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USG Mum On Possible Takeover Bid

October 6, 1987

CHICAGO (AP) _ USG Corp., the country’s largest gypsum producer and a veteran in dealing with unfriendly acquirers, kept silent Tuesday on a possible takeover attempt by a partnership of two Texas multimillionaire oilmen.

″Our answer to the press all day has basically been no comment,″ USG spokesman David Grabill said when asked for a reaction to the acquisition of a 9.83 percent stake in the company by Desert Partners of Midland, Texas.

″We haven’t commented all day and we’re still not,″ Grabill said later Tuesday.

Desert Partners, headed by Cyril Wagner Jr. and Jack E. Brown, filed papers with the Securities and Exchange Commission late Monday afternoon saying they had paid $224.5 million - or about $44.61 each - for 5.03 million of USG’s 51.2 million shares outstanding.

The filing said the partnership might seek control of the Chicago-based company, formerly known as United States Gypsum.

Another option listed in the filing was that Desert Partners might try to buy a more substantial stake in USG.

Some analysts said they were puzzled by Desert Partners’ move.

″The fundamentals and the nature of its business don’t suggest USG is a very attracitve takeover candidate,″ said Paul Kleinaitis, an analyst in Chicago for Duff & Phelps Inc.

Kleinaitis said the building-products industry was in a slump and would continue to decline.

He said USG would not be easy to break up to pay debt from an acquisition because its basic businesses - gypsum wallboard, exterior hardboard and ceiling tiles - are related.

But Kleinaitis said USG stock had been undervalued before the Texans began buying up shares.

USG was trading at about $40 a share two weeks ago and had been steadily increasing until it reached $55.50 Monday in New York Stock Exchange composite trading. The stock declined slightly on Tuesday to $54.87 1/2 .

Kleinaitis said he doubted the price would go much higher.

Last December, USG escaped what it considered an unfriendly takeover move by the wealthy Belzberg family of Canada, which then owned 3.1 million shares of the company’s stock. USG agreed to pay the family $139.6 million for the shares, giving the Belzbergs a profit estimated at $37 million.

Analyst Timothy W. Hurckes of Donaldson Lufkin & Jenrette said USG’s managers ″have a lot of defenses available to them″ against a hostile takeover.

But Hurckes declined to speculate whether USG might pay off Desert Partners as it did the Belzbergs.

Wagner and Brown have engaged in other takeover forays over the past several months, notably against tiremaker Gencorp and aerospace conglomerate Lear Siegler Inc.

The two investors were said to have profited enormously by selling their shares when Gencorp announced a defensive stock buyback and Lear Siegler was bought by another investment concern, Forstmann Little & Co.

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