TIME: Almanac 1993/TIME Almanac 1993.iso/time/072489/07248900.017

Text File | 1992-09-23 | 3.5 KB | 70 lines

                                                                                BUSINESS, Page 36

That's a Reach, Sir James


The raider springs a daring $21 billion bid for B.A.T


    British investors have long resisted highly leveraged
buyouts, looking at them as a woolly American phenomenon --
interesting at a distance but unacceptable at close range. Last
week Sir James Goldsmith forced them to take another look by
launching a surprise $21 billion hostile bid for B.A.T
Industries (1988 revenues: $29 billion). Backed by investors
Kerry Packer, the Australian industrialist, and Jacob
Rothschild, the British financier, Goldsmith plans to break up
the sprawling London-based conglomerate and "liberate" far-flung
divisions that sell everything from cigarettes (Kool, Viceroy)
to insurance in more than 40 countries.

    Even in a European marketplace aswarm with mergers and
takeovers in anticipation of the lowering of national barriers
in 1992, the B.A.T deal would be worth two-thirds the total
value of the 898 European mergers and acquisitions carried out
in the first half of this year. It would rank second only to
last year's $25 billion takeover of RJR Nabisco by the LBO firm
Kohlberg Kravis Roberts.

    To pull off the deal, Goldsmith and his partners propose to
borrow nearly $17 billion. Drexel Burnham Lambert will raise
$6.4 billion through a junk-bond issue, and Bankers Trust will
assemble a consortium of banks to provide the rest. Yet B.A.T
investors would get no cash for their 1.5 billion shares.
Instead, Goldsmith and his partners, bidding through a company
called Hoylake Investments, would pay B.A.T shareholders a
combination of Hoylake stock and loan chits worth $13.82 a share
(B.A.T stock was trading at 11.28 in London before the deal was
announced). Hoylake would pay down the debts by selling off
B.A.T's retailing and finance holdings.

    Co-founded in 1902 by North Carolina tobacco mogul James
Duke, the company, formerly known as British American Tobacco,
has diversified in much the same pattern as have R.J. Reynolds
and Philip Morris. As growth in cigarette sales softened, B.A.T
branched into retailing during the 1970s, taking over such
chains as Saks Fifth Avenue and Marshall Field in the U.S. and
Jewellers Guild shops in Britain. The company capped a move into
finance last December with the $5 billion takeover of Los
Angeles-based Farmers Insurance.

    B.A.T immediately slapped down last week's bid. Chairman
Patrick Sheehy described the offer as "no more than an
ill-conceived attempt at destructive financial engineering,"
designed to give the raiders a quick payout by stripping the
company's assets. London investors questioned the feasibility
of Goldsmith's financing, while corporate chieftains feared he
might set off a rash of leveraged takeover raids.

    Goldsmith maintains that B.A.T shareholders would be better
off if the company were to refocus on the high-profit tobacco
business, which is experiencing new growth in Asia and other
overseas markets. A veteran conglomerate-buster who served as
the model for the swashbuckling Sir Larry Wildman in the 1987
film Wall Street, the 6-ft. 4-in. Goldsmith may have made his
point all too well. Now that he has put B.A.T on the block,
other raiders may try to top his offer. Or B.A.T may attempt to
boost its stock price beyond his reach by launching a
restructuring in which some of the company's juicy parts would
be sold off. At week's end B.A.T shares closed at 14.21,
indicating that investors expect an even sweeter offer to come.