An inside look at what it's like to be managing a takeover target

T. Boone Pickens is a marvel to watch and listen to. Indeed, those profiting from the takeover bonanza are adept at supporting their cause. Arbitrageurs and investment bankers are quick to tout the virtues of redistributing assets, boosting stock prices, and increasing liquidity. But somehow one doesn't hear from management -- usually portrayed as lazy and wasteful -- as often or as eloquently. So in the spirit of open dialogue, ``Tender Offer'' (University of California Press, Berkeley) seems a welcome voice. It is an account of the whirlwind 10-day buyout of Natomas Company by Diamond Shamrock in 1983.

The book, by former Natomas chief executive Dorman L. Commons, tells the story from the perspective of the manager of a targeted company. It is a concise, understandable, inside look at a relatively simple takeover.

In the book and in a recent interview, Mr. Commons laid out some of the tough issues management faces when hit with a takeover bid.

For instance, assuming that management can submerge its own fear and anger over the prospect of losing job status and community status, which shareholders (owners) should management actually serve, long- or short-term stockholders?

Those with long-term investment goals may best be served if management fights the takeover. Those looking for perhaps smaller but more immediate profits may be best served if management accepts the bid.

Today, the dominant shareholders are often institutions such as pension funds, mutual funds, and banks. And these company owners will often leap at short-term profits.

``What responsibilities can a manager have (or feel) toward a fund,'' Mr. Commons wonders in his book; ``most of whose investors may not even know the names of the companies they hold stock in; and whose portfolio specialists will buy or sell 50,000 shares on the turn of a few points, with little consideration for the long-range prospects and goals of the company issuing those securities?''

He rails against arbitrageurs, who help shift control to the raiders by snapping up shares -- often from shareholders ``loyal'' to the company -- at the first scent of a takeover bid.

The result of the boom in takeovers is a trend toward going private, Commons says. The goal is to get back to managing the company on a sounder, more long-term basis, he says. ``Management is overly concerned about maintaining short-term profits because if next quarter profits are down, the stock goes down and suddenly they're put in a position where they're vulnerable to a takeover.''

And Commons contends that the pressure for short-term profits and the growing number of heavily indebted companies put corporate America at a competitive disadvantage with corporate Asia.

He defends ``golden parachutes'' -- lucrative severance pay awarded to the targeted company's management if a takeover succeeds. Commons got a good-size parachute himself. He says that when a takeover bid is made, the company chiefs cannot be worrying about their jobs. If they are, they will not be serving the shareholders but may sink the company with debt just to prevent it from being taken over. ``Management must be sufficiently [financially] secure as to be on the side of the shareholders,'' h e says.

Commons isnt't totally against takeovers. But the supercharged pace makes for some poor decisions and possibly poorly served-shareholders. Natomas had about 10 days to respond to the Diamond Shamrock tender offer. Commons thinks Natomas's long-term shareholders would have been better served (and possibly gained a better price) if he could have arranged a merger with Southern Pacific. But he didn't have quite enough time to put the deal together. So he suggests legislating a 90-day cooling-off per iod after a takeover offer is made.

He also strongly recommends (as has US Rep. Peter Rodino (D) of New Jersey) that an environmental-impact report be produced. Commons envisions having both sides portray what effect the merger might have on the company, employees, and community. The bidding company must agree to pay a specified compensation fee to employees, or, community, or both, if after the merger the company does not act as stated -- in other words, if the bidder fires people it promised to keep or closes a plant it said would rema in open.

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