Companies Sitting on Cash Raise Risk for Takeover : Strategy: The bid for Chrysler raises the question of whether management can be too prudent in saving money.

They stocked away big stashes of cash for the proverbial rainy day, exceeded profit projections and cut costs. Now these same companies find themselves sitting ducks for takeover artists and other suitors.

As Wall Street continues to digest last week’s surprise bid for Chrysler Corp., many companies once praised as prudently run are now considered attractive takeover targets. The message seems to be that getting one’s company on too sound a fiscal footing can be precarious for a chief executive’s independence.

“You’ve got investment bankers and takeover specialists who themselves have enormous amounts of cash and are under pressure to use it,” said Los Angeles investment banker Fredric M. Roberts. “A company that has a sound, strategic use for cash suddenly becomes a target for these takeover people.”

Industry analysts and investment specialists said there are several industries--ranging from construction to Mexican food--that may prove fertile hunting ground for takeovers. Financial and retail stocks, for example, have been out of favor for some time and may not reflect the true value of a company’s assets and operations.

“When you look at them and . . . the franchises they have, they are probably selling too cheap,” said San Francisco money manager Kurt Brouwer, referring to financial and insurance stocks.

Bullish investment firms these days contend that the market overall is undervalued. Among U.S. companies that bulls say have unduly low stock prices are Alza Corp., a biotech company; Baker Hughes Inc., an oil drilling equipment maker; Burlington Northern Railroad; Chevron, the oil giant; Cypress Semiconductor Corp.; Hewlett-Packard Co., a big computer company; Colgate-Palmolive Co., a consumer products maker; drug maker Merck & Co.; Motorola, and even IBM.

Not surprisingly, many companies branded takeover targets or undervalued are quick to disagree.

Goodyear, for instance, said it does not know of any takeover efforts and points out that such offers are often aimed at weak firms or those that can be easily broken up and sold off in pieces. Goodyear does not fit either profile, said spokesman Chuck Sinclair. “We are pretty strong today,” he said.

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But the fear of an economic downturn has even depressed the stocks of many companies--particularly those in cyclical industries, such as Goodyear--despite strong financial and operating results. The stocks of several major paper makers, for instance, fell despite reporting first-quarter results that exceeded expectations.

“People just think it’s the last hurrah--that it can’t get any better than this,” said Howard Gleicher, portfolio manager at Palley-Needelman Asset Management in Newport Beach.

It is the corporate stockpiles of cash, however, combined with relatively low stock prices that have stirred much of the takeover talk--and boardroom anxiety--these days.

“Senior managements, and particularly CEOs, are very attuned to what large, underutilized cash reserves could mean to their companies,” said Gary Getz, managing director of Gemini Consulting in Chicago.

At Chrysler, management, which engineered one the most notable turnarounds in U.S. corporate history, squirreled away close to $7.5 billion in cash to get it through an inevitable downturn in the auto industry--one that, in fact, appears to be underway.

But that hoard is now coming back to haunt them. Financier Kirk Kerkorian, one of the auto giant’s biggest investors, wants to use $5.5 billion of the trove as a sort of down payment in his $22.8-billion bid to buy Chrysler.

Is this a classic case of no good deed going unpunished?

Perhaps, management experts say. But, when companies stockpile lots of cash, investors are entitled to wonder whether that money is being put to its best use. If the cash is being invested in ways that return just 5% or 6%, shareholders might chomp at the bit to make more like 10% to 12%.

“Is it prudence or lack of corporate imagination of what to do with the money?” Getz said. “The issue is how to invest for growth.”

In Chrysler’s case, Chief Executive Robert Eaton and President Robert Lutz so far have garnered generally high marks from investor groups and consultants for their running of the company and their decision to amass cash to get them over the hump of a recessionary year or two.

After all, Chrysler nearly went broke twice in the past 15 years. A third financial debacle would doom the company to a reputation as a loser. As it is, lingering memories of Chrysler’s hard times probably account for some of the weakness in the stock that has made the company vulnerable to a takeover attempt.

Anne Hansen, deputy director of the Council of Institutional Investors in Washington, said it is unfortunately true that well-run companies can find themselves fair game for suitors.

“The proper answer shouldn’t be to be in debt,” she noted. “It should be to have strong relationships to long-term investors like us, and we’ll protect the company.”

Noted Geoffrey R. Brooks, a professor of management at the University of Pennsylvania’s Wharton School: “It must be extremely frustrating for Chrysler management. They’re doing all the right things, yet someone is coming in with a takeover bid (and the result) may just pull the thing apart.”