The Justice Department yesterday filed a civil antitrust suit against Occidental Petroleum Corp., in an effort to block the $1 billion takeover of the Mead Corp.
The government claims that if Occidental is allowed to take over Mead, the company could monopolize the markets for several products.
"The two companies are multibillion-dollar diversified companies with overlapping interests in sodium chlorate, coal and carbonless copy paper," the Justice Department said in announcing the suit.
The suit was filed in U.S. District Court in Dayton, Ohio, where Mead is headquartered. Occidental, the 27th largest industrial corporation in the U.S. with $6 billion in sales is based in Los Angeles.
Occidental is the 12th largest oil company, the 10th largest chemical producer and the fourth largest coal company in the U.S., while Mead with total sales of $1.8 billion, is the fifth largest pulp and paper company in the U.S., and also produces chemicals, coal, iron castings and molded rubber products.
Occidental announced last August that it intended to takeover Mead by purchasing 100 percent of the outstanding stock in exchange for Occidental stock. Such a deal could involve as much as $1 billion worth of stock.
Mead rejected the proposal, but that did not stop Occidental, which announced intentions to proceed with a tender offer anyway. The huge company has informed several federal agencies and the state of Ohio of its plans. If Occidental succeeds, it will be the largest hostile takeover in U.S. corporate history.
On Tuesday, a hearing officer for the Ohio Division of Securities concluded that Occidental failed to make adequate and accurate disclosures in its proposed tender offer.
The Ohio decision was a scathing indictment of Occidental's worldwide operations and the proposed tender offer.
Mead itself filed a civil antitrust suit against Occidental a month ago, making allegations similar to those in the Justice Department filing.
Mead President and Chief Executive Officer Warren Batts said yesterday that "the government action speaks for itself."
Specifically, the government complaint alleges that the proposed acquisition would eliminate competition between the two firms in several areas.
It points out that Occidental is the largest U.S. producer of special resins used to produce carbonless copy paper, and is a partner with the largest producer.
Mead, on the other hand is the second largest producer of that paper. If the takeover happened, Justic said, the company would be linked by ownership and joint venture arrangements to 80 percent of that business.
Similar anti-trust problems were cited in that the areas of sodium chlorate and coal production.
Justice asked for a temporary restraining order and preliminary injunction to prevent Occidental from acquiring any of Mead's stock or otherwise consolidating the two businesses.
Occidental has said that it wants to acquire Mead as part of its investment program. The petroleum giant said Mead could use federal income tax credits that Occidental is earning, but cannot use on its own.
Joseph E. Baird, Occidental's president, said acquisition of Mead would also provide Occidental with more balanced growth opportunities and better use of the larger firm's cash flow.
Mead officials, however, say that company has ample cash flow and borrowing power to meet growth requirements.
Armand Hammer, Occidental's flamboyant Chairman and Chief Executive is one reason Occidental will likely continue its efforts to takeover Mead despite any obstacles, according to knowledgable sources.
Mead personalized the bitter struggle by aiming full page ads in newspapers directly at Hammer, a man who apparently enjoys a good fight.