last year and a half at varying prices and has suffered millions of dollars in paper losses as the stock’s value has declined. The stock, which was worth $46.125 a share just a year ago, closed Tuesday in New York Stock Exchange trading at $37.875.
“We’re reviewing all of our options,” NL Industries President J. Landis Martin said in a telephone interview Tuesday. Martin, who was also a member of Simmons’ slate of candidates for the Lockheed board, said, “We did very well when you consider we only had a few weeks to make our case to shareholders.”
Martin said NL Industries will not decide whether to challenge the results until it reviews the vote counting with Corporate Trust Co., the Wilmington, Del., firm retained by Lockheed to supervise the election and count the votes. The results will not be official until lawyers for both sides have a chance to review the votes.
Simmons decided to launch his board challenge in January after Tellep refused to give NL Industries representation on the Lockheed board. Simmons had asked for six spots on the board for his representatives. That demand was made after Lockheed reported a drop in net profits to $2 million in 1989 from $624 million in 1988.
Lockheed has attributed much of the decline to about $500 million in losses associated with five fixed-cost defense contracts--projects on which it was prohibited from recovering excess costs.
Patricia Trent at Seidler Amdec Securities in Los Angeles said Tellep must find a way to generate a quick financial rebound.
“Tellep has to keep promises to investors. This is a one-year probation (for Tellep). I believe Simmons will rise again and fight one more round.”
TOUGH ROAD AHEAD: Although Lockheed won a proxy battle, it faces intensified pressures to boost profit. D1
