Texas investor Harold C. Simmons on Monday sold most of his 19.8% stake in Lockheed Corp. for $486 million, opting to cut his losses rather than prolong an expensive, bitter, two-year battle for control of the Calabasas-based aerospace giant.
Simmons, who held the stake through his Houston-based NL Industries Inc., sold 12 million of his 12.5 million shares to Salomon Bros. for $40.50 a share. NL, which paid an average of $43 a share to acquire the stock in 1989, lost at least $30 million on the transaction--and perhaps $100 million altogether conducting two costly proxy fights with Lockheed management, analysts said.
Both campaigns focused on Simmons' criticism of what he considered Lockheed's diversification away from its core defense and space businesses into computer-equipment and other fields.
With Monday's sale, Simmons decided to drop his latest proxy war, concluding he could not generate enough support from other large holders of Lockheed stock, NL Industries President J. Landis Martin said Monday.
After NL's surprising announcement, Lockheed stock fell $2.50 a share to $40.50 in trading on the New York Stock Exchange.
The long fight prompted Lockheed to engage in a broad cost-cutting program, open up new channels of communication with employees and investors and give major shareholders more say in board decisions.
Lockheed Chairman Daniel M. Tellep said Monday he would stick to the new course. But Lockheed managers clearly had been frustrated by the struggle with Simmons, and Tellep expressed relief Monday that the Texan was abandoning his challenge to management.
"We're extremely pleased that Simmons and NL Industries decided to drop this expensive and time-consuming endeavor," Tellep said.
Martin said he and Simmons decided to abort the latest proxy fight and sell the bulk of NL's holdings during a telephone conversation Sunday night.
They earlier had concluded that NL's full slate of alternative directors had little hope of election at Lockheed's April 2 annual meeting. Instead, NL pinned most of its hopes on a proposal asking shareholders to urge Lockheed's management to give the Simmons team three board seats.
But by Sunday, even those prospects seemed dim.
"Based on conversations with shareholders, we doubted that we would get majority vote on our full slate and we felt we could not get a strong enough majority on the advisory (three-seat) proposal to convince Lockheed to give us representation," Martin said.
"We decided to sell because we didn't have influence on the key issue of diversification," he added. "Other shareholders have the right to support diversification."
As he had throughout the proxy contests, Tellep disputed Martin's characterization of Lockheed's corporate strategy.
"Our No. 1 priority is to focus on our core businesses with the aim of profitability," Tellep said. " 'Diversification' is a Simmons term. We're really talking about leveraging our core skills to move into new but closely related markets. We have to reduce our reliance on defense. But we're not diversifying into fields like patio furniture or canoes."
Lockheed consistently denied NL representation on the board, contending that Simmons and his team would be a disruptive and self-serving faction.
Earlier this year, Tellep explained, "We believe that members of the board should act in the interest of all shareholders. He does not pass that fundamental criteria."
For Simmons, an astute investor with a reputation as a corporate raider, the costs of selling out of the battle were especially acute, industry analysts said.
Jack Modzelewski of Paine Webber estimated that Simmons lost $100 million in his failed effort to control Lockheed, between the per-share loss on selling the stock, costs of the proxy battles and interest costs.
Said Michael Lauer, an analyst at Kidder, Peabody: "Harold Simmons is walking away licking his wounds. But he is also relieved to have sold the stock at this point, because only six months ago the stock was valued in mid-$20 range--a lot less."
In fact, industry analysts said Simmons' latest proxy challenge was doomed largely by Lockheed's financial resurgence.
Lockheed's earnings rose to $335 million in 1990. The company had earnings of only $2 million in 1989, when it was burdened with costly cost overruns on development contracts for the government.
Earnings at NL, which makes chemical additives used to add color to a wide range of products, declined 47% in 1990--a performance Lockheed has sought to contrast with its own in campaigning for institutional investors' support.
NL has claimed some credit for Lockheed's recovery, saying, for example, that Lockheed engaged in a cost-cutting campaign partly because Simmons lighted a "much-needed fire" under management during the 1990 board challenge.
Some analysts agree.
"I give Simmons credit for providing the spark to get Tellep to improve earnings," said Howard Rubel, an analyst at C.J. Lawrence.
Rubel said NL also prompted Lockheed to embrace and adopt "shareholder rights" practices, such as confidential voting at annual meetings. Rubel said Lockheed management is more responsive to Lockheed shareholders as a result of the NL challenges.
Simmons won 38% of the shareholder vote in 1990, collecting support from influential investment managers, including the California Public Employees Retirement System. But, sources say, those same managers were planning to vote in favor of Lockheed management at the 1991 annual meeting.
"For many Lockheed shareholders, Simmons had outlived his usefulness," Rubel said.
Times staff writer Ralph Vartabedian contributed to this story.