Two of the Senate's leading supporters of takeover legislation said yesterday that no major congressional action on mergers is expected this year.
Sens. Pete V. Domenici (R-N.M.) and John H. Chafee (R-R.I.) said in separate speeches to a group called Stakeholders in America that Congress has other complex issues to address before takeovers, including tax reform and the budget. Stakeholders in America, a recently formed coalition of corporate executives opposed to hostile takeovers, includes representatives of Unocal Corp. and Control Data Corp., and is led by Apache Corp. Chairman Raymond Plank.
"I don't see any takeover legislation right now that is going to pass," Chafee said yesterday. "Our menu is so full. I don't see anything taking place this year."
"I am not on the right committee nor do I have enough time to work that takeover legislation out," Domenici said. "It is a challenge to the business leaders of this country to begin to work at some simple guidelines and rules."
Hostile takeover bids, those unsolicited offers that are opposed by the target company's management, have received increasing attention as bidders, including Carl Icahn, have used mostly borrowed money to finance offers for giant corporations such as Phillips Petroleum Co. and Trans World Airlines Inc. Hostile bidders can succeed in acquiring public companies by making their offers directly to shareholders and bypassing the target company's management.
Opponents of hostile takeovers say these bids force companies to take on dangerously high levels of debt, either to finance mergers or to finance takeover defenses to defeat the unwanted bids. Domenici said yesterday that "unfriendly takeovers are forcing debt on all sides."
"I have a recent history of being opposed to the first aspect of mergers that got my attention and that was the shell corporation with junk-bond financing being leveraged against an ongoing corporation that has some liquidity," Domenici said.
Domenici was referring to a takeover bid arranged by setting up a shell corporation with no assets that sells risky securities known as junk bonds to finance the offer. The junk bonds are backed by the stock and assets of the takeover target. The Federal Reserve Board recently restricted borrowing by shell companies in certain hostile takeovers to 50 percent of the takeover price.
The Reagan administration, which opposed the Fed's recent restriction on takeover borrowing, has said it is against any new attempt to regulate takeovers. The administration's free-market philosophy on mergers is that both hostile and friendly corporate takeovers are an efficient way for the nation's economy to redeploy assets.
Chafee, who has introduced legislation that would eliminate the tax advantages of borrowing to finance certain takeovers, challenged the Stakeholders group yesterday.
"American corporate management has to gets its act in shape too," Chafee said. "The picture isn't clear-cut."
Chafee told the group that T. Boone Pickens Jr. and Irwin Jacobs, who have launched several hostile takeover bids each, have made a strong case in support of hostile takeovers. Pickens and Jacobs argue that these bids are an effective way to force management to be responsive to shareholders. Chafee said that too often, management protects its own interests, rather than looking out for shareholders.
I've never been one of the world's great admirers of boards of directors," Chafee said. "I think the behavior of directors in some of these things has been shocking."