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Investment Banking Firm Agrees To Acquire American Standard

March 17, 1988

NEW YORK (AP) _ American Standard Inc. said Thursday it accepted a nearly $2.5 billion cash tender offer from an investment banking firm specializing in employee-led leveraged buyouts, spurning Black & Decker Corp.’s hostile advances.

Industry analysts said that the $78-a-share tender offer from Kelso & Co. of New York represented a market premium and that the bidding war was unlikely to continue.

The offer topped a cash bid of $73 a share, or $2.1 billion, from Black & Decker, a Towson, Md.-based tool and appliance maker that had tried to gain control of American Standard for the past several weeks.

Black & Decker spokeswoman Barbara Lucas said the company had no immediate comment on the deal.

American Standard, a plumbing and air conditioning concern, said it signed a definitive agreement with Kelso after a marathon board of directors meeting that began Wednesday afternoon and continued through early Thursday.

Under the pact, Kelso would pay $78 a share for all of American Standard’s approximately 31.5 million shares outstanding, or $2.45 billion. The deal is subject to Kelso obtaining the necessary financing.

Kelso specializes in leveraged buyouts involving employee stock ownership plans, or ESOPs, a concept it pioneered about 30 years ago.

In a leveraged buyout, a company is acquired largely through borrowed money repaid from the target company’s profits or sale of assets. ESOPs also are financed mostly with borrowed funds, but equity is divided among all of the company’s workers, not just a few investors.

American Standard said Kelso planned to finance the deal through a $1.8 billion loan to be syndicated by Bankers Trust Co.; a $900 million bridge loan from First Boston Securities Corp., an affiliate of the investment firm First Boston Corp.; and $250 million of common equity from Kelso and certain institutional investors.

The company added it expected a newly formed ESOP plan would acquire about 20 percent of American Standard’s common shares.

Analysts speculated Black & Decker was unlikely to raise its takeover bid because Kelso’s tender offer was too high. Black & Decker initially proposed a buyout at $65 a share, later sweetening its bid to $68 and finally to $73.

In trading on the New York Stock Exchange, American Standard rose 87.5 cents to close at $76.375. Black & Decker closed at $19.50, up $1.

″I think we’re pretty close to a done deal,″ said Guy Nielsen, an analyst with the investment firm Brown Brothers Harriman. ″... We’re at such a high level and if I had to guess I could probably see Black & Decker stopping here.″

Cornelius V. Sewell, at Argus Research Corp., said Black & Decker ″may stretch it for a couple of dollars, but over $70 is pretty rich.″

The New York Times reported Thursday that deliberations by American Standard’s board had included a new cash offer from Black & Decker of $77 a share, or about $2.4 billion.

Ms. Lucas had no comment on that report, although she acknowledged earlier in the week that Black & Decker was reviewing internal financial information supplied by American Standard and was considering making a new bid.

Nielsen predicted American Standard management would remain largely intact following the acquisition but said the company might be forced to sell its transportation division and New York headquarters to help reduce debt.

He said American Standard probably would ask between $600 million and $700 million for that unit, which makes braking systems for trucks and trains.

American Standard spokeswoman Lois Stewart said the company, which repeatedly rejected Black & Decker’s earlier overtures, had received several offers but she refused to identify the bidders.

Speculation on Wall Street over the identity of possible suitors had included Wickes Cos. Inc., a home-improvement and furnishings company based in Santa Monica, Calif.; Textron Inc., an aerospace, automotive products and financial services conglomerate based in Providence, R.I.; and Hanson Trust PLC, a London industrial management conglomerate.

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