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SFSP Stops Henley Talks, Says Suitor's Offer Too Low

December 12, 1987|CHRIS KRAUL | San Diego County Business Editor

SAN DIEGO — Santa Fe Southern Pacific said Friday that it has broken off talks with La Jolla-based Henley Group about the possible sale of SFSP to Henley for $63 a share in cash because it now believes that it cannot "achieve a transaction with Henley at or near that value for our stockholders."

SFSP also cited unspecified "serious and substantial regulatory problems" that would result from a Henley takeover, which at $63 per share would have been valued at $9.94 billion, making it history's largest non-oil merger.

In a regulatory filing Friday after SFSP issued its statement, Henley disclosed that it had offered a cash and securities package to SFSP that one securities analyst valued "conservatively, realistically" at $53 a share, far below the $63 that SFSP had sought.

Henley said in the filing that the offer is still on the table and that it would not rule out the possibility of a future tender offer for SFSP.

SFSP, a Chicago-based railroad, energy and real estate concern, also said Friday that it would soon distribute $4 billion in cash and/or SFSP securities to its shareholders as part of its stepped-up restructuring efforts. It had said earlier that it would restructure itself in order to increase returns to shareholders.

The company--best known for its two independently operated railroads, Santa Fe and Southern Pacific--said it would finance the payout through borrowings and the sale of assets.

Henley, which owns 14.7% of SFSP's shares, has been in discussions with SFSP regarding a possible "business combination" for several months. In November, SFSP informed Henley and another potential buyer, Olympia & York Developments of Toronto, that it would recommend a cash tender offer of $63 a share to its shareholders.

Earlier this week, O&Y said it would not be making such an offer. Henley had agreed earlier that $63 a share was a fair price but insisted on a cash and securities package.

SFSP's statement Friday seemed to close the door on a friendly takeover. "We are convinced that proceeding on our own independent course and promptly pursuing our revised restructuring plan is the best course of action," SFSP President Robert Krebs said in a prepared statement. SFSP said it is considering acquiring Henley's SFSP stock through "certain transactions," which analysts took to mean exchanges for SFSP assets. Henley is thought to be primarily interested in SFSP's vast real estate holdings, which are believed to be worth at least $5 billion.

Analysts said SFSP should have little trouble financing the $4-billion payout to shareholders. The company is expected to announce later this month the sale of Southern Pacific to one of seven bidders for a price expected to be "in excess of $1 billion."

The Interstate Commerce Commission has ordered the company to sell one of its two railroads. SFSP, formed in 1983 by the merger of Santa Fe Industries and Southern Pacific, had hoped to be allowed to combine the two railroad operations but the ICC refused, saying the move would damage rail competition.

SFSP, which announced a far-reaching restructuring plan in September, also said Friday that it expects to realize $680 million on a pretax basis through the sales of three subsidiaries: the Robert E. McKee general contracting company, Santa Fe Pacific Timber and Bankers Leasing & Financial.

The McKee and Santa Fe Pacific Timber sales were previously announced, but SFSP's agreement to sell Bankers Leasing to Citicorp was announced separately Friday. Terms of the deal, which is scheduled to close next month, were not announced. SFSP said it also plans to sell three pipelines and "certain real estate."

"In all likelihood" the $4-billion distribution to shareholders will occur during the first quarter of 1988 through a repurchase of shares of SFSP's common stock and/or as a dividend, Krebs said in the statement. Details have not been determined but will be disclosed to shareholders in the "near future," Krebs said.

SFSP shares closed up $1 at $44.875 in Friday trading, while Henley Group shares closed up $1.125 at $19.75. Henley has spent $994.5 million, or an average $43 per share for its SFSP stake.

According to Henley's amended Form 13-D filing with the Securities and Exchange Commission made Friday, Henley offered to exchange $25 in cash, $15 worth of 11% subordinated notes, and .92 of a share of Henley common stock for each outstanding share of SFSP.

Analyst Henry Livingston of Kidder, Peabody & Co. in New York said that, based on the discounted value of the notes and the current price of Henley stock, the offer had a cash value of about $53 per share.

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