When Bendix Corp. made a surprise offer to buy Martin Marietta Corp. two weeks ago, Wall Street fans eagerly lined up to watch the favorite spectator sport of big business: a corporate takeover fight.
With billion-dollar budgets, platoons of lawyers, highly paid public relations agents as cheerleaders and obscure rules that only a dedicated fan can appreciate, the takeover game is a cross between football and the Roman circus. The play can be as subtle as baseball -- and just as boring to the uninitiated -- or as brutal as Russian roulette.
But after United Technologies jumped into the game Tuesday, even the afficianados had trouble keeping up with the action. It was as if, in the fourth quarter of a Redskins-Dallas football game, the Super Bowl Champion San Francisco 49ers charged onto the field to aid the hapless Skins.
The Bendix-Marietta match is what sports scribes would call a world-class event, an awesome confrontation of corporate clout. If you've never seen a game like this before, here's what's happening:
QUESTION: Start at the beginning, what is this fight all about? What's the object of the game?
ANSWER: Simple. Bendix Corp. wants to buy Martin Marietta of Bethesda. Bendix has spare cash from selling off unwanted divisions and wants to expand; the easiest way to do that is to buy another company. Bendix is looking to get more aerospace and defense business and Martin Marietta is big in those fields.
Q: What did Bendix have to gain by starting such a messy fight?
A: Lots. Bendix Chairman William Agee figured he had a no-lose situation. If he won, he got Martin Marietta. If he lost, he was sure to be able to sell the Martin Marietta stock he owned at a big profit.
Q: Who owns Martin Marietta now.
A: Thousands of individual shareholders. Some own a few shares, some have hundreds of thousands, but no one has enough to claim to control the company. Bendix owned as much as anyone else, about 5 percent, which it bought before announcing its takeover plans.
Q: Is Martin Marietta for sale?
A: Yes and no. Martin Marietta wasn't looking to sell, but there's an old saying: If the price is right, everything is for sale. Agee decided the best way to buy Martin Marietta was to try a bear hug.
Q: A bear hug?
A: That's what they call it in this game. A surprise attack. You sneak up on another company and try to grab it before it can get away. Agee sent a letter to Martin Marietta Chairman Thomas Pownall, telling him he wanted to buy his company. Simultaneously Agee sent letters to every Martin Marietta shareholder offering to pay $43 a share for enough shares to give Bendix a little more than 50 percent of the Marietta shares. Once Bendix bought a majority of Marietta, it would merge the two companies and give Marietta shareholders stock in the new company.
Q: But Martin Marietta's board of directors said "no thanks, we're not interested." Why wasn't that the end of it?
A: Because the board doesn't own Martin Marietta. Under rules set by Congress and the Securities and Exchange Commission, every shareholder has the right to decide whether to accept a tender offer.
Q: Tender offer? Is that anything like a bear hug?
A: A tender offer is the formal method of bidding for a company. It's similar to the way you buy a house. The would-be buyer sends a written notice to the stockholders, spelling out the bid in much the same way that a homebuyer makes an offer for a house by submitting a contract. The stockholders have several days to decide what to do and can change their minds anytime before the offer expires. Stockholders who want to sell then "tender" their stock to the buyer; in other words, they notify Bendix that they are willing to accept the offer. The deal isn't completed until the time limit runs out and the buyer pays for the stock. Any time before the offer expires, stockholders can pull back the stock they've tendered and sell it to another bidder.
Q: Is there any reason for Martin Marietta shareholders to turn down the Bendix offer?
A: Sure, if they think the company will be better run by present management, or they figure someone else will come along and give them a better offer for their Marietta stock.
Q: Well, what are Martin Marietta shareholders doing?
A: As of Monday, owners of 58 percent of Martin Marietta had tendered their stock to Bendix.
Q: So the game is over, Bendix won?
A: Not by a long shot. The offer doesn't expire until midnight Sept. 16. Until then, Marietta stockholders can withdraw their stock, or Bendix can drop its offer. Or Martin Marietta's countertender offer could succeed.
Q: Countertender? I think I need a bartender.
A: No, it's as simple as the Bendix bear hug. Knowing it would be hard to persuade stockholders to turn down the Bendix offer out of the goodness of their hearts, Martin Marietta struck back immediately by offering to buy Bendix for $75 a share. That started a race: Martin Marietta is trying to buy control of Bendix before Bendix buys Marietta.
Q: A slick defense, but will it work?
A: It's an unusual play -- a long bomb on first down -- and sometimes it catches the opposition off guard. The old pros of the takeover game have been dubious from the start. That's why Marietta tried the "white knight" ploy.
Q: What's a white knight?
A: Someone who rides in to rescue the victim of a bear hug. Usually the white knight buys the company that's being attacked and carries it off to live happily ever after. In this case, instead of buying Martin Marietta, the white knight is trying to buy Bendix. Marietta's white knight is United Technologies, which already has been nicknamed the Gray knight, because United's chairman is Harry Gray and this isn't the usual white knight deal.
Q: But Martin Marietta is trying to buy Bendix. Are Marietta and United Technologies competing?
A: No. Those two companies cut a deal and are working together. If United gets Bendix, it will sell several Bendix plants to Marietta and use Marietta's cash to help pay for the Bendix shares it bought.
Q: Sounds bad for Bendix. What if they just give up and go home?
A: It may be too late for that. United says it intends to take over Bendix if it can do so before Bendix wins control of Martin Marietta, so the race goes on even if Bendix drops out.
Q: What happened to Bill Agee's "no lose" situation?
A: It's a very tricky game. But it isn't over yet.