DETROIT — Fruehauf Corp. will try to escape a hostile acquisition by taking the truck-trailer maker private in a deal valued at $1.8 billion, much of it in borrowed funds, the firm said Wednesday.
The transaction, financed largely through high-yield bonds and backed by Merrill Lynch & Co., likely would destroy Fruehauf's potential for profit in the near term unless it either sold off operations or underwent stringent belt-tightening, according to a brokerage-house analyst.
Fruehauf managers and Merrill Lynch formed a new company, LMC Holdings, which offered $48.50 per share in cash for 78% of Fruehauf's common stock, topping by $4.50 per share a hostile offer by New York investor Asher B. Edelman. LMC said it would exchange preferred and common stock for the remainder of Fruehauf's shares.
Should the LMC bid succeed, Fruehauf would slip through Edelman's hands and its present management would remain in control, with Merrill Lynch retaining a financial stake in the new holding company.
Merrill Lynch, based in New York, will provide $375 million in funding for the buyout. Manufacturers Hanover Trust, also of New York, will provide an additional $375 million, and Fruehauf will provide about $100 million, Fruehauf said. Merrill Lynch said an additional $700 million in debt would raise the total cost of the transaction to $1.8 billion.
LMC's cash offer would buy up to 17.5 million shares of Fruehauf common stock, although it might be extended to all 23 million Fruehauf shares, Fruehauf said.
Edelman and his associates own more than 9% of Fruehauf's common stock, according to documents filed by the group with the Securities and Exchange Commission.
Drake estimated the Edelman group would make a profit of about $12 per share should it accept the LMC offer, which works out to $24 million, based on 2 million shares.
Edelman declined comment on Fruehauf's buyout attempt beyond a statement issued through spokesman Larry Friedman that "we are considering the information available to us."
"I believe that the proposed transaction with Merrill Lynch not only provides our shareholders with greater value for their shares than does Mr. Edelman's, even were his offer to be financed, but it also may provide our shareholders with an opportunity to participate in the future of new Fruehauf," said Robert Rowan, Fruehauf's chairman.