Mergers, Acquisitions, and Corporate Restructurings. Gaughan Patrick А.

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СКАЧАТЬ set the stage for hostile takeovers by respected companies in the second half of the 1970s and through the fourth merger wave of the 1980s. This previously unacceptable action – the hostile takeover by a major industrial firm with the support of a leading investment banker – now gained legitimacy. The word hostile now became part of the vocabulary of M&As. “‘ESB is aware that a hostile tender offer is being made by a foreign company for all of ESB's shares,’ said F. J. Port, ESB's president. ‘Hostile’ thus entered the mergers and acquisitions lexicon.”41

      While the Inco-ESB deal was precedent setting in the U.S. market as it was the first hostile takeover by a major corporation and supported by a major investment bank, it was not the first hostile takeover. As we have already noted, such deals were attempted in the United States in the 1800s. In Europe, the first major hostile deal appears to be the 1956 takeover of British Aluminum by Reynolds Metal and Tube Investments. This deal, known as the “aluminum war,” was engineered by the then up-and-coming investment bank S. G. Warburg.42

United Technologies versus Otis Elevator

      As suggested previously, following INCO's hostile takeover of ESB, other major corporations began to consider unfriendly acquisitions. Firms and their chief executives who were inclined to be raiders but inhibited by censure from the business community now became unrestrained. United Technologies was one such firm.

      In 1975, United Technologies had recently changed its name from United Aircraft through the efforts of its chairman, Harry Gray, and president, Edward Hennessy, who were transforming the company into a growing conglomerate. They were familiar with the INCO-ESB acquisition, having participated in the bidding war for ESB as the unsuccessful white knight that Goldman Sachs had solicited on ESB's behalf. Up until the bid for Otis, United had never participated in a hostile acquisition.

      At that time the growth of the elevator manufacturing business was slowing down and its sales patterns were cyclical inasmuch as it was heavily dependent on the construction industry. Nonetheless, this target was extremely attractive. One-third of Otis's revenues came from servicing elevators, revenues that tend to be much more stable than those from elevator construction. That Otis was a well-managed company made it all the more appealing to United Technologies. Moreover, 60 % of Otis's revenues were from international customers, a detail that fit well with United Technologies' plans to increase its international presence. By buying Otis Elevator, United could diversify internationally while buying an American firm and not assuming the normal risk that would be present with the acquisition of a foreign company.

      United initially attempted friendly overtures toward Otis, which were not accepted. On October 15, 1975, United Technologies bid $42 per share for a controlling interest in Otis Elevator, an offer that precipitated a heated battle between the two firms. Otis sought the aid of a white knight, the Dana Corporation, an auto parts supplier, while filing several lawsuits to enjoin United from completing its takeover. A bidding war that ensued between United Technologies and the Dana Corporation ended with United winning with a bid of $44 per share. Unlike the INCO-ESB takeover, however, the takeover of Otis proved to be an excellent investment of United's excess cash. Otis went on to enjoy greater-than-expected success, particularly in international markets.

      United's takeover of Otis was a ground-breaking acquisition; not only was it a hostile takeover by an established firm, but also it was a successful venture and Otis remains a valuable part of United today. This deal helped make hostile takeovers acceptable.

Colt Industries versus Garlock Industries

      Colt Industries' takeover of Garlock Industries was yet another precedent-setting acquisition, moving hostile takeovers to a sharply higher level of hostility. The other two hostile takeovers by major firms had amounted to heated bidding wars but were mild in comparison to the aggressive tactics used in this takeover.

      In 1964, the Fairbanks Whitney Company changed its name to Colt Industries, which was the firearms company it had acquired in 1955. During the 1970s, the company was almost totally restructured, with Chairman George Strichman and President David Margolis divesting the firm of many of its poorly performing businesses. The management wanted to use the cash from these sales to acquire higher-growth industrial businesses. As part of this acquisition program, in 1975, Colt initiated a hostile bid for Garlock Industries, which manufactured packing and sealing products. The deal was path-breaking due to the fact that Garlock fought back furiously and aggressively by using public relations as part of its defensive arsenal. Colt responded in kind and eventually acquired Garlock. This deal is notable for making hostile deals truly hostile. Such deals are commonplace today.

       LING-TEMCO-VOUGHT: GROWTH OF A CONGLOMERATE 43

      Ling-Temco-Vought (LTV) Corporation was one of the leading conglomerates of the third merger wave. The company was led by James Joseph Ling – the Ling of Ling-Temco-Vought. The story of how he parlayed a $2,000 investment and a small electronics business into the fourteenth-largest industrial company in the United States is a fascinating one. Ling-Temco-Vought was a sprawling industrial corporation, which at its peak included such major enterprises as Jones & Laughlin Steel, the nation's sixth-largest steel company; Wilson & Co., a major meat packing and sporting goods company; Braniff Airways, an airline that serviced many domestic and international routes; Temco and Vought Aircraft, both suppliers of aircraft for the military; and several other companies. The company originated in a small Texas electrical contracting business that Jimmy Ling grew, through a pattern of diverse acquisitions, into one of the largest U.S. corporations. The original corporate entity, the Ling Electric Company, was started in 1947 with a modest investment of $2,000, which was used to buy war surplus electrical equipment and a used truck. By 1956, Ling Electronics had enjoyed steady growth and embarked on one of its first acquisitions by buying L. M. Electronics. Various other electronic and defense contractors were then acquired, including the American Microwave Corporation, the United Electronics Company, and the Calidyne Company. Acquisitions such as these – companies that lacked the requisite capital to expand – were financed by Ling through a combination of debt and stock in his company, which traded on the over-the-counter market.

      By 1958, this master dealmaker sold an offering of convertible debentures in a private placement that was arranged by the Wall Street investment bank of White Weld & Company. This type of securities offering was particularly popular with the dealmakers of the third wave because it did not have an immediate adverse impact on earnings per share, thus leaving the company in a good position to play the “profits/earnings game.” With its stock price trading in the $40s, Ling started the process of buying targets that were much bigger than the acquiring company with the 1958 stock-for-stock acquisition of Altec Companies, a manufacturer of sound systems.

      After some other small acquisitions, Ling initiated his largest acquisition when he merged his company with the Texas Engineering and Manufacturing Company, Temco. This deal enabled Ling to accomplish a long-term goal when the merged company, Ling-Temco Electronics, became part of the Fortune 500. Shortly thereafter, Ling prevailed in a hostile takeover of the Vought Aircraft Company to form Ling-Temco-Vought.

      Ling-Temco-Vought went through a period of lackluster financial performance, which forced Ling to restructure the company by selling off poorly performing divisions. In 1967, Ling successfully completed a tender offer for Wilson & Company, a firm twice the size of LTV. This deal vaulted LTV to number 38 on the Fortune 500 list. Wilson was composed of three subsidiaries: Wilson & Company, the meat-packing business; Wilson Sporting Goods; and the Wilson Pharmaceutical and Chemical Corporation. Traders sometimes referred to these divisions as “meatball, golf ball, and goof ball.” The next step Ling took in assembling this massive conglomerate was to buy the Great America Corporation, which was a holding company with investments in a variety of businesses, such as Braniff Airlines and National Car Rental, as well as banks and insurance companies. Although few beneficial commonalities appeared to be associated with this acquisition, Ling was able to exploit several, such as the СКАЧАТЬ