Not-So-Tender Offer
Can steam generators be successfully combined with jet aircraft engines and high-rise elevators? Last week United Technologies Corp., the Hartford, Conn., aerospace conglomerate, ventured half a billion dollars to find out. The company declared its intention to buy up a11 12.6 million shares of Babcock & Wilcox Co., a leading New York-based manufacturer of coal-and nuclear-powered generators, for $42 a share in cash. The acquisition would unite two companies whose revenues last year totaled almost $7 billion.
The tender offer was the latest in a series by United's aggressive chairman, Harry Gray, who became head of what was then United Aircraft in 1972 and promptly set about diversifying his company away from its dependence on Government orders. Since 1972, United's revenues have more than doubled, to $5.2 billion last year, and earnings have tripled, to $157 million; Government contracts have declined from half the company's business to less than a third. United's 1974 takeover of Essex International, a wire manufacturer, and its 1975 merger with Otis Elevator Co., the world's leading elevator manufacturer, were major reasons for the gains.
Fruitless Overtures. As with his earlier acquisition efforts, Gray's attempt to swallow up Babcock & Wilcox has not left his target's management cheering. The tender-offer announcement, which caught Wall Street by surprise, followed weeks of fruitless overtures by Gray to B&W's chairman, George Zipf. Last week, after Gray had finally managed to see Zipf twice to no avail, he rocketed off what amounted to an ultimatum, telling Zipf that he had until week's end to declare whether B & W would fight the offer. Zipfs reply was both immediate and curt. He dismissed the April 1 deadline as "totally unrealistic," and warned that the unilateral manner in which Gray had publicly announced the takeover might damage B & W's ability to do business. If so, said Zipf, "we shall hold you responsible for any such damage." But Zipf did say that the offer needs more study, and United blandly chose to thank him for replying so quickly--indicating that Gray intends to persist.
Utility Boilers. He has reason to do so. In 1973 Gray described potential acquisition targets for United as companies that are successful in high-technology fields and not dependent on Government business. B & W is that and more. The company already holds 35% of the market in utility boilers and is in a good position to get more. Two-thirds of the boilers that it makes are fired by coal, and the Carter Administration's energy program, to be announced April 20, is expected to contain provisions enabling the Government to order many factories and power plants to convert from natural gas to coal as a fuel (TIME cover, April 4). Even by simple arithmetic, B & W is an attractive acquisition candidate. In 1976 it earned $53 million on revenues of $1.7 billion--a profits-to-sales ratio slightly higher than United's own. Some Wall Street analysts are prepared to recommend purchase of United's stock to their clients if Gray can bring off the acquisition.
Other analysts, however, doubt that United has anything much to offer B&W stockholders except cash--and they think that Gray is not offering enough of that. United cannot supply any expertise in steam generating; Gray has promised to keep the present management, and Wall Streeters say he would just about have to. Though United's bid of $42 a share is $8 more than the stock was selling for just before the offer was announced, analysts at Kidder, Peabody & Co. think the stock should be worth about $48 a share to United. Whether Gray will eventually go higher cannot now be foreseen--but in the Otis takeover, United did sweeten its offer after an initial bid failed.
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