Esmark Inc. jumped into the increasingly complicated battle for control of Norton Simon Inc. yesterday with an offer to acquire the conglomerate, whose interests include Wesson oil and Avis rental cars, for about $787.5 million.
But analysts said the offer from Esmark--a Chicago-based conglomerate whose products include Playtex and Danskin clothing, Jensen stereo speakers and STP oil treatment--was lower than a competing bid for the company.
David Mahoney, Norton Simon's chairman, who had touched off the bidding for the company with an offer to pay shareholders about $725 million to turn Norton Simon into a privately held company in a transaction known as a leveraged buyout, said his investor group was withdrawing its offer in the face of Esmark's bid, which is being evaluated by Norton Simon's board. It was believed that Esmark's bid was a "friendly" offer that had the approval of Norton Simon's management.
There was no comment from Kohlberg Kravis Roberts & Co., a New York investment banking firm that has offered its own leveraged buyout proposal for Norton Simon worth about $825 million.
Kohlberg Kravis is offering $33 a share in cash for Norton Simon. Analysts estimated that Esmark's package of cash and securities was worth about $31.50 a share, and Mahoney's group had been offering cash and securities worth about $29 a share.
Norton Simon's stock price continued yesterday to float above the offers: it closed on the New York Stock Exchange at $33.75 a share, off $1.50. Analysts say that while the book value of the company is about $30 a share, it could be sold piecemeal for as much as $50 a share. That and the stock performance have led to speculation that the final price might be closer to $40 a share.
"I think Kohlberg still has the best offer out there," analyst Ronald Morrow of Shearson American Express said. He described Esmark's bid as "a low offer. . . . I think the shares are worth more than that."
Under the Esmark proposal, the company would pay $33 a share in cash for 51 percent of Norton Simon's 25 million outstanding common shares, and then exchange a lower-valued issue of new preferred stock for the remaining shares.
Analysts said the acquisition of Norton Simon, which had sales in the year ended last June 30 of about $3 billion, would be a good addition to Esmark's consumer products lines, although they speculate that if successful in its offer, Esmark might eventually sell the Avis rent-a-car business.
Esmark, like Norton Simon one of the classic diversified conglomerates, has been going through a major restructuring in recent years centered around the divestiture of much of its original business, the Swift & Co. meat-packing operation, which was spun off as Swift Independent Packing Co. (SIPCO) two years ago. Esmark, once a $6 billion-plus company, had sales of $3.3 billion in the year ended last Oct. 31.
The Kohlberg Kravis offer and the now-withdrawn Mahoney bid were similarly structured as leveraged buyouts, in which an investor group secures a huge amount of financing for a takeover by using the target company's assets as collateral. Such deals have become increasingly popular in recent years, on a smaller scale; a leveraged buyout of Norton Simon would be the largest such transaction in history.
The withdrawal of Mahoney's offer means that Mahoney--who has come to prominence recently as Avis' television advertising spokesman--may not only lose his bid to buy his company, but possibly lose control of it altogether. But Morrow suggested that Mahoney will be well-compensated: with his estimated 725,000 shares of Norton Simon stock, plus an unknown number of stock options, he stands to make at least $20 million no matter which offer is successful.