NEW YORK — In a move aimed at furthering its effort to take over Santa Fe Southern Pacific, Henley Group on Monday offered to buy $780 million of new SFSP stock at $17.50 a share.
The offer was sent to the SFSP board by Michael D. Dingman, chairman and chief executive of La Jolla-based Henley, an engineering, financial services and manufacturing company. Henley already owns 24.6 million shares, or 15.7%, of SFSP, a railroad, real estate and energy company headquartered in Chicago.
Henley is waging a proxy fight to gain seats on the SFSP board at the company's annual meeting, scheduled for May 24. If Henley's new tactic is successful, its holdings in Santa Fe would rise to more than a third of the company.
In the letter, Dingman said the proposal is contingent on Santa Fe's removal of a so-called poison pill defense. The defense is triggered if any stockholder accumulates 20% or more of Santa Fe's stock without approval of the board of directors and allows all other shareholders to buy stock at a 50% discount. The effect would be to greatly dilute the voting power and investment of the company attempting the takeover.
"This is just the latest move in a chess game," said Anthony Hatch, transportation analyst with New York-based Argus Research Corp.
"I would not be surprised if they would now go after more than 20% of Santa Fe. This would give them the possibility of making a higher tender offer for Santa Fe stock," he said.
Henley suggested that SFSP use the $780 million to give shareholders $5 a share in cash, rather than a $5 bond that SFSP has said it plans to give them March 1. Earlier in SFSP's current restructuring efforts, shareholders received a $25-a-share cash payment.
Henley said it believes that its proposal of an alternative to the $5 bonds "will be highly attractive and beneficial both to Santa Fe and to your stockholders."
Jeffrey R. Perry, transportation analyst with C. J. Lawrence, Morgan Grenfel, a New York brokerage, said he expects Santa Fe shareholders to like the proposal because they would get an immediate $5-cash payout.
He added that, should Santa Fe accept the proposal with the poison pill provision out of the way, Henley would begin a tender offer for additional shares quickly if it intends to acquire the company. A proxy fight would take too long, he said.
However, SFSP has shown no signs of agreeing to a takeover by Henley or any other suitor, and analysts said Monday that it is likely to reject the new offer. A Toronto company, Olympia & York Developments, owns a 10.65% stake in SFSP and had competed with Henley for control.
In an unrelated development, Rio Grande Industries Monday formally filed its application with the Interstate Commerce Commission for permission to acquire SFSP's Southern Pacific railroad and to combine it with the Denver and Rio Grande Western Railroad.
If approved, the combination would become the fifth-largest railroad in the country.
Besides Southern Pacific, SFSP owns Santa Fe Railroad and operates it separately. It had hoped to merge the two but, instead, was ordered by the ICC to sell one of them.