An ambitious GAF stalks Borg-Warner

Samuel Heyman's aggressive mighty-mite - the GAF Corporation - has definitely got a taste for the big time. In late-1985 the roofing and specialty chemicals company launched a takeover of $9 billion chemical giant Union Carbide. Comparatively small GAF (its sales were just $732 million), was not able to make the capture but realized a hefty profit in the attempt.

This week, Mr. Heyman's GAF, based in Wayne, N.J., has taken another run, this time at a big, old-line Chicago industrial products and services company named Borg-Warner. On Wednesday, GAF offered $46-a-share, or about $3.2 billion, for the 80 percent of the company it does not already own.

Borg-Warner's stock has been trading in the high 40s, indicating the market may expect a better offer from another suitor or a slightly sweetened bid from GAF. The total cost to GAF, says one analyst, could be about $3.8 billion if Borg-Warner's board of directors approves the deal.

While GAF may have caught a few people off-guard, it was hardly a big surprise.

Borg-Warner has been the subject of takeover talk for more than a year. Until very recently, corporate raider Irwin Jacobs also held a large chunk of stock but sold it without making a formal bid for the company. Some of Mr. Jacobs's stock may have been sold to GAF, allowing it to increase its stake in the company.

Takeover specialists have been gliding around Borg-Warner, even though most of its divisions - from auto-parts to financial services to armed guards and armored trucks - are doing poorly.

What these suitors, including GAF, really want is the rose among the thorns, that is, Borg-Warner's specialty chemicals division. Part of that chemicals division includes an engineering plastics company that ranks second in the United States to General Electric's plastics divisions. Last year, the chemical division provided operating profits of $153.3 million on sales of $1.04 billion.

The problem is that to get the rose, the thorns also must be acquired. ``These are some of the worst business concerns you could possibly be in,'' says Juliusz Sas, an analyst with Balis Zorn Gerard Inc. in New York. ``I wouldn't go near those businesses.''

If GAF acquires Borg-Warner, Mr. Sas believes it would try to sell everything but the chemicals division. Still, he maintains some doubts about how serious the GAF bid really is.

``The numbers do not make any sense even at $46,'' Sas says. At that price (which is three times book value), Sas believes Borg-Warner is probably overvalued. He complains that the deal would add little to GAF earnings, even after GAF sold off the pieces and added gains from the chemical division.

The tender offer by GAF has, however, forced the management of Borg-Warner and its board to acknowledge that there is a serious bidder out there.

``Now the board has to come up with some alternative for the shareholders,'' Sas says. ``If they reject the offer and the stock plunges, the lawsuits are going to be all over the place.''

On the other side of the fence, however, is Charles Rose, an analyst with Oppenheimer & Co. in New York.

``Even if it didn't add much to earnings, I think it would change the whole character of the corporation,'' Mr. Rose says. ``If they add a billion dollars of BW chemical operations - then you start changing the whole character of the corporation.

Mr. Rose thinks Borg-Warner is worth perhaps as much as $60 per share ``if you really stretch the numbers.'' But to his way of thinking, Borg-Warner's value to GAF has less to do with the effect on its earnings this year or next.

``A move like that would probably make it a worldwide company,'' Rose says. ``It would put it into the major leagues in the chemical industry and probably create a lot more growth opportunities.''

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