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USG Says Proxy Results A Defeat For Desert Partners

May 22, 1988

CHICAGO (AP) _ USG Corp. declared victory Sunday in its proxy battle with Desert Partners LP, saying a preliminary vote count showed a management-backed slate of directors had defeated one nominated by the investor group.

But Desert Partners said it would continue pursuing its $2.2 billion hostile buyout offer for the building materials company, and noted it had a pending lawsuit challenging the proxy vote.

In the contest for six seats on the company’s 15-member board of directors, USG said the management-backed slate received approximately 57 percent of the votes cast, according to a preliminary count released by The Corporation Trust Co.

The final results are to be announced Friday, the company said.

The proxy vote conducted at the company’s annual shareholders’ meeting on May 11 pitted a slate led by Desert Partners’ two main investors, Texas oilmen Jack E. Brown and Cyrus Wagner Jr., against the USG slate that included three members of current management.

Robert J. Day, USG chairman and chief executive officer, said the victory reflected stockholders’ confidence in the company’s board and management. He contended that 95 percent of individual shareholder votes were cast for the management slate.

″We believe the overwhelming results of the vote is clearly a mandate from the shareholders not to sell USG,″ Day said.

Midland, Texas-based Desert Partners indicated its slate received about 42 percent of the votes cast.

Joel L. Reed, Desert Partners’ chief financial officer, said he was ″extremely pleased with the substantial support″ for the group’s slate and called on the USG board to promptly begin merger negotiations.

″We think these results show...a large percentage of the stockholders support Desert Partners efforts to acquire USG,″ Reed said.

He also said he believed Desert Partners enjoyed more support among shareholders who bought USG stock after the March 15 eligibility date for the proxy vote.

Frederic Spar, a spokesman for Desert Partners, said the investors’ group would press a lawsuit it filed before the shareholders’ meeting. The suit challenges the proxy vote on grounds there were deficiencies in USG’s disclosure of information to shareholders about a management-backed recapitalization plan.

Earlier this month, USG announced a defensive recapitalization plan and business restructuring plan to counter Desert Partners’ hostile tender offer in March of $42 a share for 39 million USG shares, or a 76 percent stake in the company. The Desert Partners’ bid is valued at about $2.2 billion.

The USG plan, to be submitted to a shareholders’ vote June 24, would pay stockholders $37 in cash, debentures with a face value of $5 and a share of stock in the recapitalized corporation for each of the 51.5 million common shares.

USG closed at $43.87 1/2 a share Friday on the New York Stock Exchange, up 25 cents.

Desert Partners made a new proposal this month to acquire USG in a negotiated transaction in which shareholders would receive $39 per share in cash, plus debentures and stock valued at about $11 per share, Spar said.

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