SEC Suit Shows Bid for Firm Never Was : Wall Street: Details emerge in the mystery surrounding a little- known firm’s purported offer to buy Superior Industries International.
On the morning of Feb. 8, 1988, the American Stock Exchange would not let trading begin in the stock of Superior Industries International Inc. Why? There was important news for investors to evaluate first.
A press release had been issued early that morning announcing that a “firm offer” to buy Superior had been made by Vista Group, a little-known Los Angeles investment firm, and the giant brokerage Prudential-Bache Securities Inc. The offer: $16 a share, or $93 million total.
There was just one problem. Prudential-Bache quickly announced it had nothing to do with any firm offer for Superior, a Van Nuys-based company that is a leading manufacturer of wheels for the Big Three U.S. auto makers. Then Vista announced it was going ahead with the bid with or without Prudential-Bache.
All of which triggered widespread confusion on Wall Street about just who was trying to acquire Superior, which had sales of $246 million last year. Despite the confusion, Superior’s stock shot up $3.50 a share to $15 a share when trading resumed the next day.
But no offer ever materialized. Last month, U.S. District Judge A. Andrew Hauk in Los Angeles sorted out the confusion. He agreed with government lawyers that Vista and its owner, Vipin Sahgal, effectively made the whole thing up.
A civil suit was brought by the Securities and Exchange Commission and Hauk ruled that Vista and Sahgal violated federal securities laws by making “false and misleading statements” through their press releases concerning the purported offer.
Hauk also granted the SEC’s request that Vista and Sahgal be enjoined from future violations of securities laws. What of the investors who lost or made money on the sudden gyrations in Superior’s stock caused by Vista’s statements? No change there. That’s the rub of the green.
Sahgal’s company technically was named Rana Research Inc., but it did business as Vista Group Ltd., according to the SEC’s suit. It is unclear whether Vista still exists; its telephone number at the time of the Superior bid has been disconnected. Sahgal is now apparently working at a Los Angeles law firm, Stanwood Smith, but he did not return telephone messages seeking comment.
How did the Superior mess develop?
According to the SEC’s suit, Sahgal’s company was “on the verge of financial failure” in 1988, having bounced payroll checks and owing creditors more than $100,000. Nonetheless, Sahgal had grown interested in Superior--the suit does not explain why--and twice he approached Superior and its chairman, Louis L. Borick, about possibly acquiring Superior through a leveraged buyout. That’s a transaction in which a group--usually including current management--buys a company with mostly borrowed money backed by the company’s assets. LBOs were popular during the 1980s and helped fuel the long stock-market boom.
Borick, who started Superior in 1947 with only $3,000, bluntly rejected Sahgal’s overtures. Yet Sahgal told Prudential-Bache, which had a policy of not getting involved in hostile takeovers, that he knew Borick and “could deliver” him in a friendly deal involving Prudential-Bache, the SEC’s suit said.
On that basis, Prudential-Bache did a preliminary analysis of Superior and wrote a letter to Superior indicating that it might be interested in doing a leveraged buyout of the company, the suit said. But the letter was “obtained under false pretenses,” the SEC charged.
Regardless, Borick again rebuffed Sahgal. So Sahgal “decided to shake up Superior’s management by issuing a false and misleading press release” announcing the takeover offer, a plan designed “to ignite a transaction” from which Sahgal “could make a quick and easy profit,” the suit stated.
Sahgal did so “without seeking or having authorization from anyone at Prudential-Bache,” it added.
So Prudential-Bache immediately said that although it had spoken with Vista and sent Superior “a normal introductory type of business letter,” it was not involved in making a firm offer and demanded that Vista retract its statements, the SEC suit stated. Vista did not, and instead issued another announcement saying it would pursue the acquisition even though it had been told that Prudential-Bache was unlikely to be involved, the suit stated.
However, the suit claimed that Vista and Sahgal did not have the financial wherewithal to acquire Superior or even “make any significant or meaningful contribution” to finance such a bid.
Superior remains an independent company today. Its chief financial officer, R. Jeffrey Ornstein, said confusion among its employees and other disruptions caused by the purported bid were limited to the few days surrounding the incident.
“We’re glad to see it behind us, and the appropriate action that was necessary taken,” he said.
