Executives of Martin Marietta Corp., Bendix Corp. and Allied Corp. reached an agreement last night ending their takeover battle and leaving Bethesda-based Marietta on its own, although financially battered and partially owned by Allied.
"We welcome this resolution of the episode that began a month ago with the unsolicited tender by Bendix," Martin Marietta President Thomas G. Pownall said in a statement. "I am certain Martin Marietta shareholders have benefitted from these actions."
Financial analysts, however, said that Martin Marietta paid dearly for its freedom in terms of damage to its balance sheet and a drastic increase in debt.
Under the agreement, Allied will buy the Bendix shares not owned by Marietta for a package of Allied stock and fixed-income securities worth $85 a share.
Allied then would swap Bendix's 70 percent holding in Marietta for the Bethesda company's stake in Bendix, which was said to be a bit less than 50 percent.
The swap would leave Allied with a 39 percent stake in Martin Marietta. Allied agreed to a "standstill" pact restricting Allied's rights to vote, buy or sell the Marietta stock. Analysts speculated that, once it regains its financial health, Martin Marietta will buy the stock back from Allied.
Marietta also will add two board members to be selected by Allied.
Bendix Chairman William Agee -- who many analysts believe underestimated the tenacity of Martin Marietta when he triggered the battle on Aug. 25 -- will become president of Allied. Bendix will be a wholly owned subsidary of the giant petrochemical company.
"I am pleased and enthusiastic about this agreement, which will achieve many of our major objectives," Agee said in a statement.
"True, Bendix is not an independent company, but so what. God knows what would have happened," said a source close to Bendix. "The $85 a share that the Bendix shareholders who weren't taken out by Martin Marietta are getting is a very good price."
For Martin Marietta, the task over the next few months will be cleaning up the financial debris of the battle. The company has been saddled with more than $900 million worth of new debt as a result of the cost of purchasing the Bendix shares, and its number of shares outstanding has been drastically reduced as a result of the peace settlement from about 35.8 million to 17 million, including the 6.4 million owned by Allied.
"Financially, it's going to strap it," analyst Dan Roling of Merrill Lynch Pierce Fenner & Smith said of Martin Marietta.
Roling estimated that Marietta would have per-share earnings of about $3.50 this year and $5.50 next year, roughly the same as had been expected before the takeover battle. But he noted that those figures were calculated on a much small number of shares outstanding, so the figure for total earnings would be much lower as the costs of the debt ate into profit.
Perhaps most importantly, the reduction in the number of shares outstanding and the increase in debt has given the company much more debt than equity, usually considered a poor situation.