Forstmann Little & Co. said Wednesday that it was dropping its proposed $1.3-billion acquisition of McGraw-Edison Co., which is discussing a higher, "friendly" offer from Cooper Industries.
"The price offered by Cooper Industries is well in excess of a price for McGraw-Edison which would provide us with an acceptable return," said Theodore J. Forstmann, general partner of the New York-based investment firm.
Cooper, based in Houston, on Monday announced a $1.4-billion offer to acquire McGraw-Edison, a manufacturer of electrical equipment based in Rolling Meadows, Ill. McGraw-Edison and Forstmann had announced the leveraged buy-out proposal three days earlier.
Forstmann's offer was for $59 in cash for each of McGraw-Edison's 16.9 million shares, or about $1 billion, while Cooper is offering $65 a share, or about $1.1 billion. In addition, both offers involved assuming about $300 million in McGraw-Edison debt.
"We had been prepared to make an any-and-all cash tender offer at $59 per share this week, jointly with McGraw-Edison. All our financing was in place to implement such a tender offer," Forstmann said Wednesday.
"Moreover, Forstmann Little has substantial additional financial resources which would have enabled us to compete at a higher price for McGraw-Edison, if such a price was attractive to us," he said.
Forstmann had said Tuesday that his firm might join forces with another company in its effort to acquire McGraw-Edison. He said several corporations had contacted him to see if his firm wanted help in taking control of the company.
In a leveraged buy-out, which Forstmann originally had planned for McGraw-Edison, the purchase is made with largely borrowed funds that are repaid from the target company's revenue or from the sale of its assets.
Cooper, meanwhile, announced late Tuesday that its chairman, Robert Cizik, and McGraw-Edison Chairman Edward Williams were holding talks about Cooper's tender offer.
"They characterized their discussions as 'friendly' and said they hoped the discussions would lead to a merger agreement between the companies," Cooper's statement said.
"Williams said that, if satisfactory merger terms can be agreed upon, he intends to recommend to the McGraw-Edison board that it approve Cooper's proposed merger agreement and endorse Cooper's tender offer," it added.
McGraw-Edison, which has 16.9 million common shares outstanding, earned $10.8 million on revenue of $1.72 billion in 1984.
Copper manufactures tools and hardware, compression and drilling equipment and electrical and electronic equipment. It earned $10.7 million last year on revenue of $2.03 billion.
Cooper has 118 manufacturing plants worldwide, including facilities in 41 states and 30 foreign counties, and it has more than 30,000 employees.
Cooper and McGraw-Edison are strong in their market segments and are highly complementary in their product lines, said Robert B. Dyer, a Cooper vice president. "There's a lot of compatibility," he said.