A newly expanded Lockheed Corp. board of directors Monday unanimously rejected a $1.6-billion takeover offer from Texas investor Harold C. Simmons, concluding that the financing arrangements in the buyout plan would burden the company with too much debt.
The board action is the latest episode in Simmons' yearlong struggle to gain control of the Calabasas-based aerospace firm. Lockheed management defeated Simmons in a proxy battle for control of the company's board by getting the support of shareholders at the firm's March 29 annual meeting.
The enlarged board fulfills a promise the company made at that annual meeting to provide pension fund managers and other institutional holders of Lockheed stock with direct representation on the board. Four new board members, selected from a list of nominees proposed by the company's largest institutional investors, joined 14 other directors Monday.
Simmons-controlled NL Industries, Lockheed's largest single shareholder with 19% of the stock, does not have representation on the board. After the Lockheed board rejected NL's $40-a-share offer, NL President J. Landis Martin disclosed that he asked Lockheed last August to allow NL to place three of its own representatives on the board. Lockheed on Monday acknowledged that it rejected the request. It said other candidates were more qualified than Martin's nominees.
The buyout proposal called for Lockheed to borrow about $800 million to help Simmons finance the deal. NL would have provided the other $800 million--half of it from available funds and the other $400 million by selling some NL assets and by borrowing.
However, a letter Monday from Lockheed Chairman Daniel Tellep to Martin said Lockheed has "serious doubt about the ability to raise funds necessary" to complete the deal.
"In this (economic) environment, we believe that reliance on potential asset transactions to finance your proposal is highly risky," Tellep's letter said.
The board also rejected the offer because Lockheed would have had to refinance about $1.2 billion of its existing debt under the proposed arrangement, Tellep said. Some of the refinancing would have been required because the terms of some Lockheed loans call for immediate repayment under any change of corporate ownership.
Responding to the rejection during an interview Monday, Martin contended that Lockheed could handle the cost of new loans and the refinancing with money that now goes to shareholders in the form of dividends. Martin said NL may launch another proxy campaign against Lockheed's board.
"We asked them to give us any evidence that the proposal is not feasible," Martin said. "They haven't given us evidence."
Lockheed stock closed at $30.25 a share, down 37.5 cents in trading on the New York Stock Exchange.
The new directors are: Frank Savage, vice president of Equitable Life Assurance Society; Carlisle A. H. Trost, a retired admiral and former chief of naval operations; Douglas C. Yearley, chairman of Phelps Dodge Corp., a Phoenix-based copper producer, and Robert G. Kirby, chairman of Capital Guardian Trust Co., a Los Angeles-based investment management firm.