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Midcon Corp. Gets Unsolicited Takeover Bid From Partnership

December 16, 1985

NEW YORK (AP) _ Wagner & Brown and Freeport-McMoRan Inc. on Monday jointly launched a $2.6 billion attempt to acquire Midcon Corp., which recently concluded its own acquisition of an energy concern.

Besides the $62.50 a share cash offer for Midcon’s common stock outstanding, the partnership also wants to purchase all outstanding Midcon 101/4 percent subordinated convertible debentures due 2009 for $1,488.10 cash for each $1,000 face amount.

After the tender offer, Wagner & Brown and Freeport, united as WB Partners, proposed a merger in which the remaining Midcon stock would be exchanged for cash, an amount which they expect would also be $62.50 per share.

The proposed takeover would have an approximate value of $2.6 billion, WB Partners said in an announcement.

Patricia Wees, a spokeswoman at Midcon’s headquarters in Lombard, Ill., said the oil and natural gas pipeline company is studying the unsolicited bid.

″We are also studying our options,″ she said, but did not elaborate.

Those options probably deal with how Midcon can avoid being taken over, analysts said.

William Brunet, a vice president at Advest Inc., a regional brokerage based in Hartford, Conn., said the offer surprised him, primarily because Midcon has just carried out its own acquisition.

Midcon last week completed the purchase of United Energy Resources Inc., based in Houston. The cash and stock transaction valued at $1.14 billion was widely viewed as a move to shield Midcon from hostile pursuers.

Brunet said the takeover could undermine Midcon which he considers a ″very strong, very well-managed company.″

″My immediate impression is completely negative,″ he said.

Meanwhile, Standard & Poor’s Corp. said it placed the securities of Midcon and its subsidiaries on its creditwatch with ″negative implications,′ ′ indicating a possibility that the agency will downgrade the rating. Eight- hundred million dollars of long-term debt was affected.

The costs of defending against the unsought advances from WB Partners could harm Midcon’s credit health, S&P said.

Curtis Moulton, an S&P analyst, said although the proposed deal was unexpected, it would continue the pattern of mergers in the oil and gas industry.

Wagner & Brown, based in Midland, Texas, is an oil and gas concern. Calls to company officials were not returned.

Freeport-McMoRan was formed in 1981 when McMoRan Oil and Gas combined with Freeport Minerals Co. Officials at the firm’s headquarters in New Orleans declined to answer questions on the Midcon bid.

S&P also put Freeport-McMoRan debt on creditwatch with ″developing implications.″ The agency said the acquisition of Midcon could enhance Freeport’s credit quality.

Analysts noted that Freeport-McMoRan has operations in areas that have not been financially attractive in recent years, such as copper mining.

In their joint announcement, WB Partners said they would run Midcon as a separate corporation, maintaining its name, present headquarters and operations. They said the acquisition would benefit their balance sheets.

″A key part of our plan for MidCon is that existing management continue in the same executive functions under the guidance of a board of directors elected by WB Partners that would include management and independent representatives. ″It is consistent with the strategies of Wagner & Brown and Freeport-McMoRan to diversify their assets in the natural resource field through a strong, competitive, well-managed company,″ they said.

Wagner & Brown and Freeport began accumulating Midcon stock earlier this year and now hold approximately 1.93 million shares, about a 4.4 percent stake, a spokesman for the partners said.

They plan to finance the takeover from bank loans of up to $1 billion, which are currently being negotiated. The partners would also contribute about $600 million from internal funds and additional bank borrowings.

Additional funds needed for the acquisition would be raised through the sale of debt securities. Drexel Burnham Lambert Inc. has been hired to handle the securities portion of the financing.

The New York investment house, which specializes in financing with high- yield high-risk securities, commonly called ″junk″ bonds, has said it would be able to place the securities before December 31. It said it could obtain commitments for as much as $2.6 billion, should that become necessary.

Restrictions on the use of junk bond financing, stemming from a policy interpretation recently made by the Federal Reserve Board, go into effect next year.

The offer for Midcon expires at 1201 a.m. Jan. 15.

As of Sept. 30, there were 30.5 million Midcon shares outstanding. Midcon recently authorized the issuance of up to 8.9 million more shares and the convertible debentures would translate into 2.3 million shares.

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