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TIME: Almanac 1990
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1990 Time Magazine Compact Almanac, The (1991)(Time).iso
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time
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072489
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07248900.017
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1990-09-17
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BUSINESS, Page 36That's a Reach, Sir JamesThe 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.