Applying 'Unfriendly' Persuasion

Copperweld Corp., a Pittsburgh-based producer of specialty steels, fought hard to stave off a takeover by Societe Imetal, a French concern controlled by the Rothschilds. Copperweld executives opposed the bid in court; employees staged placard-waving demonstrations pleading that the company stay American-owned. Stockholders, however, were more impressed by Imetal's offer to pay $42.40 each for shares that sold for $34.50 just before the fight, and last week Imetal announced it had bought 61% of Copperweld's outstanding stock.

Tender Trap. The fight illustrates a major U.S. business trend: not since the heyday of corporate raiding in the 1950s have there been so many attempts at "unfriendly" takeovers--those that are resisted by the management of the company being acquired. Instead of staging a proxy fight, today's takeover artist usually asks stockholders to "tender" him their shares for purchase at a fixed price by a set date. A decade ago, tender offers were practically unheard of. But a record 113 offers were registered with the Securities and Exchange Commission during the fiscal year that ended June 30, v. 105 the year before and a mere 43 four years ago.

The trend seems to be accelerating further, and target companies are often succumbing. Last month, for example, Otis Elevator finally went along with a takeover by United Technologies Corp., which bought two-thirds of Otis' stock after upping its bid to $42 a share from $40. The management of Garlock Inc., a producer of leakage-control devices for pipes and machinery, last week withdrew a court suit against a tender offer by Colt Industries, which increased its bid to $35 a share from $32. In other tender offers now being contested, Crane Co. is seeking shares of Anaconda Co. and Babcock & Wilcox is seeking control of American Chain & Cable Co.

To spring the tender trap, an acquisition-minded company usually advertises its willingness to buy stock in another firm at a price well above current market value though commonly below the stock's book value, or proportionate share of the company's net worth. The aggressor usually gives no warning; the management of a company under attack often learns about the tender offer only by reading the newspaper ads the same day stockholders do.

The current market offers many tempting targets for such offers. Shares of many profitable companies are still selling at prices so low that an acquirer can pay a substantial premium above the market and still get a bargain. The future profits of the company being taken over will probably give the acquirer a better return on the money needed to buy the target company's stock than he would receive if he invested the same number of dollars in expanding his own company's operations. And there is no point in approaching the management of the target company with a friendly acquisition proposal. The target management would resist--out of a feeling it was being bought out cheaply, and a well-founded fear that the managers would lose their jobs.

Another reason for the rise in takeovers is that the regulatory climate has softened. The SEC once ordered tender offers scrapped if the disclosure statement was incomplete or in error. Now the SEC and the courts simply require that corrections be made while the offer proceeds. The Federal Reserve Board is no longer leaning on banks to shun "unproductive" loans for purposes like acquiring companies--so there is more money available to raiders.

Selling Grandma. The firms selected for takeover, says Felix Rohatyn, a partner in the investment house of Lazard Freres, are usually "very solid, stable, unglamorous, medium-size companies." Also, their stock is primarily held by individual investors rather than such institutions as mutual funds and pension funds, which would be more likely to compare the tender-offer price with book value and reject it. But some Wall Streeters speculate that takeover attempts may soon be made against companies controlled by institutions that are getting tired of holding undervalued shares. Says William Chatlos, a partner in Georgeson & Co., a proxy solicitor: "For an extra nickel on the price, some of the institutions would sell out their grandmothers."

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