The targets fire back

MARK NICHOLS April 14 1986

The targets fire back

MARK NICHOLS April 14 1986

The targets fire back

As North America’s highstakes takeover frenzy gains momentum, Canadian corporations have been employing an everexpanding arsenal of protective weapons. But they have never resorted to the ultimate sacrifice of dismantling themselves to prevent an unwelcome bid. Then, last week two major Canadian companies decided to do just that. Facing a takeover attempt by Montreal’s Imasco Ltd., the San Francisco-based real estate and

construction giant Genstar Corp. decided to let the conglomerate buy its most prized holding, Canada’s largest trust company. And the Torontobased Hiram Walker Resources Ltd., struggling to avoid a bid from Calgary’s Gulf Canada Corp. for 38 per cent of its voting control, went even further and last week agreed to sell its major liquor business to a British firm for $2.6 billion. Hiram Walker then set up an affiliated company in an effort to retain control of the rest of its oil and natural gas interests.

The takeover fights intensified public attention on the benefits of corporate cannibalism—and the motives behind the manoeuvres. In Ottawa a group of Conservative MPs planned to force a special debate in Parliament this week to put pressure

on Minister of State for Finance Barbara McDougall to block Imasco’s takeover of Canada Trustco. Their main concern is the potential for non-arm’s-length deals between companies and a financial institution all owned by the same shareholder. At the same time, the struggle over Hiram Walker was taken up in the Ontario Supreme Court. Olympia & York Developments Ltd. (O&Y), owned by the Reichmann family of Toronto, who also control Gulf, asked the

court to prevent Hiram Walker from selling its liquor interests to Britain’s Allied-Lyons PLC.

The competition for Hiram Walker, which owns Consumers’ Gas Co. Ltd., a major distributor of natural gas, and Calgary’s Home Oil Co. Ltd., is particularly strong. The Seagram Co. Ltd., controlled by the Bronfman family of Montreal, also offered to buy Hiram Walker for $2.1 billion. “Part of it is corporate ego,” said James Doak, an oil-and-gas analyst for Toronto’s First Marathon Securities. Hiram Walker’s management, added Doak, “did not want to be taken over by the Reichmanns because they knew the Reichmanns would dismember them.” He added, “It is a macho business.” Executives at Hiram Walker also said that Gulf’s offer was too low. They said

that the oil company was taking unfair advantage of falling international oil prices which have driven down the value of oil company stocks.

The takeover attempts also extended to the U.S. oil business. But the attempt by the wealthy Belzberg brothers of Vancouver to take control of Kentucky’s Ashland Oil Inc. was blocked last month when the state legislature passed a law to prevent the purchase. Still, the Belzbergs will gain a profit of up to $14 million, because the management of Ashland agreed to buy back at $51 a share the 9.2-per-cent stake that the brothers had already acquired at prices ranging from $35.50 to $45.

It was a classic case of “greenmail”—a strategy in which target firms pay a premium to buy back stock held by the raiding company in order to prevent a takeover. The transaction is legal in the United States but not in Canada. Spokesmen for the Belzbergs said that they fully intended to control and operate Ashland, but Wall Street analysts said that the failed bid further established the Canadian brothers, who control a diversified $6-billion financial empire, as adept greenmail experts. “They are viewed totally as greenmailers,” said one New York analyst.

Meanwhile, with Imasco’s offer set to expire April 25, Genstar’s management and board decided to let the pharmaceutical, fast-food and tobacco conglomerate have what it wanted most—Canada Trustco Mortgage Co. of London, Ont.—for about $2.4 billion in a deal that could leave the remain-

der of Genstar’s interests in the hands of its current management. Under an agreement reached during bargaining sessions in Toronto, Imasco will pay a minimum of $58 a share for 41 million outstanding Genstar shares. The two firms will now work out a deal under which Genstar will retain its remaining assets, which include cement and building materials businesses and real estate holdings in Canada and the United States.

Still, Genstar’s decision to sell Canada Trustco surprised some analysts. They noted that the loss of the trust

company would hurt the parent company, which spent more than five years building its strength in financial services and only succeeded in taking over the trust firm last year after a bruising battle with Canada Trustco’s management. Said Tony Yue, an analyst at Pemberton Houston Willoughby Inc. in Vancouver: “The whole world must have gone mad.”

In its battle to fight off the Reichmanns, Hiram Walker management, led by chairman and president Bud Downing, worked out an equally intricate arrangement. It involves selling the company’s liquor interests to Britain’s Allied-Lyons, a $6.5-billion giant that controls distilleries, breweries and restaurants. In what analysts call a “scorched earth” action, the sale was designed to make the company unpalatable to an unwanted bidder.

At the same time, Hiram Walker attempted to prevent the Reichmanns from getting control of its oil and gas interests. They did that by creating an affiliated company called Fingas Investment Corp., which will offer $40 a share for its parent’s stock—$8 more per share than Gulf has offered.

But Hiram Walker’s strategy does not guarantee success. In the Ontario court action, O&Y, which already owns 10.7 per cent of Hiram Walker stock, tried to prevent the sale of the liquor interests and the Fingas offer by arguing that Hiram Walker’s actions were not in the best interests of shareholders but served only to entrench management. By week’s end, although the court had not ruled on the injunction, Gulf had sweetened its offer for Hiram Walker to $35 a share for all the common stock—if the Fingas offer was dropped. Some analysts said that the Reichmanns may yet gain full control of Hiram Walker. They added that the brothers have the financial strength and might be prepared to spend more because Hiram Walker’s oil and gas interests would fit well into Gulf’s operations. “Logistically,” noted Calgary analyst Robert Price of Peters & Co. Ltd., “that makes a lot of sense.”






New York