Kaiser Aluminum Scuttles Its Bid to Buy Alumax, Citing Long Battle
Kaiser Aluminum Corp. has ended its effort to buy Alumax Inc. for between $2.2 billion and $2.5 billion, withdrawing a hostile bid that Alumax rejected last month before adopting a “poison pill” plan to deter the takeover.
The move over the weekend marks the second time in a month that a hostile bidder in a major industry has been driven off by the threat of a protracted takeover battle. On Feb. 2, El Segundo-based Mattel Inc. withdrew a $5.2-billion offer for rival Hasbro Inc., which enlisted legislators in its home state of Rhode Island in its battle against the takeover.
The political pressure increased the likelihood that federal regulators would rigorously scrutinize antitrust issues in the case.
In the Alumax case, Houston-based Kaiser, which is controlled by Maxxam Inc., rescinded the offer of $40 to $45 a share in cash and common stock and said it would not mount a proxy fight for control of Alumax’s board. Such a contest promised to be a protracted battle because only three of the 10 directors at Norcross, Ga.-based Alumax were up for election this year.
Kaiser stood to gain the most from a merger with Alumax, the bigger and more profitable of the two aluminum producers. The combined company would have had annual revenue of more than $5 billion, ranking it fourth behind Aluminum Co. of America, Alcan Aluminum Ltd. and Reynolds Metals Co.
“Obviously, we think there was a missed opportunity here,” Kaiser Chairman and Chief Executive George Haymaker Jr. said.
He said the company was frustrated by Alumax’s refusal to hold discussions on the offer and he said Kaiser realized that the chances of a successful proxy fight were slim.
The staggered terms of directors at Alumax and the company’s bylaws were impediments to a proxy challenge, and such a fight was not likely to result in the “constructive dialogue” Kaiser sought and never got, Haymaker said.
Kaiser’s decision to bow out just 23 days after making its formal bid ends a pursuit that propelled Alumax shares, which soared 17% to $38.125 on Feb. 23, the day after Kaiser disclosed its Feb. 8 bid and the rejection by Alumax.
On Friday, Alumax’s shares closed up 12.5 cents at $36.25. Kaiser’s stock was unchanged at $15.125. Both companies are traded on the New York Stock Exchange.
“I expected Kaiser to drop out because the poison pill made a takeover too expensive,” said Charles Bradford, a metals analyst at UBS Securities. “The big question now is, ‘What does Alumax do to stop its shares from plummeting?’ ”
He said Alumax could buy back stock and cancel a year-old shelf registration to offer 8 million shares to the public.
A spokesman for Alumax said the company expects to issue a statement today.
Haymaker said he and financier Charles Hurwitz, who controls Maxxam, met with Alumax Chairman and CEO Allen Born in Atlanta one morning in January, at which time Kaiser made a pitch to acquire Alumax. The company followed with its bid Feb. 8, which Alumax rejected on Valentine’s Day.
Kaiser disclosed its bid Feb. 22, a move analysts said was a “bear squeeze” to stir up support from investors, and asked Alumax to reconsider the offer or at least hold discussions.
Alumax responded a day later by calling the renewed offer inadequate and adopting the poison pill plan, which would allow Alumax shareholders to purchase shares at half-price if Kaiser or any investor acquired 15% or more of the company’s voting stock.
Born made it clear Feb. 23 that Alumax, a leading maker of aluminum used in housing and construction, was not interested in combining with Kaiser. He said Alumax considered buying Kaiser 18 months earlier but backed off because it saw “major problems” at Kaiser.
Born ticked off a long list of problems at Kaiser, including asbestos liabilities and environmental matters, underfunded pensions and retiree medical obligations. He also took a shot at Hurwitz, saying the company was controlled “by a single shareholder whose agenda may be different from that of other public stockholders.”
Kaiser is one of the leading makers of alumina--the basic material used to make aluminum--and a major producer of primary aluminum ingot and beverage can sheet.
One of Kaiser’s major problems is that it has long-term debt of $750 million and little equity, Bradford said. The bid for Alumax would have increased debt while raising equity: Kaiser offered $1.65 billion, or $30 a share, in cash, and would have issued as much as $850 million in equity for Alumax.
With Alumax out of the picture, Haymaker said, Kaiser, which posted its first profit in three years in 1995, “has a lot of other exciting things going for it.”
Kaiser isn’t holding merger discussions with other broad-based aluminum companies, but it is seeking joint ventures and alliances in specific product lines, he said.
Haymaker said he met with some of the biggest shareholders in Kaiser and Alumax last week in New York and Boston in an effort to drum up support for the company’s bid.
The companies have common institutional investors, including two Haymaker said he met with: Fidelity Management & Research Co. and Bernstein Asset Management.
Although Haymaker declined to disclose whether Fidelity and Bernstein supported Kaiser, he said the general reaction from shareholders and analysts was encouraging and that Kaiser “had a lot of support.”
Fidelity held a 7.55% stake in Kaiser and an 8.79% stake in Alumax at the end of 1995, making it the largest institutional shareholder in Kaiser and the second-biggest in Alumax. Bernstein Asset Management was the largest institutional shareholder in Alumax, with a 9.30% stake, and ranked third at Kaiser, with a 1.23% stake, at the end of last year.
Houston-based Maxxam, whose other businesses are real estate and forest products, owns 62% of Kaiser’s voting stock.
Alumax, the third-largest U.S. aluminum company, posted net income of $237.4 million, or $5.05 a share, on revenue of $2.93 billion last year.
Alumax became a public company in 1993 when its parent, Amax Inc., spun it off in connection with Amax’s merger with Cyprus Minerals Co.
In January, Alumax completed its $430-million acquisition of closely held Cressona Aluminum Co., a Pennsylvania maker of aluminum products used in rail cars, truck trailers and automobiles.
Aided by rising aluminum prices last year, Kaiser rebounded from two years of losses with a profit of $60.3 million, or 69 cents a share, on revenue of $2.24 billion.
