Battle in the Boardrooms

By Julie Connelly

Kennecott and Curtiss-Wright finally end their feud

For more than three years, American businessmen have watched the ploys and counterploys of one of the most fiercely contested corporate takeover struggles in history. The boardroom battle pitted a sometime Texas rancher against an aging, ambitious corporate raider who was embarked on probably his last big fight. At stake was control of Kennecott Corp., the nation's largest copper company (1979 sales: $2.5 billion).

Finally last week the feud was settled. Kennecott and Curtiss-Wright, the upstart industrial and aerospace conglomerate that tried to take over the copper company, signed a ten-year agreement preventing either one of them from trying to gain control of the other. Says Erica Steinberger, a lawyer advising Curtiss-Wright: "This is the grand finale, the climax, the end--I hope."

The saga began in late 1977, when Kennecott took some of the proceeds from the Government-ordered sale of a subsidiary, Peabody Coal Co., and bought Carborundum Co., a maker of abrasives. As soon as the purchase was made, T. Roland (Ted) Berner, 70, the chairman of Curtiss-Wright, saw an opportunity. He said that Kennecott paid too much for Carborundum and that the copper company should have spent the money for improvement of its antiquated copper mines or distributed it to the shareholders. Berner then spent $75.5 million to buy 9.9% of Kennecott's shares and announced that he would lead a proxy fight to unseat the Kennecott management. If victorious, Berner planned to sell off Carborundum and pay out the money to Kennecott shareholders. In the process, he would have obtained control of Kennecott, a company seven times the size of Curtiss-Wright.

Such a proxy fight was nothing new to Berner. He used one to win a seat on the board of Curtiss-Wright almost 30 years ago. During the past decade he was also involved in three similar, though smaller, battles. But despite the challenge, Kennecott prevailed in Round 1, winning the proxy fight by a scant 1.1 million shares out of approximately 26 million voted at the annual meeting of company stockholders in 1978. Then, five months later, a federal court set aside that decision saying that shareholders might have been unduly influenced by the last-minute court battle that had preceded it, and ordered another vote. Thereupon, the copper company negotiated a signed truce with Berner. Under its terms, Berner was given three seats on the 18-person Kennecott board of directors in exchange for a promise not to launch another proxy contest before the May 1981 annual meeting.

The man who struck that bargain was Kennecott's new chairman, Thomas Barrow, 56, who had recently left a $250,000-a-year job as a senior vice president at Exxon. The 6-ft. 3 1/2-in. onetime University of Texas football player is the son of a former chairman of Humble Oil & Refining, one of Exxon's predecessor companies, and the heir to the 30,000-acre Thomson Ranch near San Antonio. Having reportedly been passed over for the presidency of Exxon, Barrow was on his way back home to manage his ranch when Kennecott snared him with a Texas-size contract. Barrow's salary, bonus and incentive payments in 1979 totaled about $1.2 million, which made him one of the highest-paid executives in America.

Right from the start, however, there was trouble in the Kennecott boardroom. Berner objected that Barrow was "vastly overpaid" and forced the board to renegotiate the contract, which he said could have paid the chairman $27 million over five years. Berner also took exception to other perks, like a $5 million corporate jet for Barrow's personal use. Says a Curtiss-Wright insider of those board meetings: "Ted was the skunk at the picnic."

During the fall of 1980, Berner, who by then controlled 14.3% of Kennecott's stock, announced plans to increase Curtiss-Wright's holdings to 25%. Kennecott board members began fearing that he would start another fight for control of the company as soon as the cease-fire expired in May. Barrow, therefore, huddled with some of Kennecott's directors last November and then announced a pre emptive strike: Kennecott was going to take over Curtiss-Wright. Said one Wall Street source: "The apple had bitten the worm." The copper company offered Curtiss-Wright owners $40 a share for their stock, nearly twice the then prevailing rate. Curtiss-Wright promptly went to court to halt the takeover attempt, but the court ruled that Barrow could go ahead with his move.

Berner nonetheless tried to fight off the Kennecott attack. Curtiss-Wright announced that it would buy back 1 million of its own shares at $44, and the price was soon raised to $46. That was $6 a share more than Kennecott offered. But the copper company, unable to attract enough Curtiss-Wright shares at $40, ended its offer and started negotiating with

Teledyne, Inc., which has a large stockholding in Curtiss-Wright, to acquire its shares. After Teledyne failed to respond to an offer of $50 a share, Kennecott two weeks ago began buying Curtiss-Wright stock in the open market. It soon became the company's largest shareholder, with 32% of the firm's stock.

Early last week both sides laid down their stocks and ended the fight. The terms, in addition to the ten-year truce:

Kennecott agreed to hand over its 2.8 million shares of Curtiss-Wright, plus $168 million in cash, in exchange for Curtiss-Wright's Dorr-Oliver subsidiary, a maker of pollution-control and other equipment; Curtiss-Wright returned 4.8 million shares of Kennecott to the copper company, and Berner and two other Curtiss-Wright directors resigned from Kennecott's board of directors. With their proxy fights at last over, Barrow and Berner can now get back to their real businesses of digging copper and building jet engines. --By Julie Connelly. Reported by Frederick Ungoheuer/New York

With reporting by Frederick Ungoheuer/New York

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