The siege of Dan River: Virginia textile mills vs. a Northern investor
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Mr. Icahn, 46, has won a reputation on Wall Street as a new breed of speculator who has made millions of dollars buying large blocks of stock in companies at a low price, later selling them at a profit to either the target - in this case Dan River Inc. - or to a ''white knight,'' a company offering to buy Dan River in a friendly takeover.Skip to next paragraph
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Icahn has no interest in gaining operating control of a company. His main goal is to sell out quickly at a profit, according to Mr. Johnson and John S. Pickler, an analyst at Wheat First Securities Inc., a Richmond brokerage firm. And if Icahn were unable to get Dan River or a white knight to buy him out, there is a ''distinct possibility'' that he would liquidate the company's assets , Mr. Pickler says.
Icahn, Pickler observed, is ''a speculator and an investor, to the degree that he wants to make a profit from a securities transaction. His methods may be somewhat ruthless, but he's been successful at it.''
Analysts note that Dan River possesses all the criteria that make it attractive for an Icahn takeover. Management owned between 5 and 10 percent of the company's stock. The remaining stock was spread widely among a large number of people. Stockholders were displeased with the company's poor performance; earnings and dividends were down significantly, and the company had closed five plants in four states last year. In addition, the company in January had repurchased 327,000 shares - or 5.6 percent - of its stock from Los Angeles financier David Murdock, indicating a willingness to repurchase shares from large shareholders that management considered a potential threat.
The intense bidding, legal, and rhetorical battle between Dan River management and Mr. Icahn has spurred debate on Wall Street concerning who is the real villain.
A commentary in the Wall Street Journal has called for new securities laws to control what it called the strong-arm ventures of Mr. Icahn and other takeover specialists. But Barron's, the Wall Street financial weekly, has criticized Dan River's management, saying that it ''has ridden roughshod over the interests of shareholders'' in its effort to retain control.
In what resembles the Martin Marietta Corporation's recent battle to free itself from Bendix Corporation's acquisition attempt, Dan River has mounted a number of defenses.
In October, management issued 1.7 million shares of preferred stock to salaried employees, aimed at diluting Mr. Icahn's voting power. Dan River in November bought up $15 million of its own shares in a buying blitz, and in mid-December announced it had sold 475,000 shares - or 8 percent of its stock - to the McDonough Company, a subsidiary of Hanson Trust PLC, a British textile manufacturer. In January, Dan River announced its board of directors had given approval in principle to forming a private, employee-owned corporation, which would make future takeover attempts more difficult.
Analysts point out that if Mr. Icahn now simply waits to be bought out - the most likely outcome - he will make about $8 million. But Dan River, already weakened by the recession, competition from foreign imports, and a costly program to modernize plants, will be saddled with long-term debt, according to Johnson and Pickler.
Dan River has obtained conditional approval from Chemical Bank of New York to provide all loans the company needs to buy itself out; the company needs about $ 130 million. Johnson at Prescott, Ball & Turben estimated that a $130 million loan would more than double Dan River's long-term debt, increasing the company's debt-to-equity ratio from 49 percent to 125 percent, which in turn would likely lower its bond rating. In addition, the company might have to sell some of its assets, including some of its profitable textile mills, he said.