NEWS OF THE WEEK
CHEMICAL ACQUISITIONS: GAF makes offer to buy out Carbide Union Carbide executives must, by now, hate to see December roll around. It was in December of last year that the Bhopal gas leak took place, and now one year later, GAF has decided that it wants control of the Danbury, Conn.-based Carbide. In many ways, the tragedy of last year has led to the problems of this year. The Bhopal disaster weakened stock values, created management problems within the company, and cut Carbide's credibility with the public and Wall Street. Thus, GAF and its chairman Samuel J. Heyman were able to buy up 10% of Carbide's stock and last week to make an offer of $68 per share for 48 million, or about 70%, of the stock that GAF does not already own. The tender was coupled with a merger offer for the remaining shares in a $4.3 billion buyout. According to GAF's filing with the Securities & Exchange Commission, the tender offer would be followed by a merger in which the remaining 30% of Carbide shares would be exchanged for $68 cash per share if a mutually satisfactory, definitive merger agreement is reached between GAF and Carbide before completion of the offer. If an agreement is not reached, the Carbide shares not purchased in the tender offer would be exchanged for preferred stock with a market value of $68 per share. If the deal goes through, it will be a case of the minnow swallowing the whale, on an even greater scale than Albemarle Paper's purchase of five-times larger Ethyl Corp. in the early 1960s. Carbide, the fifth-largest chemical producer in the U.S., is more than 10 times larger than GAF. In the first nine months of 1985, Carbide sales totaled $6.68 billion, compared with $558 million for GAF. Assets at Carbide totaled $10.1 bil4
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lion at the end of the third quarter, compared with $832 million at GAF. In a "Dear Warren" letter to Carbide chairman Warren M. Anderson, Heyman said, "We believe that GAF's offer represents a fair price for the shares of Union Carbide and is in the best interests of its shareholders. The offer price is nearly twice Carbide's share price one year ago, more than 150% of GAF's initial acquisition cost of $43% per share less than six months ago, and about 19 times Carbide's average annualized earnings (excluding extraordinary items) over the past four years." The one year ago, however, refers to the time right after the Bhopal disaster, when Carbide's stock had fallen more than 25%. In his letter, Heyman also asked for a meeting with Anderson and Carbide's board of directors to "discuss and negotiate the terms of our proposal and to present a definitive merger agreement for your consideration." Carbide's only public response to
Heyman: in interests of
shareholders
the proposal came two days after Heyman's offer when the company issued a statement that its shareholders "have no need to take any action with regard to their stock at this time." In the statement, Anderson said: "Shareholders will have ample time to make a decision after they receive further communication from their board of directors." If the deal goes through, Heyman plans to sell off parts of Carbide that could equal the purchase price of the firm. In the SEC filing, GAF says it will try to sell Carbide's consumer products division, its metals and carbon products operations, and part of its technology, services, and specialty products operations. GAF would retain the firm's lackluster petrochemicals operations as well as the industrial gases businesses. However, it must be remembered that Heyman said during his proxy battle for control of GAF that he would sell off that firm's chemicals operations, a move he never made. Wall Street is fairly well convinced that the acquisition will go through. Charles J. Rose, chemical analyst at Oppenheimer & Co., says, "I think Union Carbide is in trouble." Rose believes it is "highly probable" that GAF will acquire Carbide. Even if it does not, however, Rose thinks that GAF will benefit either through selling its 10% interest in Carbide on the open market, through an exchange of its Carbide stock for specific Carbide assets, or through a takeover of GAF by Carbide, the so-called "Pac-Man defense," which Rose thinks unlikely. Part of the reason that Wall Street analysts are so behind the success of the acquisition is that many have soured on Carbide management and view Heyman as a better businessman because of his turnaround of GAF. Peter Butler, chemicals ana-
lyst at Paine-Webber, says of the $68-per-share offer, "This is an extraordinary gift to the owners of Union Carbide, who have long suffered from the mismanagement of their company by their hired hands." Butler says that the mere fact that it took two days for Carbide to respond to the offer with what he calls a "nothing statement" indi-
cates there may be some dissension in the ranks at Danbury, with some of the outside directors wanting to sell out. "We've been recommending GAF as our number one stock pick because we knew what it was going to do." If analysts knew, why didn't Carbide management know, and why weren't they ready to respond? he asks. •
House Superfund bill hikes chemical firms' taxes By a wide margin, 391 to 33, the House last week passed a $10 billion, five-year renewal of the Superfund hazardous waste cleanup law. By a very narrow margin, 220 to 206, the House also voted to place the financing burden on the shoulders of the chemical and oil industries. The House measure must be reconciled with a Senate Superfund bill approved last September. The Senate bill also renews Superfund for five years, but in all other respects it is vastly different from the House version. For example, it authorizes $7.5 billion over this period and sets no standards or timetables for cleanup. It raises a major portion of the $7.5 billion from a value-added tax (VAT) on large manufacturers. The chemical and oil industries lobbied the House strenuously for the broad-based tax reported out of the Ways & Means Committee. Such a VAT would have raised about $4.5 billion from nearly all manufacturers. Instead, in what was considered the most crucial vote on the floor, the House turned down the Ways & Means Committee taxing measure and simultaneously substituted a tax package offered by New York Democrat Thomas J. Downey and Minnesota Republican Bill Frenzel. The Downey-Frenzel five-year taxing scheme would raise $3.1 billion from a nearly 12 cent-a-barrel tax on crude oil, $2 billion from taxes on chemical feedstocks, another $2 billion from taxes on toxic waste disposal, and $1.6 billion from general revenues. The remaining funds would come from interest, cleanup cost recoveries, and taxes on petroleum derivatives and gasoline. The chemical and oil lobby said the Downey-Frenzel scheme would
send the industry and jobs abroad, and harm the balance of trade. Those arguments weren't heeded. The White House, chairman of the Ways & Means Committee Dan Rostenkowski (D.-I1L), and a coalition of business groups opposed the VAT, saying it would be the beginning of a national sales tax. Downey also argued that his measure reinstated the polluter-pays principle. The Chemical Manufacturers Association agrees that the polluter should pay. But the association has long argued that many industries have contributed to the hazardous waste problem. A CMA spokesman said the vote on taxes "was more a political vote than one on fairness." The Synthetic Organic Chemical Manufacturers Association says another amendment affirmed last week places an excessive burden on small and medium-sized companies. This provision requires firms to report emissions of substances suspected of causing chronic health problems, as well as substances causing immediate illnesses and deaths. During floor debate, many Congressmen were critical of the Environmental Protection Agency's lack of progress under Superfund. Chairman of the Public Works & Transportation Committee James J. Howard (D.-N.J.) said, "The effort of the past five years was just not good enough. There were only six sites cleaned up in five years, one of which is already leaking." And he added, "It is up to us to direct EPA to get to work." The House bill does just that. It mandates that cleanup begin at 600 sites by Oct. 1, 1990, starting with 125 sites by Oct. 1, 1987. It requires that EPA target 1600 sites for cleanup by 1988. It sets cleanup stan-
Howard: six sites in five years dards at least as stringent as those set under the Clean Water Act. And it grants citizens the right to sue EPA and polluters for prompt cleanup of sites posing "substantial and imminent" danger to human health. House-Senate reconciliation is not expected until early January. Environmental groups are urging that the conference accept the Housepassed version. A compromise bill is not expected to be approved and sent to the President before late March. Presidential approval is not certain. The Administration has called for a five-year, $5.3 billion cleanup program. •
Smith to chair ACS Board for third term The American Chemical Society's Board of Directors has re-elected Paul V. Smith Jr. as its chairman for 1986, marking his third successive term in that post. He is manager of education and professional society relations for Exxon Research & Engineering Co., Florham Park, N.J. Smith has served as director-at-large since 1978. Meeting early this month near Washington, D.C., the board also elected three members to its Executive Committee for next year—Joe A. Adamcik and Clayton F. Callis (both directors-at-large) and immeDecember 16, 1985 C&EN
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