NEW YORK — Merrill Lynch & Co., leading an investor group that is bidding against Hanson Trust PLC for control of SCM Corp., said Wednesday that it had exercised an option to buy two key SCM businesses.
The move raised the possibility that SCM might escape a takeover only to wind up stripped of its most valuable assets and left with a hostile suitor as its biggest shareholder.
Chris Guntner, the manager of acquisitions for Hanson Trust's North American operations, said he was troubled that SCM had remained silent on whether Merrill Lynch had the right to proceed with the purchases, something that could shoot down Hanson Trust's competing bid.
"I don't know if they have bullets in their gun, if the gun is loaded or if the bullets are duds," Guntner said. "The guy who loaded the gun won't talk."
In the confusion surrounding the complex twists of the takeover battle, SCM stock fell 37.5 cents Wednesday to close at $72.375 a share.
As the situation stood:
- Merrill Lynch, which leads an investor group that includes senior members of SCM management, said that it exercised a "lock-up option" to buy SCM's Durkee Foods and its chemical pigments businesses for $430 million and that the deal would be closed Oct. 18.
The option was granted to Merrill Lynch when it reached an agreement last month to buy SCM for $74 a share in cash and securities. The option owes its name to its provision for selling a friendly suitor valuable businesses so that the remaining company is less attractive to a hostile bidder.
Merrill Lynch also said that $9 million had been released to it from a special account set up in the event that any other person or group acquired more than one-third of SCM's stock.
But Merrill Lynch said that, while it was going ahead with the purchase of the two SCM businesses, it also was continuing its bid to buy the rest of the company. It said that, if it gained control of two-thirds of SCM's stock--enough under New York law to complete a merger--it would try to rescind the purchases of Durkee Foods and the pigments businesses and use the money to pay for part of its purchases of SCM stock.
- SCM said it had been notified that Merrill Lynch intended to exercise its lock-up option, but the company declined further comment.
- Hanson Trust, a British company that already owns 32.1% of SCM's stock--when all options are included--complained that SCM was being stripped of its "crown jewels" at bargain prices. A lawsuit that it filed earlier seeking to strike down the lock-up option is pending in federal court.
Clearance in Britain
Hanson Trust said Tuesday that it would offer $75 a share in cash for the 8.4 million shares of SCM that it does not yet own, but only if the lock-up options were voided.
Britain's Department of Trade and Industry gave official clearance Wednesday for Hanson Trust to proceed with the merger attempt.
Unless the standoff is resolved, Merrill Lynch could walk away with SCM's key businesses, leaving a smaller SCM with its Glidden paints and Smith-Corona typewriter businesses and with a hostile Hanson Trust as its single largest shareholder.
The key issue to be resolved is whether all the conditions have been met for Merrill Lynch to go ahead with its purchases.
The agreement between SCM and the Merrill Lynch group provides that, if a hostile suitor acquires one-third of the stock, Merrill Lynch could exercise its lock-up option.
Merrill Lynch said Wednesday that Hanson Trust owned 3.96 million SCM shares, or about 37.4% of the 10.6 million shares outstanding. Hanson Trust, however, claims that, after counting stock options held by executives and stock conversion rights held by holders of other SCM securities, it holds just 32.1% of about 12.3 million SCM shares eligible for purchase.
Sir Gordon White, the chairman of Hanson Trust's North American operations, said the Merrill Lynch move could deprive SCM shareholders of the opportunity to cash in on Hanson Trust's offer.
But he said Hanson Trust had no intention of selling its shares to the Merrill Lynch group and had urged SCM's management and board of directors to join in attempts to prevent the sale of Durkee Foods and the pigments businesses.
There had been speculation that Merrill Lynch and Hanson Trust would negotiate a settlement.
"They (Hanson Trust) have been trying to get Merrill Lynch to talk to them. They're waving money," said a Wall Street source close to the situation who spoke only on condition that neither he nor his company be identified.