Texas investor Harold C. Simmons told Lockheed Corp. on Tuesday that he wants it to pay, in part, for him to acquire it--an inventive plan that suggests the lengths to which financiers must go to complete takeovers with the collapse of the junk bond market that underwrote such deals in the 1980s.
Simmons provided details of the proposal, initially advanced last week, during a meeting with Lockheed executives in Los Angeles. He had requested the meeting to flesh out his Nov. 12 takeover offer, a $40-per-share bid valued at about $1.6 billion.
Lockheed's management, which defeated Simmons in a proxy battle for control of the company's board last spring, said Tuesday that it would respond to the offer in "due course." Though the company has continued to clash with Simmons over corporate strategy, it has indicated it is willing to review proposals from NL Industries, a Houston-based chemical company controlled by Simmons that is Lockheed's largest single shareholder.
Under a plan put forward by Simmons, Lockheed would borrow or otherwise raise $820 million in acquisition financing--about half the cost of the deal. NL Industries would cover the other half of the acquisition cost.
NL Industries President J. Landis Martin, who participated in Simmons' presentation, said his company has $400 million on hand to invest in the deal. Martin said the remaining $400 million would be raised by selling some NL Industries assets and by borrowing--but not by selling high-risk, high-yield bonds.
Some industry analysts believe that the bid will be rejected partly because Lockheed would have to help finance the arrangement.
"That's like asking management to provide the bullets for the gun that would be used to shoot them," said Gary Reich, an analyst at Shearson Lehman Hutton. "Board members would have to be out of their minds to agree to this."
Reich said Lockheed's missile and space operations alone were worth more than what Simmons was offering for the entire company. If Lockheed's various operations were sold off separately, he said, the company would be worth about $4 billion.
Lockheed stock closed at $29.75, down $1.125 in trading on the New York Stock Exchange, reflecting investors' tepid response to Simmons' proposal.
While Reich speculated that Simmons might make wholesale changes in Lockheed management, Martin said there would be no major changes in management if NL acquired the defense firm. NL--which already owns about 19% of the Calabasas-based company's stock--would replace Lockheed Chairman Daniel M. Tellep, Martin said, but would seek to retain him in some other capacity.
Martin also said NL would not have to sell Lockheed any operations to help cover the cost of the acquisition. Money now used to pay dividends to shareholders would be sufficient to cover the debt taken on in financing the deal, he explained.
According to Martin, Simmons and two Lockheed executives--Richard W. Taylor, vice president for corporate development, and Anthony Van Schaick, vice president and treasurer--discussed Lockheed's future financial status during the Tuesday meeting.
The NL team, accompanied by a merger specialist from Salomon Bros., presented future cash flow estimates and other financial projections for Lockheed in an attempt to show that the aerospace firm could handle the debt that would stem from the proposed deal.
The Lockheed executives, who were accompanied by advisers from First Boston and Goldman Sachs, said they would examine the projections and provide NL with an analysis of the financial feasibility of the proposal next week, according to Martin.
Lockheed declined comment on the meeting.