GAF Corp. Chairman Jesse Werner says he had an inkling over dinner that Samuel J. Heyman wasn't going to be a passive investor in GAF.
When the two men and their wives dined at Heyman's Connecticut home in February 1982, a year after Heyman began buying big chunks of GAF stock, Heyman kept steering the conversation to the subject of a 1971 proxy battle for control of the company, Werner recalls. By the end of the meal, Werner says, he was convinced that his company was in for a reprise.
Sure enough, Heyman--a real-estate magnate who owns about 6 percent of GAF--launched a proxy battle, but later agreed to withdraw from the field. This year, however, he is pressing his fight in an acrimonious proxy contest that is scheduled to be decided at GAF's annual meeting April 28. Stockholders are being asked to vote either white proxy cards to retain the current board of directors or blue cards for Heyman's slate. To help them make up their minds, the stockholders are being barraged by both sides with letters, newspaper ads and other materials that pile countercharge on countercharge.
At stake is control of GAF, which traces its history to the first camera store in America. At issue is Werner's track record as chief executive, which Heyman charges is seen in the company's less than glittering sales and earnings results of the past few years.
Werner has been running GAF for 22 years--the only chief executive the company has had since it went public in 1965. Prior to that, the company had been operated by the U.S. government, which had seized it in 1942 from its previous owner, a large German chemical company.
Perhaps best known for its film and photographic supplies and floor-coverings--and advertisements featuring the late Henry Fonda--GAF has abandoned those fields and many other businesses in recent years, and retrenched in specialty chemicals and roofing materials--the latter badly hurt by the recession.
GAF's earnings record has been spotty for the past several years, and the company's reputation on Wall Street has not been good. It earned $56.2 million on sales of $623.2 million last year, but the revenue figure was about half of the company's sales of just three years earlier, shortly before GAF shed several marginal businesses with assets of nearly $400 million.
The company had a net loss in 1980, during that period of divestiture, of $233.5 million, and it had a loss on continuing operations in 1981 of $28.2 million. Further, it recently chopped its dividend 75 percent.
"They just seem to have expanded for the sake of expansion, and not for the sake of making money," says Robert Danielson, an analyst at the Value Line Investment Survey. "I just don't like the record of the present management."
"This has been one of the most abominable performances that you can imagine," Heyman charges. "This is in my opinion an almost textbook case of corporate mismanagement."
Regardless of whether his case has merit, the odds are against Heyman: such attempts at wresting corporate control from management are rarely successful, because the institutional investors that control much of the stock in most corporations tend to side with the incumbents. SCM Corp., which was subjected to noisy proxy battles in 1979 and 1980, won both handily, and the recent proxy fight for control of Chock Full O'Nuts Co. was won by management by a two-to-one margin.
But victory by dissident shareholders is not unheard of: managements at Holly Sugar Inc. and Gulf Resources and Chemical Corp. have been ousted in proxy battles in recent years.
And though Securities and Exchange Commission rules prohibit predictions of victory by either side, Heyman says, "I think it's going excellently."
GAF executives, for their part, are equally optimistic, although Werner is looking for a buyer for all or part of the company and GAF's investment banker hints that a deal could be imminent. (Heyman is skeptical of that report, saying Werner persuaded him to back away from a proxy attack a year ago by promising to sell the company.)
Proxy fights tend to be the corporate world's equivalent of tag-team wrestling, and this one is no exception, rife with personal attacks and low blows that both sides say obscure the issues. Among the charges and countercharges:
* Heyman has attacked the quality of GAF's board, particularly the record of one director, Robert Spitzer, chairman of Treadwell Corp., a large construction firm. Heyman's group has attacked Spitzer's testimony in a racketeering trial that he had paid bribes to union officials in return for labor concessions, and a Heyman letter to stockholders asks, "Do you think Spitzer can be trusted to safeguard the interests of GAF shareholders?"
In reply, GAF has noted that Spitzer was not prosecuted, says its board has investigated and cleared Spitzer of any wrongdoing, and claims that Heyman attempted to recruit Spitzer to the dissident slate of directors--an assertion that Heyman calls "preposterous."
* GAF has questioned Heyman's handling of $250,000 the company paid him to cover his expenses in return for his agreement not to pursue a proxy contest last year. Heyman says the money has all been accounted for and independently audited.
* Heyman has attacked the high turnover in GAF's management ranks, particularly a procession of three presidents in two years--the company has not had a president since November 1981--and a high-salaried, five-year contract the 66-year-old Werner signed in 1981 as indications that Werner is unwilling to bring in new management. Werner, in reply, says that he has wanted to retire for several years but has been unable to find a suitable successor. "I'm not going to stay here forever," he says.
* GAF has attacked the membership of Heyman's board of directors slate, which includes former Maryland senator Joseph D. Tydings and several former top executives of major companies. GAF has insinuated that some of these executives were ousted by their companies or had turned in mediocre management performances; Heyman says: "The quality and caliber of people in our effort, I believe, ranks us first above other insurgent efforts which have been attempted in the past."
* Heyman says he offered to settle the proxy battle several weeks ago in a meeting with Werner and other GAF officials by asking that Werner simply step down. Werner says Heyman was asking for much more than that. "He was advocating some kind of anarachy," Werner says. "If he had some sort of a sensible plan, it might have been considered."
* Werner has charged that Heyman has little experience running a large public company and says, "I think his motives are to take over a company." Werner also notes that Heyman has continued to amass stock in GAF--he currently controls about $10 million worth--and has made a profit on his investment because the stock, though well below its historical levels, has increased slightly since Heyman began his purchases in early 1981.
* Heyman says he is not a corporate activist and doesn't want to run GAF. And he charges that Werner "has his mind on his employment contract, his bonuses, his stock options . . . with very little regard toward realizing the value of the company."
If successful, Heyman said, he wants to sell GAF's chemical business--giving the profits to GAF stockholders--and rebuild the company around the roofing-material division. This strategy is endorsed by some analysts, given the healthier, more saleable condition of the chemical business and the impending recovery of the housing industry, which should strengthen the roofing division.
Werner, however, has been trying to sell the roofing business since last year, to rebuild the company around the chemical division--although he says he would sell the chemical unit if the right offer came along, and can also envision the sale of the entire company.
Werner says Heyman has vastly overestimated the amount of money the chemical division might bring in a sale. Robert Greenhill, managing director of the investment banking firm of Morgan Stanley, which is advising the company, says there are tax disadvantages in selling the chemical division and that the sale of the roofing business would eliminate the company's cash drain.
Heyman's response to that is a written opinion he commissioned from Prudential-Bache Securities that the plan to sell the chemical division is "in the best interest of GAF's shareholders from a financial standpoint."
That opinion--which GAF has attacked as superficial because Prudential-Bache rendered it without consulting the company--cost Heyman $50,000, part of the huge expense to both sides of this battle. Heyman estimates that he will spend $750,000 on the fight. Werner says GAF has already spent $1.1 million defending itself, with nearly three weeks left before shareholders vote on GAF's future.