TAKEOVERS: A CLASSIC COUNTEROFFENSIVE

AS opponents of conglomerates tell it, the usual takeover scenario is a melodramatic affair involving a helpless target company and an unscrupulous interloper. The script has been scrambled in the case of Akron's B. F. Goodrich and its ardent but so far unsuccessful suitor, Northwest Industries. The rubber company's public relations and legal fight against Northwest's four-month-old takeover bid has been waged so well that, even though it is not yet over, it is looked upon as a classic corporate counteroffensive against an unwanted but aggressive merger partner.

Northwest President Ben Heineman appears to be a businessman at bay. Only hours before his conglomerate's annual meeting began in Chicago last week, the Justice Department announced that it would seek to block Northwest's bid for Goodrich. A stockholder at the meeting asked, why not just drop the whole thing? Nothing doing, replied Heineman. "I don't think I have ever been known as a summer soldier."

Venerable and Vulnerable. Heineman, 55, is the self-assured attorney who took over the wheezing Chicago and North Western Railway in 1956 and surprised skeptical industry veterans by turning the company into a moneymaker. Only four years ago, he began spreading into steel, clothing and chemicals, and later formed Northwest Industries, a holding company. Its sales rose impressively from $260 million in 1965 to $701 million in 1968.

Meanwhile, 99-year-old Goodrich, the nation's fourth largest rubber company, was taking a rather bumpy ride. Last year it earned only 3.9% on its $1.1 billion sales, lowest profit margin among the Big Four. Goodrich was obviously vulnerable to takeover because its ownership was widely scattered and the price-earnings ratio of its shares was relatively modest. It was not long before Goodrich began to draw the attention of a number of acquisitive companies, including Northwest. Goodrich Chairman Ward Keener, a onetime economics professor, began mapping defensive strategies as early as last June.

In March, Northwest revised its January proposal and offered a complex package of debentures, preferred stock and warrants, then worth about $75, for a share of Goodrich ($50). Keener, who dismissed what he called a "funny money" offer, had assembled a potent band of allies. For legal advice, he had White & Case, the Manhattan firm that masterminded American Broadcasting's successful defense against Howard Hughes last year. As investment bankers, he had First Boston Corp. To burnish Goodrich's image, Keener used three public relations firms, among them Hill & Knowlton, the world's biggest.

The defenders have waged a well-coordinated campaign. Items:

> To sway Goodrich shareholders, costly advertisements passed the word that not only was Northwest attempting to swallow a much larger company, but it had also reported a first-quarter loss of $3.9 million. Recent ads pointed out that Northwest's stock had dropped from $140 in January, to 81 3/4 last week, with the result that Heineman's generous original package offer for one share of Goodrich was now worth about $10 less. (Goodrich stock closed last week at 44 7/8)

> To increase its number of shares outstanding and thus raise the total that Heineman would have to win, Goodrich made a deal with Gulf Oil Co. Last February, Goodrich issued 700,000 new shares worth about $32 million to buy up Gulf's half-interest in Goodrich-Gulf, a money-losing subsidiary. The price was steep, but the deal put 5% of Goodrich's stock into the friendly hands of Gulf's management.

> To make it even more difficult for Heineman to gain control, Goodrich persuaded shareholders to vote for the staggering of directors' terms. Thus, Northwest cannot possibly win a majority on the board until 1971.

> To erect a federal regulatory hurdle for Heineman, Goodrich in March paid about $2.7 million in stock to buy Motor Freight Corp., a Terre Haute-based trucking company that competes with Northwest on some rail routes. Goodrich then petitioned the Interstate Commerce Commission, urging it to rule that Northwest would need ICC approval for a merger.

No Soliciting. The all-out campaign paid valuable dividends for the established management. On Capitol Hill, Senator William Saxbe of Ohio rose to praise Goodrich's efforts to fend off "the predatory advance of a conglomerate." The Akron Beacon Journal likened Northwest to a "brash hussy trying to persuade our favorite uncle to elope." Forbes, a business biweekly, ran a long article that was so favorable to Goodrich that the company bought full-page newspaper space to reprint it as an ad.

The Ohio Division of Securities prohibited Northwest from soliciting shares in that state because of "indeterminate factors." Most important, the Justice Department intervened on the ground that the Northwest bid raised antitrust questions. The case promises to be a significant part of Antitrust Chief Richard McLaren's plan to challenge conglomerates (see following story).

Save Me, Save Me. The Goodrich defense has been doubly effective because U.S. securities laws commit Northwest executives to frustrating silence until their tender offer expires in June. Heineman has been able to speak out only to the extent of blaming his firm's first-quarter loss largely on a strike at its Lone Star Steel Co. and the severe weather, which hampered its rail operations. He has also talked in general terms about struggles for corporate control. "There are a lot of frightened, stodgy companies with frightened, stodgy managements," he says. "Conservative businessmen are running to the Government saying, 'Save me, save me,' and very often it is at the expense of stockholders."

Keener and his fellow managers have shown through their vigorous defense that they are anything but stodgy. Even so, they are not about to turn down the Government's help. If the trustbusters do enjoin the financial battle with Northwest Industries, Goodrich shareholders will not even get a chance to decide that they might like Heineman's offer after all.

-Others, and their profit margins: Goodyear, 5.1%; Uniroyal, 4%; Firestone, 6%.

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