The Labor Department filed suit against three Grumman Corp. Pension Plan trustees yesterday, accusing them of illegally using employe funds in an attempt to block a takeover bid by LTV Corp. of Dallas.
The petition, filed in the U.S. District Court for the Eastern District of New York at Uniondale, says the trustees used employe assets to buy Grumman stock, in violation of the Employe Retirement Income Security Act of 1974. The act forbids the use of employe pension-plan funds to benefit the company sponsoring the plan.
Named as defendants were John C. Bierwirth, Grumman's chief executive officer and chairman of the board; Robert G. Freese, a senior vice president and director of Grumman; and Carl A. Paladino, another senior vice president of the corporation.
All three men should be barred from administering the plan, and the funds should be placed in receivership until a new investment manager is found, Labor Secretary Raymond J. Donovan said in the text of the complaint.
Grumman officials yesterday declined comment.
Wall Street analysts were similarly vague, saying they are not certain how the government's suit will affect Grumman's defense against LTV's takeover move.
The suit asks that the defendants "jointly and severally" be made "to restore to the pension plan any losses incurred as a consequence of their fiduciary violations." It also seeks "further relief as under the circumstances may prove equitable and just." That may mean that the company will face some stiff penalties and that the pension funds could be tied up in legal wrangling. But takeovers are strategic maneuvers, and Grumman officials may be able to hold on to the pension-plan-purchased stock long enough to block LTV, the analysts said.
LTV, an energy, steel and aerospace company with 1980 sales of $8 billion, started the merger fight Sept. 23 with a $450 million takeover offer for Grumman. The takeover bid was made on behalf of Vought, LTV's Dallas-based aerospace subsidiary. A successful merger would make LTV the nation's seventh-largest defense contractor, tied with Hughes Aircraft Corp.
But Grumman officials and workers, in an unusual display of management-labor cooperation, decided to oppose the deal. Employes of the Long Island-based defense contractor--the biggest supplier of Navy warplanes, including the F-14 fighter--took out full-page newspaper ads criticizing LTV. Many signed petitions urging Grumman management to use pension and investment funds to buy more shares of Grumman stock to prevent LTV from buying the company.
Last week, in what was interpreted as a desperate move by some, Grumman management decided to use the funds, which are controlled by company officers rather than employe-officer boards.
LTV had offered $45 a share in cash for about 70 percent of the outstanding common stock and convertible securities of Grumman. Immediately before the LTV bid, Grumman stock was trading at about $25 a share.
When LTV made its offer, the Grumman Corp. Pension Plan controlled about 525,000 of Grumman's 13.8 million outstanding shares. The pension fund now has about 1.7 million shares. The employe investment fund has 3.2 million.