Magazine for Senior Financial Executives: Something to Chew On

Something to Chew On

Steve Bergsman

THE GROWTH OF shareholder activism has persuaded more corporate boards to write prescriptions for friendlier takeover provisions, so-called chewable poison pills, which typically allow restrictions to lapse if a company is confronted with a generous cash offer.

One of the recent converts to the chewable pill is Tenneco Inc., the Greenwich, Conn.-based global maker of automotive parts. In September, the $8 billion company adopted a shareholders’-rights plan with qualified-offer pro- visions. Under the new plan, rights will not become exercisable in connection with a qualified offer. (This is an all-cash tender offer for all outstanding common stock that is fully financed and remains open for a period of 60 business days.)

Texaco Inc. pioneered the chewable poison pill at the end of the 1980s, and last year renewed it again, when share holders voted to retain the provision.

Texaco’s pill is unique in two important respects, says Patrick Lynch, Texaco’s senior vice president and CFO. “It was submitted to our shareholders for approval in the belief that there is a commonality of interests to maximize value. Also, we designed our pill with a chewable feature–if there is an all-cash, fully financeable offer, it can proceed even if the board opposes it.”

Shareholder groups, while preferring chewables to the normally restrictive pills, point out that the all-cash requirement is a high hurdle. In Texaco’s case, for instance, with the company’s $35 billion in market capitalization and the vigorous bull market, an all-cash deal is unrealistic, according to Pat McGurn, vice president of corporate programs at Institutional Shareholder Services, a proxy advisory firm.


Mergers accounted for one of four job cuts reported in March, according to outplacers. Challenger, Gray & Christmas Inc. Hardest hit finance, with 85% (13;800 jobs) of the cuts.

COPYRIGHT 1999 CFO Publishing Corp.

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