Under Siege

One CEO's battle to save his small public company from a hostile takeover.

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Bert Althaver's battle to save his small public company from a hostile takeover

The first thing you feel when a takeover artist comes after your company is anger. The second may be fear. Walbro Corp. had spent 15 years developing technologies, markets, and international business relationships. Now, UIS Inc. -- in the view of Walbro CEO Bert Althaver -- was out to steal the fruits of all that investment. To Althaver, what was at stake was Walbro's very survival.

The hostile takeover has come to small business. -- E.W.

Cass City, Mich., a good two hours north of Detroit, lies far enough off the beaten path that Federal Express packages usually don't arrive there until the afternoon. One such package, unexpected and ominously thin, greeted Lambert Althaver when he got back from lunch on Monday, August 31, 1987. Althaver, chairman and chief executive of Walbro Corp., knew immediately what it was. "My heart started beating faster," he recalls. "I said to myself, 'Good Lord, someone's coming after us.' "

Inside the envelope was a copy of schedule 13D, filed with the Securities and Exchange Commission, stating that a privately held New York City-based company, UIS Inc., had accumulated more than 5% of Walbro's common stock. Attached was a letter from UIS president Andrew Pietrini, wanting to meet with Althaver to "explore areas of mutual interest that may be beneficial to both companies." Translated from execuspeak, the letter read in effect: We want to buy your company, whether you like it or not. Pietrini advised he'd call later that day. Althaver had no intention of taking the call. Instead, he phoned his lawyer.

The next day, Tuesday, September 1, Althaver phoned Pietrini and told him he wasn't interested. Then he flew to a trade show in Europe. Pietrini persisted, calling Walbro a number of times during the week before sending a second letter dated September 4. In it, he sought to "present Walbro with an attractive opportunity to strengthen its business and reward its shareholders." He threatened, "If you do not wish to discuss maximizing value for your shareholders in a timely fashion, we will have to pursue other alternatives immediately."

Pietrini by then had those alternatives in place. On September 9 UIS launched a hostile tender offer to buy 60.8% of Walbro's shares at $27.25 per share, a 20% premium over the $22.75 each share had commanded before the 13D filing. (Stock prices in this article do not reflect a three-for-two split in August 1988.) Althaver, in Europe, where he was already spending half his time on the phone discussing the threat with lawyers back in the States, knew it was time to cut his trip short. He flew to Chicago on Thursday, September 10, to meet with his lawyers, his board, and the investment bankers from Goldman, Sachs & Co. hired to defend the company.

That Thursday night Althaver sat down with two Goldman Sachs representatives to get acquainted before their Friday meeting. Five minutes into their chat, one of them, Eric Fornell, advised him: "We want you to know our fee for defending you will be $1 million."

Bert Althaver is not the only small-company CEO getting surprise packages by Federal Express these days. More and more small companies are getting caught up in the takeover-buyout-merger frenzy remaking the face of corporate America. The costs to these companies are high. Many small companies pay lawyers' fees of $75,000 and up to craft "poison pills" (also known as shareholder-rights plans) designed to deter would-be raiders. Throw in some advice from an investment banker against a potential threat, and you easily double the bill, while an active defense can quadruple it. To a small company, such outlays can spell the difference between a clean balance sheet and one loaded with debt. Plus, such professional advice offers few guarantees -- as Bert Althaver learned late in the game. "I was told by the people at Goldman near the end of the battle that only 5% of companies attacked survive in the form they had going in."

While many defend takeovers as a healthy goad to the restructuring of moribund corporations, others view them as predatory perversions that only harass managers and saddle their companies with debt of ruinous proportion. Less contested in this debate is the new reality of powerful, interrelated economic forces driving the buyout binge. These include the growing clout of the investment-banking industry, ever more potent computer technology to ferret out acquisition targets, the stock-market crash, the decline of the dollar, the rise of the junk-bond business, America's yawning trade deficit, the increasing fragmentation of markets and globalization of trade, and the innovative strategies of many smaller companies.

Walbro is a case in point. A maker of fuel-system components (carburetors, electric fuel pumps, and so forth) for automotive and small gasoline engines, the company has a strong engineering and technology base. It has earned Detroit's attention and respect. It sells to major auto manufacturers in the United States, Europe, and the Far East and is engaged in joint ventures with five of them. Between 1983 and 1988 Walbro saw its sales triple -- from $43 million to $132 million. Profits rose from $1.8 million to $5.7 million.

Though Walbro is tiny by past buyout-target standards, the trend is toward takeovers of even smaller companies. Of the 304 leveraged buyouts in 1988 recorded by Buyouts, a newsletter published in Needham, Mass., 35% involved companies with less than $50 million in sales, and a number of those were in the $10-million range.

The takeover pressure on smaller companies will continue to increase, believes Allen Michel, a professor of finance at Boston University's School of Management, who has written two books with colleague Israel Shaked, Takeover Madness and The Complete Guide to a Successful Leveraged Buyout. Says Michel, "A lot of small companies have proprietary technology, outstanding R&D, products that fit a particular marketplace, or distribution channels that are desired by others."

Michel and Shaked are advisers to a number of small companies that have grown increasingly scared by the threat of being taken over. They say that as recently as two years ago such a prospect was of little concern to their clients. Shaked describes a typical scenario: "After a number of rounds of financing, the founders' holdings get increasingly diluted. They own maybe only 10% of the company. Meanwhile, they've been working on a very sophisticated product for a few years and losing money. Then suddenly they come out with a breakthrough technology, and it fits nicely with a larger competitor's."

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