DETROIT — After pulling out all the stops in the last 10 days to fight a $2.27-billion hostile takeover bid by Houston-based Coastal Corp., American Natural Resources Co. of Detroit agreed Thursday to merge with Coastal for a friendlier price of $2.46 billion, officials of the two firms announced.
After private negotiations earlier in the week between ANR Chairman Arthur R. Seder Jr. and Coastal Chairman Oscar S. Wyatt Jr., the two natural gas pipeline companies came to terms. Coastal raised its cash offer for all of ANR's 37.8 million shares to $65 per share from $60. And it promised that it would not break up and sell ANR's operations for at least two years.
Coastal also agreed to keep ANR's headquarters in Detroit, where the company is deeply involved in downtown redevelopment efforts.
At a press conference in Detroit, Seder expressed disappointment that ANR, which is larger than Coastal, wasn't able to remain independent. But ANR had been unable to find another company interested in a friendly merger after Coastal made its first approach earlier this month, and its executives were apparently unable to put together a deal to acquire the company through a leveraged buy-out.
Stock Prices Climb
"ANR was a hockey puck on the ice, and the only question was which goal it would go in," Seder said.
ANR stock, apparently undervalued at the $38-to-$42 range in which it was being traded before Coastal's first offer, closed Thursday at $64.25, up 62.5 cents, in trading on the New York Stock Exchange. Coastal's stock closed at $37.625, up $2.50.
The deal will significantly extend Coastal's size and reach. The merged firm will have assets of about $7 billion and annual sales of about $9 billion; it will become one of the five largest natural gas pipeline companies in the nation, a Coastal spokesman said.
With a combined total of 18,418 miles of pipe providing natural gas mainly to Colorado, Kansas, Wisconsin and Michigan, the new Coastal system will become a major force in natural gas transmission in the Midwest and West.
ANR's management at first fought Coastal's bid because it feared that Coastal would liquidate much of ANR's non-pipeline operations in order to pay for the acquisition. Along with its 11,916-mile natural gas pipeline system, which transmits gas from the Southwest to Michigan and Wisconsin, ANR also operates a trucking subsidiary, an oil and gas exploration division and large coal, oil and gas reserves.
Wyatt's reputation as a corporate raider who had been involved in a string of recent hostile takeover attempts didn't reassure ANR officials either.
ANR officials also expressed concern that Coastal would force ANR to abandon its roots in Detroit, where it has been located for 100 years, and would cancel ANR's plans for a $30-million project to develop town houses, condominiums, stores and a park and marina along the Detroit River near downtown Detroit.
But ANR apparently did win a commitment from Coastal to keep ANR intact. Although the size of ANR's headquarters staff will be reduced, the merger agreement calls for ANR to maintain its headquarters in Detroit and have its own 12-member board of directors, including four ANR officers, four Coastal representatives and four directors selected from cities served by ANR.
ANR President William T. McCormick Jr. will become chairman of the merged firm and a member of Coastal's board. (Seder had previously announced plans to retire in April.) Three other directors named by ANR, including another ANR executive, will also join Coastal's board.
Coastal also agreed to continue to run ANR's pipeline, energy exploration and production and coal operations for at least two years. Along with its pipeline system, the merged firm will have a total of 1.3 trillion cubic feet of natural gas reserves and oil reserves of 40 million barrels, a Coastal spokesman said.
Trucking Unit's Future in Doubt
The two firms also agreed that ANR's gas reserves won't be diverted for other uses by Coastal, so that ANR's northern markets will continue to have stable supplies.
The merger agreement didn't include a promise to keep ANR's money-losing trucking subsidiary, but Coastal said it has no plans to sell the division.
Still, analysts questioned how Coastal will be able to pay for the acquisition without selling off some of ANR's assets. The cash deal will force Coastal to take on an extraordinarily large debt burden, one that will be difficult to finance out of earnings, said Don C. Bustos, an analyst with the Chicago investment firm of Duff & Phelps. (In 1984, ANR earned $196.1 million, while Coastal earned $101.7 million.)
"It is hard to see the ANR deal making money for Coastal in the near term, given the debt burden Coastal will take on," Bustos said. "The only way out that I see is for Coastal to sell parts of ANR."
And, despite Coastal's assertion that its merged pipeline system will become a dominant force in the central United States, Bustos said he doesn't think the two systems will mesh very well.
"I don't see any synergies in the pipeline system that Coastal couldn't have gained far more cheaply," Bustos said. "I don't think this is going to become a dominant pipeline company. After all, its major markets are going to be the Rust Bowl (Michigan and Wisconsin) and prairie dog-land, (Colorado and Kansas).
The merger agreement still must be voted on by shareholders of the two firms. ANR's annual meeting is scheduled for April 24 in Detroit, but Coastal has not yet scheduled a meeting.