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Polaroid Chairman Testifies In Takeover Battle Hearing

November 10, 1988

WILMINGTON, Del. (AP) _ Polaroid Corp. Chairman I. MacAllister Booth testified Wednesday that the company long had considered an employee stock ownsership plan and did not slap one together to block a takeover by Shamrock Holdings Inc.

Booth, making his first appearance on the stand in the Delaware Chancery Court trial of Shamrock’s suit to block the plan, portrayed Polaroid as a company that is concerned about its workers and was surprised by Shamrock’s takeover assault last summer.

″This was a jolt. Wow,″ Booth said of a June letter from Shamrock President Stanley P. Gold indicating interest in Polaroid. ″Someone was saying you are vulnerable.

″After two to three years of rumors...someone was sending a message and we needed to demonstrate that we are doing something to improve the profitability of the company.″

Shamrock, the Disney family-controlled concern based in Burbank, Calif., is asking Vice Chancellor Carolyn Berger to overturn the 10-million-shar e, $300 million stock plan that Polaroid uneveiled July 12, just one day before a scheduled meeting with Shamrock.

The plan would all but block a takeover because it puts 14 percent of Polaroid stock in the hands of employees. Under Delaware takeover law, a hostile bidder must acquire more than 85 percent of a target’s outstanding shares for control. Polaroid, which is based in Cambridge, Mass., is incorporated in Delaware.

Shamrock on July 19 made a friendly $40-a-share bid for Polaroid. It later made a hostile $42-a-share offer that Polaroid has urged its stockholders to reject. The takeover hinges on the outcome of the trial.

Polaroid’s board envisioned a 5 percent ESOP on March 29 before increasing it to 14 percent at its July meeting. Booth, in more than five hours of testimony, said the plan was undertaken to increase worker motivation and that Polaroid had talked about an employee stock plan as long as 15 years ago.

″This was the thing to do,″ Booth said. ″We were tying together our employees and shareholders in a tight way. It seemed to be a win-win situation.″

Booth admitted that low profits, the possibility of a large damage award in a patent infringement case against Eastman Kodak Co., undervalued real estate assets and high research spending made the company an attractive target.

In fact, he said, Polaroid had the investment banking firm Shearson Lehman Hutton Inc. develop a ″vulnerability profile″ of the company last March, the same time Booth asked Polaroid’s board for permission to study an ESOP.

Booth said he supported an ESOP as a way to ″align the company with the board and the shareholders″ at a 1985 board meeting.

″There was a real separation between shareholders and the employees,″ he said. ″The employees did not relate to the shareholders. I tried to explain that bonding between employees and owners was vital.″

Under questioning from Polaroid attorney Frederick A.O. Schwartz, Booth denied that Polaroid deceived Shamrock by abruptly canceling the scheduled July 13 meeting. He said he couldn’t meet with Shamrock because ″I needed that time to talk to employees.″

Booth also denied the ESOP was designed to entrench management, saying that he is forfeiting $200,000 to $300,000 in bonus compensation next year because of a stipulation in the plan.

Booth is not scheduled for cross-examination until next Monday.

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