AlliedSignal Makes Hostile $9.8-Billion Bid for AMP
The conglomerate AlliedSignal Inc. on Tuesday launched a hostile $9.8-billion takeover bid for AMP Inc., a leading supplier of electrical components that has been spiraling downward for several quarters.
AlliedSignal’s unfriendly bid, a common strategy in the merger mania of the 1980s, is a seldom-used tactic these days and is not likely to portend a new wave of hostile actions, some experts said.
AlliedSignal, a maker of aerospace equipment, auto parts and materials such as plastics and fibers, said it plans a tender offer of $44.50 in cash for each of AMP’s 220 million common shares outstanding. The bid was made after several requests by AlliedSignal Chairman Lawrence Bossidy to negotiate a merger “were ignored by AMP management.”
The offer’s outcome carries considerable weight in Southern California, where both companies have several facilities. The aerospace group of Morris Township, N.J.-based AlliedSignal is based in Torrance, and the company overall has about 4,700 employees in California.
AMP, based in Harrisburg, Pa., has sites in more than a dozen California cities, including Los Angeles, Torrance, Anaheim, Irvine, Ontario and San Diego.
AlliedSignal’s offer was announced shortly before the stock market closed, at which point AMP’s stock was languishing at a 52-week low of $28.50 a share. But after the announcement, the stock soared to close at $42.56 a share, a gain of $13.94 for the day, in New York Stock Exchange trading. AlliedSignal’s stock fell $3.56 to $40 on the Big Board.
AMP issued a terse statement urging its shareholders “not to take any action” with their stock until its board reviews AlliedSignal’s offer.
The events were reminiscent of a decade ago when unsolicited merger bids were commonplace, with the pursuing companies claiming they could run a target’s business better than current management.
That argument, and unfriendly deals, dwindled in the 1990s amid the historic bull market in stocks and the economy’s sustained growth. Mergers in this decade have largely been designed to achieve global scale, market leadership and cost savings.
As such, the AlliedSignal offer “is an isolated case,” and “I do not expect to see a lot more hostile bids” unless those overriding merger trends change, said Scott Adelson, a managing director of Houlihan Lokey Howard & Zukin, an investment bank in Los Angeles.
Bossidy said his company prefers a friendly merger with AMP, but that AlliedSignal would press ahead regardless to capture “a significant new business that will better position us to achieve our objective of consistent earnings growth.”
Why AMP? “It has a leading market position, good global sales diversity, good technology,” said AlliedSignal spokesman Mark Greenberg. “We can make substantial reductions in cost and improve the productivity and competitiveness of the company.”
AlliedSignal also is ready to launch a proxy fight for control of AMP’s board, and it filed suit in federal court in Pennsylvania “to assure that AMP share owners will not be denied the opportunity” to accept its bid, Bossidy said in a statement.
AMP, with 1997 sales of $5.7 billion, is one of the world’s largest suppliers of electrical connectors and other parts that are used in personal computers, cable-television systems, household appliances, electric tools and many other products.
But it has been battered lately by the economic woes in Asia, the dollar’s strength against foreign currencies and slumping sales in other markets. In response, AMP has been restructuring; last month it eliminated 3,500 jobs and closed three plants in Pennsylvania and North Carolina.
AlliedSignal and Bossidy, in turn, are often included on the list of model U.S. companies and chief executives. “If anyone can come in and . . . turn it [AMP] around, Larry Bossidy can,” said analyst Babu Matthew of American Express Financial Advisers.
AlliedSignal has posted earnings growth of 14% or more for 26 straight quarters, and over the last six years its stock price has more than tripled, far outpacing the benchmark Standard & Poor’s 500 index.
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Bloomberg News was used in compiling this report.
