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GAF Attacks Union Carbide Takeover Defenses

December 18, 1985

NEW YORK (AP) _ Lawyers for GAF Corp. urged a federal judge Wednesday to knock down the barriers that Union Carbide has placed in front of GAF’s $68-a-share hostile takeover bid.

Union Carbide lawyers and officials countered that the Danbury, Conn.-based chemical giant is simply trying to ensure that its shareholders get a fair price in the event they opt to sell out.

The courtroom of U.S. District Judge Milton Pollack was full as the hearing, which was expected to last for several days, began Wednesday afternoon. Many of the observers apparently represented the institutional investors who hold 60 percent of Union Carbide’s stock and who have millions of dollars riding on the outcome of the takeover fight.

GAF lawyer Arthur Liman asked Pollack to bar Union Carbide from implementing three key anti-takeover measures it has put in place since GAF began its $4.13 billion offer on Dec. 10.

Union Carbide amended its pension plan to ensure that $500 million in assets not needed to fund vested benefits do not fall into the hands of a hostile bidder, who could use the funds to complete the buyout; it granted generous severance packages - known as ″golden parachutes″ - to 42 high- level executives, and it crafted a two-step plan to buy back its own stock and, in the process, make a hostile acquisition prohibitively expensive.

Union Carbide has offered to buy back 35 percent of its outstanding stock for $20 in cash plus securities it values at $65 for each share. In addition, should GAF or another hostile bidder boost its stake to 30 percent, Union Carbide would buy back the remaining shares for the same $85 cash-and-note combination.

Liman complained that the notes Union Carbide would issue in its buy-back plan contain ″suffocating″ restrictions on the addition of new debt and the sale of company assets, and said those restrictions would be in force even if only one shareholder chose the Union Carbide offer in place of GAF’s all-cash bid.

″They have taken the power that belonged to the shareholders and the board and vested it in the bondholders,″ Liman said.

He also argued that the pension-plan changes and the golden parachutes essentially give away the corporation’s assets rather than allow them to be acquired by a hostile bidder. Such giveaways violate GAF’s rights as a Union Carbide shareholder, Liman said.

Union Carbide lawyer John L. Warden responded that Union Carbide’s partial stock buy-back ″does nothing more than provide the shareholders an economic alternative″ to GAF’s bid. The changes in the pension plan and the new severance arrangements were a proper exercise of the board’s power to set compensation, he contended.

An injunction such as GAF seeks ″would have the truly remarkable effect of leaving (GAF) free of competition in the marketplace,″ Warden argued.

Harry J. Gray, the chairman of United Technologies Corp. and a member of the Union Carbide board, testified after the opening arguments that the board carefully considered the GAF offer, decided on the advice of its investment banker, Morgan Stanley & Co., that it was unreasonably low, and had been told the company would be able to function despite the new debt it would incur in the stock buy-back.

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