GAF Corp. yesterday filed suit against takeover target Union Carbide Corp., claiming that a Carbide defense plan announced on Sunday was unlawful.
"The sole or primary purpose of the 'poison-pill' exchange offer is to entrench current management and the defendant directors," GAF's lawsuit said. GAF called Carbide's defense plan a "poison pill" because the plan, if fully implemented, would load Carbide with $4 billion in additional debt -- a load that Carbide hopes would be too great for GAF to carry.
Carbide's plan, disclosed Sunday by Chairman Warren Anderson, is a proposal to repurchase up to 70 percent of its its stock in two equal stages.
In the first step, Carbide would reacquire 35 percent of its stock for a combination of cash and bonds that it valued at $85 a share -- well above GAF's current offer of $68 a share for 48 million shares of Carbide's stock. Some Wall Street analysts said the value of the Carbide package was closer to $68 than $85.
Carbide said Sunday it hoped GAF would accept that offer, ending the $4.3 billion takeover attempt. But if GAF pressed ahead and acquired 30 percent of Carbide's stock, the second stage of the defense would be triggered -- a second $85-a-share offer for another 35 percent of Carbide stock. At that point, GAF would gain control of Carbide, but because Carbide would finance its buyback offer primarily with borrowed funds, the debt on Carbide's books would soar by as much as $4 billion.
GAF has said it planned to sell off some of Carbide's assets to repay debt it will incur in the takeover attempt, if it succeeds. But under terms of Carbide's defense plan, any proceeds from the sale of Carbide assets would have to be used first to retire the $4 billion in new debt to be issued by Carbide to its shareholders as part of the defense maneuver.
In the back-and-forth battle, both sides are hurling the same takeover epithets at each other.
Carbide has called the takeover bid by the much smaller GAF Corp. a "junk bond, bust-up" offer, because GAF proposes to finance its acquisition of Carbide stock primarily through borrowing, relying on "junk bond" debt securities backed by the assets of Carbide, its target. If successful, GAF would sell some of those assets to retire the debt, "busting up" Carbide.
Yesterday, GAF called Carbide's defense plan a "two-tier, junk-bond, poison pill" stock-exchange offer, contending that the securities Carbide would issue to finance $65 of its $85-per-share offers would be "junk bonds of uncertain value."
GAF contended that the Carbide repurchase offer was made "in order to confuse Union Carbide's shareholders and thereby deter them from accepting the GAF tender offer . . . "
GAF's lawsuit also attacks a provision added to Carbide's employe pension fund this year to prevent a hostile suitor from using a $500 million surplus in the pension fund to help finance a takeover. Carbide wants to use that $500 million to help pay for the first stage of its stock purchase plan.
There was no indication from GAF yesterday that it is considering raising its $68-a-share offer.
Some analysts said yesterday that GAF retains the upper hand in the struggle. Leonard Bogner, with First Manhattan Co., told The Associated Press that GAF could make a paper profit of more than $230 million by selling its stock back to Carbide at the $85-per-share price, "then turn around and come back another day and try again after the stock drops back down again."
Peter Butler of PaineWebber, an outspoken critic of Anderson's management of Union Carbide, said the company's response to GAF had opened it to a variety of possible lawsuits.