Proxy Raid by an Old Brigade

Curtiss-Wright aims to carve up Kennecott

Though corporate takeovers have flourished mightily in the past couple of years, nearly all have been buy-outs for stock or cash. The old-fashioned proxy fight seemed little more than a memory, but now a battle has broken out for control of Kennecott Copper Corp., the biggest U.S. copper producer. Curtiss-Wright, which owns about 10% of Kennecott stock, is appealing to Kennecott's stockholders to vote at the annual meeting on May 2 to dump the incumbent management and elect a new board.

Curtiss-Wright is openly declaring its intention to make Kennecott sell off Carborundum, an abrasives manufacturer that Kennecott acquired only three months ago for $571 million. Curtiss-Wright might also be tempted to liquidate some of Kennecott's other properties.

With assets of only $349 million, compared with Kennecott's $2.7 billion, Curtiss-Wright, a maker of aerospace parts and industrial equipment, does not have the financial resources to make an outright tender offer for Kennecott. That would cost some $750 million. Curtiss-Wright even had to borrow from its banks to buy its 10% of Kennecott stock.

Curtiss-Wright did make a peaceful effort last month to get minority representation on the Kennecott board. But Kennecott's dour and demanding chairman, Frank Milliken, 64, turned down the request. So T. Roland Berner, 67, Curtiss-Wright's chairman, declared war by nominating a slate headed by himself to take control. The rather geratic group includes George Moore, 72, former chairman of Citicorp; Robert Meyner, 69, former Governor of New Jersey; George Bunker, 70, former chairman of Martin Marietta; and Fred Kirby II, 58, chairman of Alleghany Corp. and Investors Diversified Services, the mutual fund concern. Curtiss-Wright said its nominees "believe that Kennecott management, instead of paying $567 million to buy Carborundum Co., should have used that cash directly for the benefit of Kennecott stockholders." If the dissident slate is elected, it is committed to make the proceeds of a Carborundum sale available to Kennecott stockholders.

That siren song should win some ready listeners. When the big copper producer was forced to divest itself of Peabody Coal by Government edict last June, savvy Wall Street analysts speculated that some or all of the $1.2 billion Kennecott received would be paid in the form of a special dividend. Instead, Chairman Milliken, apparently fearing an unfriendly takeover attempt, paid $66 a share for Carborundum. The rationale: the bigger the company, the more difficult it is to finance a raid. By paying more than twice the book value for a ho-hum company, Milliken let himself in for savage criticism of his business judgment. John Bogert, a former Kennecott employee who is a copper analyst with Paine, Webber, Jackson & Curtis, says of Milliken and his board: "They're not about to give things out to shareholders. They think of the company first and foremost."

Berner's strategy is similar to his attack on Curtiss-Wright in 1948. Management had been piling up cash; Berner, then a Wall Street lawyer, badgered it to distribute the hoard in a special dividend to shareholders. Curtiss-Wright refused, so Berner launched a proxy fight, forced the company to dispense dividends liberally and eventually had himself elected a director and chief executive.

In recent years Curtiss-Wright has not been a distinguished performer. Profits dropped from $19 million in 1976 to $16.3 million last year, while sales fell from $337 million to $310 million. Berner, a silver-thatched figure, has become something of a recluse. That is a stance he must now abandon; a proxy fight is a campaign for votes, and the attacker must be as much a politician as a businessman.

If Berner succeeds and severs Carborundum, what is left of Kennecott will be anything but a prize property. One of the world's highest-cost copper producers, Kennecott thrives only when prices of its metal are handsome. Last year profits were a pittance of $300,000 on sales of $977 million. Copper inventories of more than 2 million tons are now overhanging the market, forcing the U.S. spot price down to about 620 per lb., below Kennecott's average cost. Some analysts, however, believe that copper might go as high as $1 per lb. by the end of 1979, as demand catches up with supply. But, if the stock market is any indicator, the prospects for Kennecott, as with most "smokestack" companies, are dim. Its stock sold for about $25 a share last week, far below the book value of $42.

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