News Scrapbook 1985

5A

WEONESDAY,JU, '31, 1985

Q Why don't you lil..e th,· term raiders, F'red? Bahr: I think it's inherently an inflammatory term. There are fi- nancial opportunists who see an opportunity in the marketplace which is presented by the free en- terprise system. If you want to become critical you have to become critical of the system which per- mits it. And if we don't want that to happen then there are ways we can legally bring about a restraint on that process. A lot of that is spoils sport on the part of the people who either weren't smart enough or capable to bring it about themselves. I'm not saying that all of these hostile takeovers are in fact good for the country. But I don't think these people are inherently doing any- thing illegal. They're merely tak- ing advantage of a situation that the law permits. So the word raider, I'd like to see a much more watered down term. I think that's a way of indicting and castigating somebody by choice of terminology. Kratz; If something actually takes place and it filters down into the operations, that's going to be starting off on the wrong foot right away if one group feels that the other one has been raiding it. Bahr: The corporate raider may only be the figurehead. There's a lot of very quiet characters in this game that have sought the same opportunity but haven't got the same publicity.

Kratz: Even in a small case such as ours it'• basically the same kinds ofp I yers. The first step is probably a feel- ing out stage followed by what might be a little bit more of a cour- ting stage. In our case it happened very quickly. We proceeded through this in a couple of months but really a lot of activity in just a few weeks. But there was a very clearly defined, let's just reach out here and see what people are thinking and if we get the go ahead at that stage. Then let's get together and really see what can be worked out here. Once we got through that stage and came up with a firm concept there was a very hectic and quite fast phase of actually ac - complishing a bunch of tasks and I gal matters, followed by a physi- cal merging of the two companies. Q What about mergers in San Diego?

th Corp (about 12 employees) Bill Krau is presidenl ofSo/,., BIDJ 1 eesi two San Diego BOiar lllld Southwut Energy (about flG emp Q,mbined revenue• are en compan,e, w!uch recently m&rif . f, monthl end after it B0::;:"$4-6 million. The mer/{"r took aboutbi:kfaat "We hed talk- wu all over the ,harel,olde~• w::.t b~t :lebrstion, ;, recalls Kratz, ed about 11oi"l{ out and hav1"l{ •• 1 from the breakfaat table "but we realized that •• ..._11 - J'\ %.ve time to /IO out and do there was 80 much to do that we n anyc,,/ebrating." rch ',.,,._' the Univer,ity of Michipn aid- Kratz trained as &n a 1 ,. • He w.u ralaed in San Diego an thoui,b he haa n~ver_worked ~onk 16 hour day,, 7 day• •. wee~; ,tart,ed Solanmnth m 1 979 . or :. directly related to bu,m-. Wal.Ir on tbe Mach? "Oh, y,:ahbu~ :, the California Solar Energy Prelident of th. San Diego c ap r lnduatrie,A&oociation.

GoingBig Game Hunting Mergers: "a form of big game hunting," a U.S. senator once described it. • • • ket wine the way it pushed pop But it didn't work out in its merger with Wine Spectrum, which went sour. Fluor took over the big min- ing firm of St. Joe, just in time to see the mining market collapse. Mobile took over Marcor, an unfa- mlliarbustne I

Bahr: There certainly have been a lot of low profile consolidations which in effect are mergers. This town doesn't lend itself to the large scale blockbuster kinds of things that really grab the headlines oth- er than perhaps Signal. It doesn't have a lot of heavy du- ty industry and movement. I think there has been a lot of quiet merg- ering going on here in some of our computer related activities.

Television jokers have been enjoy- ing improbable combinations often seen as the result of mergers and h e invented a few of their own. Here are some examples: Wendys and Forest Lawn Cemetery: "Where's the grief?"; A1T and Charmin: "Reach out and squeeze someone"; Hallmark and Q-tips: "When you care enough to shove it in your ear"; Budweiser and Tidybowl: "A bowl with a real head on it"; 7 Up and Fed.Mart: "Fed up"; Umted Airlines and Chorus Line: "Fly the friendly thighs of United." • • • Mergers are the newest kids on the block, right? Not on your tin- type. There was a huge merger wave at the close of the Gay Nineties. In 1895 there were 40, in 1898 650, and in 1899 there were 2,262. The culmination of this spurt was the formation of U.S. Steel in 1901, largely through the efforts of J.P. Morgan and Andrew Carnegie. The deal included 11 trusts with an aggregate capital of $1 billion and a total of 800 properties employing 168,000 people, a deal not to be sneezed at today_ In the late 1920s Chevrolet,

Yet, takeover firm.s have some of the brightest people in the world, but more mergers flop than take. Why? Too much is paid. A company gets into a field it doesn't know beans about. Key managers start to drift away. The takeover firm treats the other firm's employees badly, or cleans them out. This is the stupidest move of all, since the worth of a company is in its per- sonnel. If the takeover company is a raider, it won't have time to study the raidee and its problems. Too, chances are it'll move too fast. On the other side, the following marriages were made in heaven: Sara Lee and Hanes, Nabisco and Standard Brands, Dayton-Hudson and Mervyn's, Conagra and Ban- quet, Allied and Bendix. • • • The arbitrageur used to make his money on currency fluctua. tions, until he discovered the wonderful world ofmergers. Target is Little Widget, which is selling for $30 a share. Big Gobbler softens up the Little Widget shareholder with an offer of $50 a share. Here's the chance for the arbitrageur. He hops in, often with tremendous re- sources, and buys all the shares he can find. In the process he, and others, may drive the stock up to $40. When the deal goes through, he pockets the difference between $40 and $50. On the other hand, if the deal fizzles, he's stuck with a pocketful ofoverpriced stock.

Q What are the indicators of a merger? Bahr: I don't think it's a func- tion of the product or the product mix as much as it is financial disparities which produce the op- portunity and desirability for indi- viduals and financial institutions to take the risk. That's the key in- dicator.

Q

Who can get hurt in a merger?

Bahr: If you look at all the other constituents the shareholders have probably have the most clearly defined role in the process. Their losses or gains are going to be fair- ly constrained. Customers, suppliers, folks that work within the company. One of the potential advantages of the at- tractiveness of a merger is to reduce overhead. The feeling that one legal section can handle the problems of two companies rather than one; one personnel depart- ment combined, etc. This sends tremendous reverberations through companies. Part of the conflict that under- pins this corporate culture issue is sheer fright and concern on the part of people as to who are going to be losers and winners in the ultimate amalgamation. It all falls back to the time honored golden rule. He who has the gold makes the rules. If the smaller company is financially dominant it will be the initiator of the process and will be driven by considerations of profitability and growth and their ultimate respon- sibility to the shareholders. It isn't a question of the size of the com- pany but who is dominant in those financial decision processes.

Kratz: Certainly it's a function of the product in the case of the computer industry.

Bahr: We need to separate those two categories. Talking about traditional causes there's no ques- tion. We're going to see a lot of con- tinuing merging because of those inequities and resoures, or because of tax considerations. Those are traditional and are generally not hostile. When we're talking about the hostile stuff we're talking about people who buy companies up. I think it's a fairly small club of people (who predict mergers). Unless you are lucky to have bought into a company or if want to take some educated guesses. Say this industry has had a trend or a tendency towards this and there are still three or four left and I'm going to buy in and wait and see. You can take a passive investor's role and possibly achieve that pro- cess. If you're going to talk about putting up some of the heavy duty, high risk money you have got to be very well fixed to begin with be- cause we're talking about tens of millions of dollars. We're talking about that big hostile st, . My guess is that the awrage in- dividual is not going to have a big , action in this.

Fisher Body Corp., Buick Motor Co., Olds Motor Co., Oakland Motor Car Co., Cadillac Automobi- le Co_ and numerous suppliers were gobbled up by General Motors. From 1925 to 1931 there were 5,846 mergers with a peak of 1,245 in 1929. Then we know what hap- pened. * * • The mergers of the 1890s, even those of the 1920s, were relatively small, nothing like 1984, when 2,543 deals were made for a stag- gering $122 billion. In 1985 there are 11 each working day. In some cases acquisitions have been sen- sible, unhurried, and shareholders profited and both companies benefitted. Some deals weren't so hot. In the latter category, (then) San Diego- based Wickes took on a whopping debt load to acquire Gamble- Skogmo, an unfamiliar business, eventually ended up in bankrupt- cy, from which it has recently emerged, lean and sober. Several San Diegans walked off with megamillions when Warner- Lambert paid $468 million for IM- ED Corp., a local medical techno- logy firm. But Warner has since discovered its acquisition has crit- ical product-development pro- blems, which couldn't bother the new San Diego multimillionaires less

The wizard at this type of opera- tion is Ivan Boesky, here recently to officiate at the annual meeting of his Northview Corp., previously Vagabond Inns. "Why should an 'arb' who owns the stock for an hour have power over an institution with $40,000 employees?" asks Andrew Sigler, board chairman of Champion In- ternational. To keep the raiders at bay. hundreds of firms are rewriting their corporate bylaws and inserting antitakeover provi- sions, or "shark repellents" as they are known in the trade. One device allows management to issue new classes ofstock with greater voting rights than those held by other shareholders. * * • Where will it all end up? Art Buchwald says that in 1999 the whole country will be merged into one company, which will then ne- gotiate with the White House to buy the United States of America. Could be. -Herbert Lockwood

Kratz: Some of those employees get stuck in this culture clash and simply can't deal with it. They're probably the biggest losers in that it's a tremendous emotional up- heaval for them and likely they will either IOlle their job or have to leave theirjob.

Coca Cola figured it could mar-