Kaiser Aluminum & Chemical, trying to fend off a hostile takeover bid from a group led by Oklahoma investor J. A. Frates, announced plans Wednesday for a restructuring that includes forming a holding company, refinancing bank debt and raising new capital.
"Our bottom line on everything we announced today can be summed up in a few words: a program to enhance shareholder value," Cornell C. Maier, Kaiser Aluminum's chairman and chief executive, said in an interview.
The Oakland-based firm's latest reorganization, which has been in the works for more than a year, is the outgrowth of a restructuring process begun in 1981 and is not designed to thwart the hostile $20-per-share takeover bid by the Frates group, Maier insisted. The Frates group, which in September announced its intention to gain control of Kaiser Aluminum and to "recapitalize and restructure" the firm, owns 18.6% of the aluminum producer.
"We would have announced this even if we had never heard of Mr. Frates," Maier said.
The Frates group, Kaiser Aluminum's largest shareholder, said the restructuring "may be welcome news to senior management (but) it offers nothing to Kaiser shareholders."
"All the announcements today, when stripped of the smoke and mirrors, are basically a ploy to entrench management," said Leonard T. Conway, a member of the Frates investor group.
Under the plan, which must be approved by shareholders, a holding company with five separate operating subsidiaries would be formed. The subsidiaries would be Kaiser Aluminum & Chemical, composed of the aluminum and some industrial chemicals operations; Kaiser Development, a real estate unit; Kaiser Energy, the oil and gas business; Harshaw/Filtrol Partnership, an industrial and specialty chemicals joint venture, and a new company that would handle acquisitions.
The holding company hasn't been named, but "it will definitely have the word Kaiser in it--Kaiser something," Maier said. Each share of Kaiser Aluminum's common stock would be exchanged for a share in the new holding company.
After the reorganization, Kaiser Aluminum plans to issue preferred stock of the holding company to retire part of the company's $1-billion bank debt. Proceeds from subsequent issues of preferred stock or subordinated debt will be used to further pay down the debt and to finance acquisitions.
Acquisition candidates must fit the plan devised in 1981 of restructuring Kaiser Aluminum by 1990 so that half of its revenue comes from aluminum operations and half from non-aluminum operations, Maier said. In 1984, aluminum operations accounted for 61% of Kaiser Aluminum's revenue.
Kaiser is looking at profitable firms with revenue of more than $500 million, Maier said. Acquisitions will allow the company to use about $400 million in investment tax credits and tax-loss carry-forwards that the company has rolled up because of extensive losses since 1981.
The amount of stock or subordinated debt to be issued hasn't been determined, a Kaiser Aluminum spokeswoman said. But the company intends to reduce the $1-billion debt by $70 million in 1985, $80 million in 1986, about $200 million in 1987 and about $125 million in 1988, she said.
Kaiser Aluminum is now "in the review and approval process" in the refinancing of its debt with nearly 40 domestic and foreign banks, the company said. The new agreement will "string out maturities considerably" and will provide for a $165-million, four-year revolving line of credit, Maier said.
The debt will be secured by liens on certain of Kaiser Aluminum's fixed assets, the company said.
The restructuring, developed in conjunction with the investment firm Drexel Burnham Lambert, will "maximize the full long-term potential" of the subsidiary operations by increasing visibility of the operations, which tends to motivate managers, Maier said. "Each group would have to paddle its own canoe," he said.
Analysts described the restructuring as a "cosmetic" move about which only sketchy details are available.
"All this has to add up to improving the company's earnings . . . but at this moment it's difficult for me to see why it would," said Richard McClow, an analyst with Chicago-based Duff & Phelps.
The plan could be used to thwart the Frates group by spreading the company's existing debt, which currently is concentrated primarily in the aluminum business, over all its subsidiaries, analysts said.
As a result, if the Frates group were interested in only part of the company, such as the real estate operations, the increased debt might discourage a takeover.