Takeovers Used To Be Too Easy. Now They're Too HardJudith H. Dobrzynski
Every now and then something happens that alters perceptions, leading to a change that's greater than the event itself. American Telephone & Telegraph Co.'s quest for NCR Corp., 4 1/2 months long and still running, may be an example. "It's a total mess," says one top dealmaker. And it's the first clear sign that takeovers, which were once too easy, are now too difficult, that the pendulum has swung too far in favor of management--and too far away from shareholder interests. The AT&T/NCR deal--which Wall Street views as virtually inevitable--just may start a rebalancing process.
Change will not be immediate, of course, and there may be backtracking. Short-term, the AT&T/NCR saga shows that hostile takeovers are not for the faint of heart. Yet the deal may make as big a mark in takeover history as 1989's record-shattering $26 billion buyout of RJR Nabisco Inc.
ZIGZAG. Credit--or blame--Charles E. Exley Jr., NCR's chairman. Since AT&T made its first, $90-a-share bid for the computer maker on Dec. 2, Exley has brandished a host of defensive measures, starting with a poison pill, a staggered board, and an antitrust suit. He got directors to approve a measure to change the board's size, an employee stock-ownership plan that would stop AT&T from winning a proxy fight, and a special dividend that may preclude AT&T from using pooling-of-interest accounting rules. The last may prevent AT&T from upping its bid. All along, Exley zigzagged on his willingness to negotiate. He now says he won't talk unless AT&T offers $110 a share, down from an earlier $125 demand. "It's inconceivable that a major company is acting like this," says a top takeover lawyer.
More inconceivable is the fact that Exley is getting away with it. Five years ago, he couldn't have. But since then, CEOs and their takeover advisers have devised a vast array of defensive tactics. "It used to be that we had a system that allowed both good and bad deals to go through," notes Nell Minow, president of Institutional Shareholder Services Inc. "Now we have a system that allows neither good nor bad deals to go through."
A few corporate advisers say that even some members of the business establishment are starting to worry. After all, the raiders have been run out of business. It's corporations, trying to expand, that want to make acquisitions now. And the bid for NCR is no `80s-style, junk-bond-financed, bust-up deal that shortchanges shareholders. It's an all-cash, all-share bid by a company that's trying to acquire management expertise as well as assets.
Exley's maneuvers would be more understandable if he were merely jockeying for a better price, or if NCR could deliver a stock price higher than $100, AT&T's current offer, in the long run. But it's hard to make that case. Shareholders would be richer today if they could have taken $90 in December and reinvested it--because the market has been rising. And the consulting firm Mitchell & Co., in Cambridge, Mass., says that NCR's stock on its own won't see $110 or even $100 any time soon. It says NCR's stock movements correlate most closely with cash flow per share. To reach $100 or $110, NCR would have to post a cash flow of $16.30 or $17.39, respectively. Value Line Inc. forecasts 1991 cash flow at $11.15 a share.
'CONTROL.' In Exley's defense, few outsiders charge him with trying to save his own job, the real rationale behind a lot of `80s bulwarking. Rather, he seems sure that an independent NCR can better serve all of a corporation's "stakeholders," including customers, suppliers, and employees. A recent NCR ad, thanking them for support, says it all: Shareholders are the last to be mentioned.
Perhaps that's not a surprise, since some 60% of them voted against Exley's position at the company's Mar. 28 annual meeting. But these shareholders aren't money-grubbing arbitrageurs who have no interest in the company. Arbs own just 30% of NCR's stock.
Shareholders, in any case, aren't the only ones with a lot to lose if takeovers become impossible. The U. S. economic system would suffer, too: It needs a fairly free "market for corporate control" both to discipline managers and to prevent acquirers from stealing companies. That system is now out of whack. A recent federal court decision that threw out NCR's ESOP is a good start toward that tricky balance. It's also a welcome sign that from the AT&T/NCR mess, some good may flow.