WASHINGTON — The Securities and Exchange Commission declared Wednesday that the nation's third-largest tire maker violated federal regulations by failing to disclose a $41-million "greenmail" payment to corporate raider Carl C. Icahn.
B. F. Goodrich Co. of Akron, Ohio, entered into a consent agreement with the government under which it promised not to engage in such practices. The company, which reported assets of $2.6 billion and net earnings of $60.6 million in 1984, did not admit or deny the SEC findings under the settlement.
The SEC said Goodrich violated federal rules by failing to disclose in its annual report that it paid a 25% premium price to repurchase 1.17 million shares of stock from Icahn in November, 1984.
The omission "made it appear that the repurchase had been a routine transaction undertaken for relatively routine business purposes," the SEC said. It said the repurchase actually was "an extraordinary transaction undertaken for the sole purpose of removing the perceived disruptive threat posed by Icahn."
Shareholders, analysts and portfolio managers did not receive sufficient information about the company because the nature of the repurchase was not disclosed, the commission said.
The SEC also said Goodrich violated federal regulations by failing to disclose in its 1985 proxy statement that the payment amounted to greenmail and that Icahn had indicated that he planned to purchase up to 30% of the company's shares and seek a seat on the board of directors.
Greenmail is a financial expression meaning a management buyback of stock from a corporate raider to avoid a takeover. In recent years, Icahn also has made efforts to acquire substantial shares in a number of other companies.
The SEC said the payment to Icahn was a clear case of greenmail.
In Akron, Goodrich issued a statement saying: "We consented to the issuance by the commission of its order without admitting or denying the charges. By settling, the company sought to avoid costly and extended litigation."
The SEC said its investigation showed that Icahn phoned a Goodrich director Oct. 25, 1984, and met later with John Ong, company chairman and chief executive. In those conversations, it said, the financier said he planned to buy up to 30% of Goodrich stock and wanted a seat on the board.
Icahn also said he might be willing to sign a so-called standstill agreement--after which he would make no further moves to acquire Goodrich stock for five years, the SEC said. It said he also told corporate officials that, once the standstill agreement expired, they might wish to join him in a buy-out of the company.
At the meeting with Ong, the SEC said, Icahn also offered to sell his holdings back to the company for $35 a share. It said the repurchase of 1.17 million shares at that price, representing a 25% premium above the market value of the stock, was approved at an Oct. 31, 1984, board meeting and transacted six days later.
The shares represented 4.9% of the company's stock, the SEC said.
The SEC said Goodrich issued a Nov. 9 press release announcing the purchase and saying it was "contemplated that the shares will be used to fund employee benefit and pension plans, for projected acquisitions and for other corporate purposes. From time to time, the company purchases its shares for such purposes."
The commission said Goodrich did contemplate using the stock for the stated uses but "did not purchase the shares for the purposes set forth in the release" and had "not previously undertaken a repurchase . . . of this magnitude for any purpose."
In the next two weeks, the SEC said, Goodrich refused to furnish information to at least 12 securities analysts and portfolio managers inquiring about a possible premium price paid to Icahn. The annual report filed with the commission March 20, 1985, also failed "to adequately state or reflect that the company paid a 25% premium to acquire the shares from a single seller," the SEC said.
At a March 6 meeting with analysts and portfolio managers, however, Ong confirmed that $35 a share had been paid and that the transaction could be described as greenmail, the SEC said. It said Ong declined to identify the seller.
One day earlier, the SEC said, Goodrich had filed with the commission its 1985 proxy statement, which among other things urged stockholders to back an amendment to the company's incorporation certificate containing rules designed to counter greenmail attempts.