Merger Theater of the Absurd

By Charles Alexander

Frantic finale to a fourway, multibillion-dollar takeover fandango

Coming soon . . . the blockbuster business epic of the year! See corporate giants devour one another in titanic clashes. See captains of industry race against midnight deadlines to save their power and prestige. Will Bill Agee of Bendix Corp. and his beautiful blond bride Mary escape the clutches of Martin Marietta Corp.'s menacing Tom Pownall? Will tough old Harry Gray of United Technologies foil their plans to find happiness in the embrace of Ed Hennessy of Allied Corp.? Find out in Takeover, the drama that asks the question: "Is this any way to run a company?"

It began as a fairly straightforward corporate merger fight. But by last week the multiplying twists and turns in the convoluted takeover battle between Bendix Corp., the Michigan-based aerospace and auto-parts manufacturer, and Martin Marietta Corp., a leading defense contractor of Bethesda, Md., had become an embarrassing parody of Big Business in action. Seemingly unconcerned about the best interests of their stockholders or employees, some of America's top executives were threatening each other with multibillion-dollar stock ploys, while jetting cross-country for clandestine strategy sessions, tying up courtrooms from Michigan to Maryland and wasting millions of dollars in the process.

By last Thursday, Martin Marietta, with 1981 sales of $3.3 billion, had acquired 46% of Bendix stock for some $900 million. But Bendix, with 1981 sales of $4.4 billion, had bought 70% of Marietta's shares for $1.2 billion. While Bendix and Marietta were scrapping, Allied Corp., a New Jersey-based conglomerate, with 1981 revenues of $6.4 billion, lumbered into the fray, offering in effect to take over both companies for $2.3 billion.

Finally, in a dramatic finale on Friday, the three combatants reached a truce. Allied would acquire Bendix for $1.9 billion, and Marietta would remain an independent company. If the deal goes through, the firms will have spent about $4 billion, much of it borrowed from banks, to buy and shuffle about one another's shares. Yet no one seems quite sure what good, if any, will result.

The boardroom saga began last month with a bid of some $1.5 billion by Bendix's ambitious chairman, William Agee, 44, to buy Martin Marietta and thereby acquire that firm's prestigious and profitable defense business. Stung by Agee's move, Marietta President Thomas Pownall, 60, launched a counteroffer of about $1.5 billion to buy Bendix instead. In addition, he persuaded United Technologies' chairman, Harry Gray, 62, who over the years had built his company into a $14 billion conglomerate with a string of successful takeover raids, to make a parallel bid for Bendix. The two men agreed that if either company gained control of Bendix, they would divide up Agee's firm between them. But United Technologies' involvement soon raised antitrust questions, and by last week Gray had ceased playing an active role.

Agee did have one initial advantage: time. Under the Government regulations that apply to takeover bids, firms must wait 15 days before buying any stock offered to them. After Bendix's waiting period ended on Sept. 16, the company bought 70% of Marietta's stock for $1.2 billion, or $48 per share. Marietta, however, could not buy Bendix shares under its counter-takeover offer until six days later, or after midnight last Wednesday, but maintained its steadfast determination to do so as soon as allowed.

Realizing that his initial victory would be nullified if Marietta were able to purchase a majority of Bendix stock, Agee turned to his company's 70,000 employees, who either directly or indirectly control upwards of 24% of Bendix's stock, mostly through pension and profit funds. To enlist support and discourage employees from accepting the Marietta offer, Agee on Monday afternoon of last week ordered up a mass pep rally of his rank and file at more than 100 Bendix plants in the U.S. and Canada. At the company's headquarters in Southfield, Mich., several hundred employees filed into the parking lot wearing dark blue Bendix shirts and plastic boaters and waving pompoms and balloons.

While the Bendix troops were on parade, their captain was desperately trying to reach a mutually acceptable merger settlement with Marietta. Shortly before 10 a.m. Tuesday, Agee telephoned Pownall to request a face-to-face meeting; by noon he and several top aides were jetting from Detroit to Dulles International Airport, where Pownall had promised to have company cars waiting to whisk them to Marietta's headquarters in Bethesda, 26 miles away. When the sedans arrived in Bethesda, the Marietta greeting party was stunned to see that Agee was accompanied by his 31-year-old wife Mary Cunningham. She had been Bendix's vice president for strategic planning until 1980, when she resigned after rumors surfaced about her romantic involvement with Agee. Cunningham, who is now a vice president for strategic planning at Joseph E. Seagram & Sons, Inc., married her former boss last June. Said a Marietta official: "When she turned up for the negotiations, people were asking, 'What the hell is she doing here?' " While her husband huddled with Pownall, she wandered in and out of Marietta offices, chatting idly about the weather and the building's decor with startled and bemused employees.

After nearly three hours of fruitless negotiations, the Bendix team left for Dulles at 7 p.m. En route, Agee ordered the caravan to pull over to the side of the road. Suspecting that his car might be bugged, he and his executives walked up a nearby grassy knoll to confer on a new strategy. They then drove to a pay telephone, called Pownall to ask for a further meeting and drove back to Marietta. At the second session, Pownall remained as unyielding as before, and just after midnight the talks collapsed for the final time.

Next morning the scene switched back to Southfield, where Bendix stockholders were scheduled to vote on bylaw amendments that would have helped thwart the Marietta takeover bid. But stockholder support for Agee was by then eroding. Realizing that the amendments might not pass, a Bendix official convened the meeting, then promptly ordered it adjourned for a week.

To the surprise of Bendix executives, a group of Marietta officials rose from the audience. With cardboard cartons of stockholder proxies under their arms, they marched to the podium and declared the meeting reopened. At that point, the lights in the auditorium mysteriously went out. Enraged but undaunted, the Marietta group withdrew to a conference room at the nearby Michigan Inn, called a new meeting to order, and ceremoniously quashed the amendments.

Unknown to Marietta, however, Agee, as his ultimate fallback position, had for two days been quietly negotiating a sellout of Bendix to Edward Hennessy of Allied. The Bendix head evidently saw the deal as perhaps the only way to keep his company from getting dismembered by Marietta and United Technologies. Hennessy once had been a deputy of Harry Gray's at United Technologies and had often helped with takeover strategies. The Allied chairman now had a rare opportunity to outflank his former boss.

Late on Wednesday, Allied announced its $2.3 billion bid for both Bendix and Marietta. The deal called for Bendix to become a subsidiary of Allied, with Agee as its chairman. Following the takeover, Agee would also become president of Allied. At first it seemed that the Allied move would block Marietta's planned purchase of Bendix stock, since federal merger rules require a ten-day freeze in share purchases whenever a new bidder enters a takeover war. But Agee had made a startling blunder. He waited so long to finish off the agreement with Allied that the New Jersey firm's Wall Street advisers no longer had time to file the necessary papers with the Securities and Exchange Commission in Washington before the 5:30 p.m. close of business. As a result, Marietta remained free to continue with its share purchases that midnight, which it did.

As the weeklong drama moved toward the three-way Friday agreement among Bendix, Marietta and Allied, scholars and even some Wall Street financial analysts began asking what possible good could come of it. Observed Martin Starr, a professor of business at Columbia University: "This wasteful merger battle is consuming money that could have been used for capital investment. It is becoming a caricature of what antibusiness forces think top executives are like." Said Wolfgang Demisch, a financial analyst for the Morgan Stanley investment banking firm: "There is no benefit to the individual companies from this battle, and the national economy has not profited either."

For Bendix, the outcome has been a painful embarrassment. Four weeks ago, the company was cash-rich, aggressive, and hungry for growth. By the end of last week, Bendix faced the prospect of having to surrender much of its independence to another firm. Meanwhile, both Allied and particularly Marietta have acquired large debts that could hinder growth. In this high-stakes game of corporate takeovers run amuck, it seems that, in some ways, even the winners lost. -- By Charles Alexander. Reported by David Beckwith/Washington and Adam Zagorin/New York

With reporting by David Beckwith, Adam Zagorin

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